SB/SE Memo Adds New Standard Credit and Expense Explanations

Expiration Date: 08-12-2023
Impacted IRM: 4.10.10

Date: August 12, 2021

MEMORANDUM FOR
DIRECTOR, FIELD EXAMINATION
DIRECTOR, CAMPUS EXAMINATION
DIRECTOR, REFUNDABLE CREDITS EXAM OPERATIONS

FROM:
Lori L. Caskey
Director, SB/SE Examination-Field and Campus Policy

SUBJECT:
Interim Guidance Revising, Adding, and Removing Standard Paragraph Explanations

This memorandum issues guidance on standard explanations until IRM 4.10.10 is published. Please ensure this information is distributed to all affected employees within your organization.

Purpose: This interim guidance revises four standard credit and expense explanations and adds 21 new standard credit and expense explanations as shown in Attachment 1. Additionally, one standard explanation has been removed as a duplicate, as shown in Attachment 1.

Background: These standard explanations will be incorporated into the Report Generation Software (RGS). Prior to the RGS update, examiners can insert these paragraphs using the custom paragraph feature in RGS.

Procedural Change: See Attachment 1 for impacted standard explanations.

Effect on Other Documents and Effective Date: This guidance will be incorporated into IRM 4.10.10, Standard Paragraphs and Explanation of Adjustments, within two years of issuance. The standard explanations can be used immediately.

Contact: Cathy Demetra, Program Manager, Examination Field and CampusPolicy, Field Exam General Processes.

Distribution:
IRS.gov (https://www.IRS.gov)

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Attachment 1: Interim Guidance SBSE-04-0821-0034

Revised Standard Explanations:

5627 — Statutory adjustment to QBID based upon other return changes made

As a result of changes made to your tax return, the qualified business income deduction previously claimed was adjusted as shown on the attached report. For tax year 2018, you can find more information on the qualified business income deduction in the Form 1040 instructions or within Pub 535, Business Expenses. For tax years 2019 and later, you can find more information in the instructions to the Form 8995, Qualified Business Income Deduction Simplified Computation, or Form 8995-A, Qualified Business Income Deduction.

5628 — Adjustment to QBID

The qualified business income deduction claimed was adjusted as shown on the attached report. For tax year 2018, you can find more information on the qualified business income deduction in the Form 1040 instructions or within Pub 535, Business Expenses. For tax years 2019 and later, you can find more information in the instructions to the Form 8995, Qualified Business Income Deduction Simplified Computation, or Form 8995-A, Qualified Business Income Deduction.

6503 — Limited qualifying expense (Tax Year prior to 2021)

In figuring the credit for child or dependent care expenses, employment-related expenses incurred in a tax year are limited to $3,000 for one qualifying individual, and $6,000 for two or more qualifying individuals.

7316 — AGI changed — CTC/ACTC/Credit for other dependents adjusted (Tax Years 2018-2025)

Because we changed your modified adjusted gross income, your Child Tax Credit, Additional Child Tax Credit or Credit for Other Dependents has been adjusted.

New Standard Explanations:

1458 — Unreported unemployment compensation (Tax Year 2020)

We have made an adjustment to your income to include all taxable unemployment compensation you received. Based on the American Rescue Plan Act of 2021, unemployment compensation of up to $10,200 for individuals (for married filing joint returns, this exclusion is up to $10,200 per spouse), is only excludable from taxable income when adjusted gross income (AGI) is less than $150,000 (for all filing statuses).

6315 — Recovery Rebate Credit (Tax Year 2021)

Since one or more of the qualifying children or dependent(s) claimed on your tax return have been disallowed, the amount of Recovery Rebate Credit (RRC) claimed on your tax return has been adjusted as shown.

6316 — Sick and Family Leave Credit — Schedule C Disallowed

Because we determined that the activity described on your Schedule C does not meet the guidelines of carrying on a trade or business within the meaning of IRC 1402, we have disallowed your Schedule C gross income and/or expenses. Therefore, the Sick and Family Leave credit has been adjusted as shown.

6317 — Sick and Family Leave Credit — Schedule C Adjusted

Because we have adjusted your Schedule C gross income and/or expenses that were used for purposes of claiming the Sick and Family leave credit, the Sick and Family Leave credit has been adjusted as shown.

6318 — IRC 1341 (Claim of Right) Disallowed

If you repaid an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income in the year in which you repaid it, or the tax attributable to said income may be claimed as a credit. Certain criteria must be met to claim as a credit. Since you did not verify that you are eligible to claim the Claim of Right credit, we have disallowed it.

6319 — IRC 1341 (Claim of Right) Adjusted

If you repaid an amount that you included in your income in an earlier year, you may be able to deduct the amount repaid from your income in the year in which you repaid it, or the tax attributable to said income may be claimed as a credit. Since you did not calculate your Claim of Right credit correctly, we have adjusted it as shown in the attached report.

6521 — Changed employment-related expenses/changed credit

Since we have changed the amount of your employment-related expenses, we have also adjusted your child and dependent care credit.

6522 — Limited qualifying expense (Tax Year 2021)

In figuring the credit for child or dependent care expenses, employment-related expenses incurred in a tax year are limited to $8,000 for one qualifying individual, and $16,000 for two or more qualifying individuals.

6523 — Not established paid or paid for a qualifying individual (Tax Year 2021) Since you did not establish that the amount shown was paid for childcare, or paid for care of another qualifying individual, we have disallowed your child and dependent care credit.

6524 — TP/Spouse not in US more than half the yr. — Refundable Child and Dependent Care Credit (Tax Year 2021)

We have adjusted the child and dependent care credit because you (or your spouse if Married Filing Jointly) must have had a principal place of abode in the United States for at least half the year to be eligible for the refundable portion of the credit.

6525 — Changed qualifying individuals or expenses/changed credit

Since we have changed your qualifying individuals or the amount of employment-related expenses, we have also adjusted your refundable child and dependent care credit.

7333 — Incorrect calculation of the CTC/ACTC due to child's age

We adjusted your Child Tax Credit based on the age of your qualifying child (or children). The credit is $3,600 per child under age 6, and $3,000 per child age 6 through 17.

7334 — TP/Spouse did not have a main home in the U.S. for more than half the year — Refundable CTC converted to CTC/ACTC

We adjusted the Refundable Child Tax Credit (CTC) you reported because you (and your spouse if Married Filing Jointly) did not have a main home in the United States for more than half the year. You cannot claim all of your CTC as refundable CTC.

7335 — Credit for Other Dependents disallowed for incorrect calculation and claimed as a refundable credit

Because you incorrectly calculated the Credit for Other Dependent (ODC) on Schedule 8812 and included it as a refundable credit, we adjusted the credit to the nonrefundable ODC. The ODC is a nonrefundable credit that can only be credited towards tax you owe.

7652 — EITC — EITC Self Only

Our records indicate that during the year in question, you filed from the same address and were claimed as a qualifying child on another person's return. Therefore, you are not entitled to claim Earned Income Tax Credit.

7653 — EITC — Not Custodial Parent

Our records indicate that during the year in question you were not the custodial parent of the child listed on your Schedule EIC. If this is correct, this child is not your qualifying child. Therefore, you are not entitled to claim the Earned Income Tax Credit based on this child.

7654 — EITC — Foster Child

Our records indicate that the foster child claimed on the return was not placed with you by an authorized placement agency or by a judgment, decree, or other order of any court of competent jurisdiction. Therefore, you are not entitled to claim the Earned Income Tax Credit based on this child.

7655 — EITC — EITC Self Only Specified Student

We have disallowed the Earned Income Tax Credit you claimed because as a specified student you must be at least 24 years old to claim self only EITC.

7656 — EITC — Married Filing Separately — Spouse Used Same Address — American Rescue Plan Act

Because your filing status was Married Filing Separately and you had the same place of abode as your spouse for the tax year at issue, you are not eligible for the Earned Income Tax Credit. Married taxpayers who file separate returns may only be eligible for the EITC if they lived apart from their spouse at the end of the taxable year and meet other conditions under the American Rescue Plan Act.

8242 — Adjustment to Deferral of SE Tax Payments — Sch C Disallowed

Because we determined that the activity described on your Schedule C does not meet the guidelines of carrying on a trade or business within the meaning of IRC 162, we have disallowed your Schedule C gross income and/or expenses, recomputing your net profit from self-employment within the meaning of IRC 1402. Therefore, the deferral of self-employment tax has been adjusted as shown.

8243 — Adjustment to Deferral of SE Tax Payments — Sch C Gross Income/Expenses adjusted

Because we have adjusted your Schedule C gross income and/or expenses, recomputing your net profit from self-employment within the meaning of IRC 1402, the deferral of self-employment tax has been adjusted as shown.

Removed Standard Explanation:

6510 — Household not maintained — Prior to 1/1/2005 [Remove as duplicate of 6501]