Persons Claiming Mortgage Interest Credit Must Attach Related Form To Return Or Risk Assessment For 'Mathematical Or Clerical Error.

An analysis of a sample of 1985 returns indicates that approximately 30 percent of the taxpayers claiming the MIC amount did not attach the Form 8396 to the return to support their computation. It has been determined that a project should be undertaken to correct these cases by sending taxpayers a blank Form 8396 and a cover letter instructing them to submit the completed Form 8396 to the Service within thirty days from the date of the letter. In the event the taxpayer does not submit the Form 8396 as instructed, the Service proposes to assess the MIC amount as a mathematical or clerical error under section 6213(b)(1). The Service then proposes to send a notice of assessment to the taxpayer informing the taxpayer of the assessment and stating that he or she has 60 days from the date the notice is sent to request abatement of the assessment.

Section 6213(a) generally bars the assessment or collection of a deficiency in respect of certain taxes until after a notice of deficiency has been mailed to the taxpayer and the taxpayer has had an opportunity to litigate the validity of the asserted deficiency in the Tax Court. Section 6213(b)(1) provides an exception to these restrictions if the taxpayer is notified that because of a mathematical or clerical error appearing on the return an additional amount of tax is due and that an assessment of the correct tax has been or will be made. Under section 6213(b)(2), a taxpayer may request abatement within 60 days after the notice is sent and, upon receipt of the request, the assessment must be abated.

The term "mathematical or clerical error" is defined in section 6213(g)(2)(D) to include "an omission of information which is required to be supplied on the return to substantiate an entry on the return."

Your memorandum asks if it would be correct to conclude that if the taxpayer claimed an MIC amount on a 1985 Form 1040, but did not attach a 1985 Form 8396 to the return, and does not submit a Form 8396 after the Service mails the taxpayer an instruction letter and a blank Form 8396 to complete and return to the Service, ³ the MIC amount can be assessed as a mathematical or clerical error as defined in section 6213(g)(2)(D). We think that your conclusion is correct. ⁴

In our view, the failure to attach a Form 8396 to the Form 1040 is precisely the type of situation that Congress intended to cover in section 6213(g)(2)(D). The Senate Report accompanying the Tax Reform Act of 1976 explains section 6213(g)(2)(D) as follows:

In Service Center Correction of IRA/Keogh Deductions, GCM 39019, EE-95-82, 4-5 (Dec. 23, 1982), the above-quoted Senate Report was relied upon to conclude that section 6213(g)(2)(D) was intended to apply only to an omission of an ENTIRE schedule required to substantiate an entry on the return. GCM 39019 concluded that if a deduction is claimed on line 25 of Form 1040 for contributions to individual retirement accounts (IRA's) but no code is entered as requested on that line identifying the type and number of IRA's, the omission is not a mathematical/clerical error within the meaning of section 6213(g)(2)(D) because the omission of a code is not the omission of an entire schedule. See also Treatment of Returns When Exclusion of Gain on Sale of Personal Residence is Claimed, GCM 38277, I-24-80, 3-4 (Feb. 12, 1980), in which this division concluded that if a taxpayer claims the exclusion of the gain on the sale of a personal residence but fails to respond or responds negatively to the eligibility questions on Form 2119, Sale or Exchange of Personal Residence, the missing responses are not mathematical/clerical errors because they are not errors of the same character as omissions of supporting schedules. Thus, the scope of section 6213(g)(2)(D) is restricted to omissions of entire schedules or forms that are necessary to supply information that is required to support an entry on the return. ⁵ Because the taxpayers in the present case have omitted from their returns the entire Form 8396, we think that section 6213(g)(2)(D) is applicable here.

We are aware of the argument that because the 1985 Form 1040 and the accompanying instructions do not specifically instruct the taxpayer to "attach" the Form 8396 to the return, the failure to attach Form 8396 to the return may not meet the requirement of section 6213(g)(2)(D) that there be an omission of information which is required to be supplied "on the return." 6/ However, the section of the 1985 Form 1040 entitled "Credits" refers the taxpayer to page 14 of the accompanying instructions and the instructions require the taxpayer to use Form 8396 to compute the MIC amount. Form 8396 specifically states "Attach to Form 1040" directly beneath its title. We think that these references apprise the taxpayer of the requirement that Form 8396 be attached to Form 1040, with the result that the taxpayer's failure to do so is an omission of a supporting schedule required to be supplied "on the return"" for purposes of section 6213(g)(2)(D). ⁷

The omission of Form 8396 from the 1985 return is similar to an example in the 1976 legislative history. The 1976 Senate Report, quoted above, cites the omission of Form 4726, Maximum Tax on Earned Income, from the Form 1040 as an example of a form that should be included with the return to support an entry on the return. Line 16(a) of the 1975 Form 1040 (the version of the form that was presumably considered in drafting the committee reports accompanying the Tax Reform Act of 1976) provides a specific box to check titled "Form 4726" next to the entry for line 16(a). As is the case here, neither Form 1040 nor the accompanying instructions for tax year 1975 direct the taxpayer to attach the Form 4726 to the return. However, as here, the 1975 Form 4726 states "Attach to Form 1040 (or Form 1041)" directly under the title. The Form 4726 example indicates that section 6213(g)(2)(D) applies to cases in which only the supporting document requires attachment to the return. The example also demonstrates that there is no distinction between a "form" and a "schedule" for purposes of section 6213(g)(2)(D).

An additional concern is whether the requirement that the omitted information support "an entry on the return" is satisfied in this case. The present situation differs from the Form 4726 example cited in the 1976 Senate Report in that the 1985 Form 1040 does not specifically mention either the applicable form or the adjustment in question. We do not think that the omission on the return of a printed reference to a specific form, schedule, or credit is significant in this case because, as stated previously, the "Credits" section of the 1985 Form 1040 directs the taxpayer to the instructions and the instructions require the taxpayer to include the amount of the MIC credit in the total entered on line 45 and write "MIC" and the amount on the dotted line next to this entry. In our view, the taxpayer's notations pursuant to these instructions satisfy the requirement of section 6213(g)(2)(D) that there be "an entry on the return."

In Adjustments to Self-Employment Tax in the Service Centers, GCM 37219, 1-103-77 (Aug. 10, 1977), we concluded that the section 6213(b)(1) summary assessment procedure for mathematical/clerical errors may not be used to assess self-employment tax when a taxpayer reports net business income on Schedule C and/or F of a 1976 Form 1040, but does not report self-employment tax on line 58 of the Form 1040, and does not include Schedule SE with the return. GCM 37219 reasoned, at 3:

² The Service, in TD 8023, filed May 3, 1985, has prescribed temporary regulations relating to the issuance of mortgage credit certificates. Under section 1.25-8T, each lender who makes a loan that is a certified indebtedness amount with respect to any mortgage credit certificate must submit a report on Form 8329 to the Service, and each issuer which elects to issue mortgage credit certificates must file quarterly reports on Form 8330 with the Service. The temporary regulations do not, however, address the reporting requirements of the taxpayer who holds a qualified mortgage credit certificate and is thus entitled to the credit.

³ We assume that this letter will properly notify the taxpayer of the omission from the Form 1040 of the Form 8396, and instruct the taxpayer to properly fill in the enclosed blank Form 8396 and return it to the Service, or be subject to assessment of the MIC amount as a mathematical or clerical error.

⁴ As an alternative, the assessment could be made first, followed by notification to the taxpayer, since section 6213(b)(1) refers to an assessment that "has been or will be made."

⁵ The following footnote in the Senate Report further supports this conclusion:

⁶ As noted in footnote 1, the 1987 Form 1040 instructions now require taxpayers to "attach" Form 8396 to Form 1040.

⁷ Section 6213(g)(1) defines the term "return" to include "any return, statement, schedule, or list, and any amendment or supplement thereto, filed with respect to any tax imposed by subtitle A or B, or chapter 41, 42, 43, 44, or 45." Because of this broad definition of "return" and the clear reference on Form 1040 to the instructions, we think that Form 8396 is incorporated by reference on the Form 1040 and thus becomes part of the taxpayer's "return" for this purpose.