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Part 4. Examining Process

Chapter 4. AIMS Processing

Section 14. Individual Retirement Account (IRA) Adjustments

4.4.14  Individual Retirement Account (IRA) Adjustments

4.4.14.1  (02-08-1999)
Introduction

  1. This chapter contains procedures for IRA adjustments.

  2. Individual Retirement Arrangements (IRA) were established by the Employee Retirement Income Security Act of 1974 and are effective for tax years beginning after December 31, 1974.

  3. An IRA is a savings plan that lets you set aside money for your retirement. Contributions to the plan are tax deductible, and earnings in your IRA are not taxed until they are distributed to you.

4.4.14.2  (02-08-1999)
Procedures

  1. Examination of Forms 1040 for 1975 and subsequent tax periods may result in adjustments to be posted to the IRA Master File (IRAF) in addition to the normal posting to IMF.

    1. Analyze current research data to determine if there is an IRAF account.

    2. Case files containing IRA adjustments will be identified by Form 3198 with the block "other" checked, followed by "IRA adjustment" , and identifying TIN of the account to be adjusted and the type and amount of penalty.

    3. Prepare a separate Form 5344 or 5403 for processing the IRA adjustment. In the case of a jointly filed Form 1040, there can be two IRA accounts, one for each spouse. If both IRA accounts are adjusted, two Forms 5344 or 5403 must be used. There will be no RAR for association with the IRA adjustment document. The RAR remains with the IMF case file.

    4. Close the IRA adjustment(s), using Command Code AMCLSI, (see Text 4.4.14.8) BEFORE closing the IMF adjustments (in the normal manner). The DLN reflected on the terminal will be overlaid with the IRA adjustment DLN. If a record of the IMF DLN is needed, make a print of Command Code AMDIS (full account) prior to closing the IRA account. On IMF the only DLN shown will be that of the IMF adjustment.

4.4.14.3  (02-08-1999)
Credits

  1. Analyze current research data to determine if a payment has been made for the IRA account but has been applied to the IMF account. Use Form 2424 to transfer any available credit from the IMF to pay a liability on the IRAF, or vice versa.

4.4.14.4  (02-08-1999)
IRA Refund

  1. Use Form 3753 to issue refunds from the IRAF.

4.4.14.5  (02-08-1999)
IRA No Change

  1. Do not process "No changes" to IRA accounts.

4.4.14.6  (02-08-1999)
No IRAF Account

  1. If no IRA account is posted to IRAF, establish an entity on the IRAF. This is necessary in order to allow an adjustment to post or a manual assessment to be transferred to the account. Process as follows:

4.4.14.7  (02-08-1999)
Establishing an IRAF Account

  1. Use the following procedures:

    1. Prepare a dummy Form 5329 and a "dummy" Form 1040 as shown in Text 4.4.14.7.1 and 4.4.14.7.2.

    2. Prepare Form 1725 (buckslip) to request that Form 5329 be numbered with Tax Class "2" . Attach the buckslip to Form 5329.

    3. Prepare Form 8485 to request a TC 290 for .00 (zero) amount on the IMF account. Use blocking series "00" . In the Remarks Section enter "Adjustment input for the computer to update the IRAF control DLN to match IMF" . Cycle the adjustment document 4 cycles since Form 5329 is being input to establish TC 150 on IRAF.

    4. Prepare Form 3893 in accordance with instructions in IRM 3.17.30 and attach to the margin of the "dummy" Form 1040. File Type should have "IMF" box checked. DO NOT enter "IRAF" . The remarks section of Form 3893 should be annotated "Input to Establish IRA Account" .

    5. Monitor until the "dummy" return has posted to IRAMF. Process the IRA adjustment using command code AMCLSI procedures outlined in Text 4.4.14.2 if an IRA account indicator is present on the tax module section of the TIF.

4.4.14.7.1  (02-08-1999)
"Dummy" Form 5329

  1. Use the following procedures:

    1. Prepare a "dummy" Form 5329 for a zero amount.

    2. Enter the SSN, complete name, and address (include City/State/Zip Code) of the taxpayer with the IRA.

    3. Enter the type indicator "2" to the RIGHT of "Apt. No." on the address line. The type indicator is a code used on Form 5329 to tell Master File (IMF) whether to post Form 1040.

    4. Enter the spouse indicator to the LEFT of the form name above entity section. The spouse indicator is a code which shows which spouse, on a joint return, filed the Form 5329. Valid indicators are: Enter "1" for primary taxpayer or "2" for secondary taxpayer.

    5. Retain the original Form 5329 with the IMF case file.

    6. Annotate a photocopy of Form 5329 "Photocopy for input to IRAF" . Attach this photocopy to the "dummy" Form 1040, and input for processing. The control DLN on IMF should always be the control DLN on IRAF.

4.4.14.7.2  (02-08-1999)
"Dummy" 1040

  1. Use the following procedures:

    1. Prepare a "dummy" Form 1040, using a current year form.

    2. Annotate the top of the "dummy" 1040 "Dummy to Process Form 5329 to IRAF" .

    3. Enter the name control ONLY, tax period, and SSN from original 1040 (if joint return, include both SSNs).

    4. Enter on the total exemptions line the number of exemptions from original Form 1040.

    5. Enter a Filing Status Code. Use Code 1 if Filing Status on the original return is 1, 3, 4 or 5. Use Code 2 if the Filing Status is 2.

    6. Enter the received date or due date, whichever is later, of Form 5329 or 1040X.

    7. Enter the DLN Number from the original 1040 on the Dummy 1040 (the control DLN on the IMF must always be the control DLN on IRAF). That DLN will also be entered on Form 3893.

  2. Re-Entry Document Control. Special processing is warranted to prevent an unpostable condition when: The controlling DLN on the IMF account is a refile DLN; Contains doc. code 47/54; The ASED of the original return is within 6 months of expiration or has expired; The original return is a Form 1040EZ, 1040A, 1040TEL or ELF return; and The DLN is reserved for another service center (i.e., a new DLN must be obtained from service center other than your own.)

    Note:

    If the original IMF DLN cannot be used, do not write any DLN on the dummy return and do not attach Form 3893. The return will be numbered with a new DLN at the service center.

4.4.14.8  (02-08-1999)
Closing IRA Accounts (AMCLSI)

  1. The following procedures apply only when an IRA account indicator is present on the Tax Module Section of the TIF and the IRA adjustment is being processed with Command Code AMCLSI. Prepare Form 5344/5403 for processing of the IRA adjustment(s).

  2. Valid entries on Form 5344/5403 to process the IRA adjustment using CC AMCLSI are as follows. Item numbers referred to below are for Form 5344, but the instructions are equally applicable to corresponding items on Form 5403.

4.4.14.8.1  (02-08-1999)
Form 5344/5403 Entries

  1. 1–6, CC AMCLS definer. Enter an "I."

  2. P7–18, Social Security Number. For terminal input, this is always the SSN applicable to the Form 1040. However, if the IRA adjustment is to the spouse’s account (secondary SSN on the Form 1040), line through this item before forwarding the closing document for processing.

  3. P20–21, MFT. For terminal input, the MFT is always 30. After completion of CC AMCLSI, MFT Code 29 will be generated within the system to build the IRA record on the Z TIF for transfer to Master File. MFT 29 will never actually display on the terminal screen.

  4. B–, Name. Name and name control are the same as the IMF account, except in the case of a joint IMF return. The name of the IRA account will be that shown on Form 5329, Return for Individual Retirement Savings Arrangement, filed with the Form 1040. Line through the first name of taxpayer not applicable. The IRA account could be for either spouse, or one for each spouse, but never a joint account for both spouses.

  5. Item 01, Individual Retirement Account – IRA. If the IRA adjustment is to the spouse’s account (secondary SSN on the Form 1040), enter the secondary SSN. Do not make an entry in Item 01 if the IRA account being adjusted is that of the primary taxpayer.

  6. Item 12, Tax, Penalty and Interest Adjustment. Enter the transaction code in the "code" column and amount of tax adjustment increase or decrease as appropriate. Valid Transaction Codes are 300, 301, 340, 341, 342, 770, 772.

  7. Item 13, Disposal Code. Enter the applicable disposal code.

  8. Item 15, Credit and Tax Computation Adjustments. Reference numbers and amounts entered here serve to identify the type and amount of tax adjustment reflected in the TC 30X entry in item 12, also to correct specified non-tax data on the IRAF. Item reference numbers must be used with any tax adjustment. Reference numbers and resulting actions are:

    Reference
    Number     		Action
    160 Increase or decrease 6% tax on
    excess contributions.
    162 Increase or decrease 50% tax on
    under distribution.
    194 Increase or decrease 15% tax on
    excess regular distributions.
    195 Increase or decrease 15% tax on
    excess lump-sum distributions.

    1. Enter the reference number in the "REF" column, and the corresponding amount of increase or decrease as appropriate.

    2. Excess distributions result when the total amount of retirement distributions during the tax year exceed the applicable threshold amount. When the threshold amount is exceeded, the taxpayer may have to pay a 15% excise tax. The 15% excess distribution tax is assessed or decreased on the IRAF (MFT 29) for tax years after 1987 using reference number 194. If the distribution includes a lump-sum distribution, the increase or decrease on the IRAF (MFT 29) must be accompanied with reference number 195.

    3. The amount entered for reference number(s) 160, 162, 194, and/or 195 must be the same as the TC 30X amount in item 12.

    Note:

    The 10% premature distributions tax requires no special handling by tax examiners. Premature distributions tax, although reported on Form 5329, is an income tax which is assessed on the Individual Master File and taken into account when the total corrected income tax is determined by the auditor or agent.

  9. Item 25–29 (Form 5403) Hash Total. This item will be the last entry.

4.4.14.9  (02-08-1999)
Processing After Terminal Input

  1. After the IRA Adjustment is input to the terminal (with Command Code AMCLSI) make an AMDIS print to accompany the IMF case file. The final closing can now be input using CC AMCLSE.

4.4.14.10  (02-08-1999)
Changing Entity Information on IRAF

  1. The following instructions pertain to both service center and area Examination processing functions. However, service center tax examiners may input the name change without the preparation of the Form 2363.

  2. Form 2363 may be input directly to the IRA file and cause no action on the IMF. Normally Forms 2363 input to the IMF will cause automatic updating of the IRA account if the IMF filer(s) is also an IRA filer(s) . Exceptions to this include an IMF name change or an IMF address change on an IRA account that was previously changed via Form 2363. When this situation exists an address change input to the IMF will not automatically change the IRA address. Only another Form 2363 input to the IRA account or subsequent IRA return posting will change the IRA address. It will not be necessary to prepare an input to the IRA file unless the information to be updated on the IRA account is different than what is being input to the IMF. If one is to be prepared, input Form 2363 one cycle prior to the input of the adjustment document.

  3. Transactions Codes applicable to the IRA file are: TC 011, 012, 013, 014, 015, 016, 020, 030, and 041.

    1. IRA First Name Line—Must be the name of an individual, joint names are not allowed.

    2. Address Data—Address data must be perfected and input in total. Major city coding cannot be used. State abbreviations must be used, ZIP code and location codes must be input. There will be no computer generation of these codes.

    3. Miscellaneous Data—such as, Fiscal Month Ending (calendar year filer enter 12, if fiscal year filer enter the fiscal month ending) . POA codes for IRA accounts will be input to the CAF by the service center POA UNIT. Valid POA documents should be forwarded to the service center.

    4. Other data elements, editing and transactions will follow the same rules as apply to the IMF.

  4. Extreme care must be exercised to ensure that the Form 2363 is input to the correct master file. Include "IRA" in bold letters, on the top portion of the form.

4.4.14.10.1  (02-08-1999)
IRA Indicators Input to IMF

  1. Form 2363 will be prepared by area tax examiners and input to the IMF to establish or change an IRA indicator. Service center tax examiners may input the change without the preparation of Form 2363. The indicator must be input with TC 016 and accompanied by the tax year digits. Inputs must be Codes 1, 2, 3, or 4 and will have the following meaning and action on the IMF.

    1. Code 0—Indicates that no IRA return was filed or that the taxpayer is not considered an IRA filer.

    2. Code 1—IRA filer is the primary taxpayer.

    3. Code 2—IRA filer is the secondary taxpayer.

    4. Code 3—Indicates both taxpayers are IRA filers.

    5. Code 4—Input of Code 4 will set the IRA indicator to zero on the IMF.

4.4.14.11  (02-08-1999)
Tax on Excess Distributions from a Qualified Retirement Fund

  1. Code Section 4981A imposes a 15% excise tax on any "excess distributions" an individual receives in any calendar year from any combination of qualified retirement plans, tax-sheltered annuities, and individual retirement accounts. With certain exceptions, an "excess distribution" is the aggregate amount of retirement distributions an individual gets in a calendar year from all tax favored retirement arrangements that exceeds 112, 500 or 125% limit under Section 415(b) (1) (A), whichever is greater.

  2. If the retirement distributions include a lump-sum distribution that is eligible for favorable tax treatment under Section 402(e) (4) (B), for 1987, the 15% excise tax on the distribution over 562,000 (5 times the normal limit of 112,500).

  3. Adjustments made to these types of distributions will be input by the examining officer with Reference Numbers 194, Excess Regular Distributions Tax, and or 195, Excess Lump Sum Distributions Tax. (Valid for tax years 7812 and subsequent.)

  4. Input of IRA Reference Numbers 194, 195, 160 or 162 must equal the TC 30X tax amount that is entered in Item 12 of Form 5344.


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