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Part 25. Special Topics

Chapter 6. Statute Of Limitations

Section 4. Original Delinquent Returns

25.6.4  Original Delinquent Returns

25.6.4.1  (10-01-2001)
Original Delinquent Returns Overview

  1. This section contains procedures for reviewing and processing original delinquent returns.

25.6.4.2  (10-01-2007)
What are Original Delinquent Returns

  1. Original delinquent returns are returns received after the required and prescribed due date or extended due date and the taxpayer's account does not contain a TC 150 for zero or any other amount. Original delinquent returns which are 2 years and 9 months old or older (based on the return due date) must be cleared by the Statute function before going to Submission Processing.

  2. Original delinquent returns received more than three years after the due date or extended due date may have Refund Statute Expiration Date (RSED) implications.

25.6.4.3  (04-01-2007)
Original Delinquent Returns Research

  1. To determine if a return is delinquent, you must check:

    • Integrated Data Retrieval System (IDRS)

    • Master File (MF)

  2. If a Transaction Code (TC) 140 is on the taxpayer’s account without a TC 150 present (IMF account) or current Status Code 02 or 03 (BMF account), you must input a TC 599 with a Closing Code 18. If you are reprocessing a return as an original, to a module on which a TC 150 has not posted, you must input a TC 971, Action Code (AC) 017, on the tax period the return is to post. See IRM 21.5.2.4.23.8, Account Action, for more information.

25.6.4.4  (10-01-2007)
Original Delinquent Return Procedures

  1. The Statute function's primary responsibility in processing "Newly Received Returns" is to determine if the return is an original delinquent or an amended return.

  2. The Statute function will "clear" for processing tax returns with potential statute criteria, regardless of tax class. This process does not apply to returns submitted by the taxpayer as part of ASFR Compliance Program or SFR Examination Program that contain a dummy TC 150 for zero already on the tax module.

  3. Check IDRS or MF to see if a TC 150 is posted. If there is no record of a TC 150, check CC NAMEI and CC NAMEB for an invalid, temporary and/or spouse’s SSN. Also, check for a different taxpayer identification number.

    Note:

    Use CC INOLE to research for the validity of a TIN or name control. You must use these command codes when IDRS input response indicates an entity problem.

    If a TC 150 for .00 with a Tax class and Document code of 210 in the DLN, and the literal "SFR" to the right of the TC 150, posted to MF and/or IDRS, do not route the return to SP for processing. Route the return as follows:

    IF Then
    There is no TC 290 posted to the tax module Philadelphia, Memphis, Cincinnati, and Ogden campuses route all returns to the Brookhaven Campus, PO Box 9013, Holtsville, NY 11742-9013. Fresno, Andover and Austin campuses route to the local Collection Operation, ASFR Team.
    There is a TC 290 posted to the tax module, and there is a Schedule C, Schedule E, Schedule F or Form 2106 attached to the return, or the return is an International return Route to the Brookhaven Campus, ASFR Unit Stop 654 PO Box 9013, Holtsville, NY 11742-9013.
    There is a TC 290 posted and there is no Schedule C, Schedule E, Schedule F or Form 2106 attached to the return, and the return is not an International return Route to the Fresno Campus M/S 81404 PO Box 24015 Fresno, CA 93779

  4. The following will help you determine if your "Newly Received Return" is an original delinquent or amended return and how it should be processed.

    IF AND THEN
    A TC 150 is posted with a tax amount The return in hand is a duplicate of the original (TC976/977) Input a TC 290 for zero and close your control base.
    A TC 150 is not posted or pending to post The IRS received date on the return is not more than 33 months old Stamp return for clearance and forward for normal processing.
    A TC 150 is not posted or pending to post The IRS received date on the return is more than 33 months old (ASED has not expired) Manually assess tax (if the received date on the return is within 60 days of the IRS received date shown on the unprocessed return).
    A TC 150 is not posted or pending to post The original return is received timely but unprocessed (and it is now more than 36 months from the IRS received date shown on the return) Work as a barred assessment. (Stamp the return statute expired). Input TC 290 blocking series 300-309 after send a dummy return to processing for input of a dummy TC 150 for zero.
    A TC 150 is posted A tax return showing an additional tax increase is received before the ASED expired but is not assessed before the ASED expired (without conditions to extend the ASED) Work as a barred assessment. (stamp the return statute expired). Transfer any credits to XSF. TC 290 blocking series 300-309.
    A TC 150 is posted A tax return is received showing an additional tax increase after the ASED has expired (without conditions to extend the ASED) Do not assess tax. (stamp the return statute expired). If payment was received with the amended return, transfer to XSF and send the 2765 C letter. Input TC 290 blocking series 300-309.
    A TC 150 is posted A tax return is received after the ASED has expired showing an additional tax increase (with conditions that extend the ASED) Forward to the Statute team for a manual assessment.

  5. An original return indicating a balance due may be an overpaid return. Check the W–2(s) for withholding amounts. Check CC RTVUE & IMFOL before requesting MFTRA for estimated tax payments or other credits. A refund/offset of prepaid credits is allowed if an original return is postmarked within three years of the Return Due Date (RDD) (plus extensions) (IRC Section 6511 (b)(2)(A).

  6. If an original return is received more than three years after the RDD, a refund/offset is limited to tax paid within three years immediately preceding filing of the return plus extensions.

  7. Contact taxpayers when you are unable to locate a TC 150 and your "New Return" indicates it is amended. Request a signed copy of the original return with all schedules, attachments and a copy of canceled checks (front and back) from the taxpayer.

  8. Process a "New Return" as a "Delinquent Original" if research reveals no TC 150 posted and you do not receive a response from the taxpayer.

  9. "New Returns" are considered Amended Returns if a TC 150 has posted. These can either be for a tax increase, with or without remittance or a tax decrease.

25.6.4.4.1  (10-01-2001)
Virgin Island Returns

  1. The Statute Function will "clear" for processing tax returns from the Virgin Islands where the return was timely filed but the Virgin Islands were late in forwarding the return to the IRS. The Foreign Investment Real Property Tax Act (FIRPTA) Unit will hand-carry Virgin Island returns to the Statute function. All Virgin Islands List Return DLN’s must be posted to the MF for further action by the FIRPTA Unit. (Austin Service Center only).

25.6.4.4.2  (04-01-2007)
Processing Original Delinquent Returns

  1. Once a "New Return" is determined to be an "Original Delinquent" , and it indicates a tax assessment, you must stamp "Cleared for Assessment," Cleared by Statute or Delinquent Return Cleared and the date of clearance on the return. Enter your employee number and current date. Place the stamp in the area of the upper left margin. The stamp is valid for 90 calendar days. The Statute function must clear the return again if the assessment has not been made within 90 calendar days of the clearance.

  2. Statutes will not clear "dummy returns" with no money amounts, which are prepared by Examination and Collection Operations in the "Substitute for Return" program. If the taxpayer submits a return for an account that already contains a dummy TC 150 posted, it also does not require clearance by Statute. The return must be routed to the area stated in IRM 25.6.4.4(3) above.

  3. Certain Forms 1120S have tax to be assessed because the corporations are liable for tax. All functional areas must route Form 1120S to the Statute function for clearance if the return is received within the statute imminent period and contains an entry on the "Tax Due" line along with tax computations and tax credit lines. Functional areas will route Non-taxable Forms 1120S to the Statute function on an as needed basis; e.g., if it is determined during processing that it contains information which will result in an assessment of tax. The following are items assessed at the entity level of the flow-through entity:

    • Built-in gains (IRC 1374) (Line 22b of Form 1120-S for 2003),

    • Excessive passive investment (IRC 1375) (Line 22a of Form 1120-S for 2003),

    • Investment credit recapture (IRC 1371(d)) (Line 22c of Form 1120-S for 2003), and

    • LIFO recapture (IRC 1363(d)) (Line 22c of Form 1120-S for 2003).

  4. Tax on flow-through amounts to partners or S corporation shareholders generally is controlled by the statute on the partner's or shareholder's return; i.e., generally tax on those amounts must be assessed within three years from the date the partner or shareholder filed his return. Some partnerships (and some S corporations), however, may be subject to the TEFRA partnership procedures, which require a unified examination of partnership items (or subchapter S items) and provide a minimum period of limitations for assessing a tax attributable to any partnership items (or subchapter S items) and other special TEFRA items. See IRC § 6221–6234; Treas. Reg. § 301.6241–1T.

  5. The Statute function must research a tax year or quarter in question to determine whether any payments and/or credits had posted and were transferred to Excess Collection. If yes, and the taxpayer is entitled to the payment and/or credit, then transfer the entire credit/s back to the account before clearing the return for processing

  6. Before processing an original delinquent return, determine if Criminal Investigation (CI) has requested the Service Campus to control the taxpayer’s account, or any account associated with the return.

  7. Refer cases to CI control function for processing instructions if:

    1. A TC 914 or TC 916 ("Z" freeze) is posted to the tax module or ;

    2. A TC 918 is posted to the entity module, and the case file does not include CI approval for continued processing.

  8. If an original delinquent return is received showing an overpayment, it is a claim for refund and you must process it quickly because of the 45–day interest-free period. The limitation period for claims for refund is applicable.

  9. Always apply credit elect and withholding credit(s) first to tax liability.

  10. Apply payments by earliest received date. Any overpayment is then refunded, offset, or applied to XSF, as appropriate.

  11. To "clear" a return, you must take the following steps:

    1. Ensure that the date of clearance for the tax return is not more than 33 months old from the received date on the tax return. If so, use manual processing method. This tax return should not be cleared. If it has not been more than 33 months from the received date of the tax return, then, you should continue to clear the tax return for processing.

    2. Stamp the return as stated in paragraph (1) above after all necessary research has been performed. Enter your employee number and current date in the upper left hand margin.

    3. Release the return(s) to the batching/numbering unit for normal processing through the system. NOTE: Route all original delinquent returns with "KITA" written on the return to the KITA (Killed In Terrorist Attack) Function after clearance. Do not input these returns through normal processing.

25.6.4.4.2.1  (04-01-2007)
Processing Original Delinquent Returns Claiming An Overpayment

  1. The IRS accepts the U.S. Mail Service postmark date for establishing the filing date of an original return claiming a refund. If the date of the postmark on the envelope is within the period that is three years (plus the period of any extension of time to file) from the day the tax is paid or considered paid (e.g., a calendar year taxpayer's prepaid credits are considered paid on April 15) but the claim for credit or refund is delivered after this three year period, the claim will be treated as timely as long as the document was properly addressed and postage was prepaid.

  2. The postmark date will be treated as the filing date of any payment or document mailed and delivered in an envelope bearing a postmark date after January 11, 2001. See Treas. Reg. § 301.7502–1(g)(1). This also applies to claims made on an original delinquent return except claims for credit or refund which were otherwise barred as of January 11, 2001 by either:

    1. Expiration of the two-year period for filing suit that began after the issuance of a notice of claim disallowance, or

    2. The operation of any other law or rule of law (including res judicata).

  3. Review all newly received original delinquent returns claiming an overpayment.

  4. Review taxpayer's account to determine credit/payment received dates.

  5. Check the postmark date for a possible timely filed claim for refund.

  6. Allow a postmark date and edit this date as the return received date if:

    1. The return claims an overpayment.

    2. The postmark date would make the return a timely filed claim for refund.

      Note:

      An original delinquent return claiming an overpayment is a claim for refund. A taxpayer is entitled to a credit/refund for any payment paid within three years from the received date of an original delinquent return, including extensions. Also, the postmark date will establish the start date for the Assessment Statute Expiration Date (ASED)

  7. A postmark date is extended to the next business day if the normal RSED falls on a weekend or holiday. If this is the case, you must edit the return received date with the normal RSED. See IRM 25.6.2.4.15(3), When a Document Is Treated As Filed Under the IRC for editing postmark criteria.

    Example:

    A taxpayer's original return for 2002 was postmarked 04/17/2006. The normal RSED was 04/15/2006. Since 04/15/2006 was a Saturday, the taxpayer was entitled to the next business day for a timely filed claim. You must edit the return received date as 04/15/2006 and not 04/17/2006.

    Note:

    If a late-filed return does not have an envelope attached and the return is received (IRS Received) within 7 days from the normal RSED, then consider the return as timely filed by the RSED.

25.6.4.4.3  (03-01-2006)
Processing Delinquent NMF Returns

  1. The refund or credit claimed on any Pre-Automatic Data Processing (ADP) return filed are barred, unless payment of the tax was within 2 years of the date the claim was filed.

  2. Code and Edit must flag Delinquent NMF returns to Accounting to alert them of statute conditions. A "Statute Specialist" in NMF Accounting must research the return for any previous assessments involving the same tax year and tax period. The specialist will research the Automated NMF, Unit Ledger Card (ULC) and the Index Cards maintained by the Returns Files area. After all necessary research is performed, the Statute specialist will expeditiously route the return to the Statute Limitations Unit for statute clearance via a Form 3210 transmittal.

  3. The Accounting "statute specialist" must attach all necessary research for the statute examiner to review before they "clear" the return.

  4. The Statute function will verify the transmittal with taxpayer’s name control, TIN, type of tax, tax period, and Area Office for each item and attachments being transmitted. (If any item or attachment is missing, the Statute function will not accept the case. Indicate this action on the transmittal).

  5. Sign a copy of Form 3210 and return one copy to the originator and retain one signed copy in the statute area.

  6. Code and Edit must also flag amended returns (NMF) to Accounting on which the statute is imminent (120 days or less) to alert them of statute conditions. (These are assessed in the NMF Accounting Branch with a 23C Date on or before the statute expiration date).

  7. The Statute function will examine the cases to determine the correct statute expiration date. Request a MFTRA transcript if no transcript was attached by the accounting function or the transcript request date is more than 30 days when received in the statute unit.

  8. The statute examiner will determine if a credit entered on the return is barred by the statute of limitations. If all or part of the credit is barred, place an "X" immediately before the line entry. If part of the credit or adjustment is allowable, enter such amount to the left of the "X" . (The NMF accounting function, is responsible for initiating correspondence to notify the taxpayer of the disallowance).

  9. Indicate the correct expiration date on the body of the return and stamp as stated in IRM 25.6.4.4.2.1(1). Show the date cleared and your employee number on those documents on which the statute will NOT EXPIRE within 120 days.

  10. Statutes must route the case back to NMF accounting via a Form 3210 transmittal (see (2) above), retaining a receipted copy after the procedures above have been completed.

  11. The NMF Accounting Operation will process statute cases in accordance with instructions in IRM 3.17.46, Automated Non-Master File Accounting and IRM 21.7.12, Non-Master File (NMF) Adjustments.


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