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20.2.8.9
(08-01-2006)
Combination of Adjustments (Form 2285)
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An adjustment to a taxpayer's income may result
in an underpayment or overpayment of tax on which interest is restricted or
prohibited. An examination of the return may involve income adjustments under
more than one section of the law (usually carryback adjustments). These underpayments
and overpayments attributable to the different Code sections are often offset
against each other resulting in a net no change, net underpayment, or net
overpayment within the same tax module. A Form 2285 should accompany the Examination
or Appeals report that shows the tax increase or decrease attributable to
each applicable year. A copy of the Form 2285 may be sent to the taxpayer.
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Examination and Appeals employees prepare Section
I of the form when income tax adjustments fall under more than one section
of the Code and a combination of adjustments is needed.
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The amounts of the deficiencies and overpayment
on which interest is to be computed are shown on line 11 of Form 2285, in
columns (a) through (e).
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The net amount to be assessed as a deficiency or
to be allowed as an overpayment is shown in column (f).
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Section II is sometimes used as a worksheet to
compute interest when Section I reflects a net deficiency or overpayment in
column (f), resulting from offsetting adjustments in any of the columns from
(a) through (e). It is not necessary to complete Section II if the adjustment
is clearly identified on an attached interest computation print. Manually
compute interest only when it is determined that the computer cannot calculate
the correct interest. See Exhibit 20.2.8 - 3.
Form 2285–Section I and II
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Recompute the module using a "running
module balance"
including interest due on deficiencies shown in any
of the columns from (a) through (e) whether or not there is a net deficiency
in column (f).
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Reduce the "running module balance
"
by overpayments shown in columns (a) through (e) and compute allowable
interest when the running module balance is overpaid.
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Use current TXMOD or Master File module information.
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Generally, combination adjustments have been assessed
with restricting transactions for both overpayment and underpayment interest.
However, Master File programming can accurately compute the interest in some
situations. If possible, do not restrict the account, but instead use the
following:
| IF a General
Adjustment Is:
|
AND a Carryback
Is:
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THEN Master
File Programming Can Compute Interest When:
|
| Assessment |
Allowance |
Input a TC 309 with the
Interest Computation Date using a partial blocking series and Hold Code 4.
|
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Then input TC 300 using
a final blocking series and Posting Delay Code 1.
|
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Exception:
When the G/A (+) amount equals the C/B (-) amount, Master
File cannotcorrectly compute the interest.
|
| |
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Exception:
When the G/A (+) amount is less than the C/B (-) amount
- Master File cannotcorrectly compute the interest.
|
| Assessment |
Recapture |
Input TC 300 - AND |
| |
|
TC 308 with the Interest
Computation Date
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| Abatement |
Allowance |
Input TC 301 - AND -
|
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TC 309 with the Interest
Computation Date.
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| Abatement |
Recapture |
Input TC 301 - AND -
|
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TC 308 with the Interest
Computation Date
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Exception:
When the G/A (-) amount equals the C/B (+) amount, Master
File cannot correctly compute the interest.
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Exception:
When the G/A (-) amount is less than the C/B (+) amount
- Master File cannotcorrectly compute the interest
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Caution:
When trying new processes
such as cycling or combining transaction codes on IDRS/Master File to adjust
interest, monitor the adjustment to confirm all have posted correctly.
See Exhibit 20.2.8 - 4. for a case involving
Form 2285 interest
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When updating manually assessed interest on a
tax module, you must attach a copy of Form 2285 or other relevant information
to identify the overpayment and/or underpayment amounts and dates
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Consider the use of the non-restricting TC 340
to update manually assessed combination adjustment interest.
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If the net tax adjustment is zero or a credit,
but there is still a balance owing for deficiency interest, input a REQ77
with TC 550 using the 23C date plus ten (10) years to extend the CSED.
20.2.8.9.1
(07-31-2001)
Application of Overpayment
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When Form 2285 is used to compute overpayment
and/or underpayment interest, compute interest using a "running
module balance"
with current TXMOD or Master File information.
-
Apply all normal interest considerations (i.e. Revenue
Ruling 99-40) in recomputing the tax module.
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Apply carryback allowances with the loss year filing
date for years after Oct. 4, 1982.
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When applying carryback recaptures, consider Revenue
Ruling 99-40 and within module netting procedures as appropriate. Allow credit
interest on general adjustment decreases to the liability date of carryback
recaptures.
20.2.8.9.2
(07-31-2001)
Interest on Barred Assessments
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A deficiency in column (a) of Form 2285 is sometimes
barred by statute from assessment because the period for assessment has expired,
even though column (f) of Form 2285 shows an overassessment which is not barred
from allowance. Compute interest on the deficiency; do not assess the interest.
On the allowance document, show the amount of interest as a deduction from
the overassessment and add a suitable explanation for the taxpayer.
20.2.8.9.3
(07-31-2001)
Corrections
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If an error is found in a tax adjustment, Examination
Division should prepare a "corrected"
Form 2285.
Note:
The original and corrected adjustments
must be annotated in adjacent columns of Section I.
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Examine the original Form 2285 and verify the
amounts shown in each column with the amounts on the corrected form. Recompute
the interest using the corrected amounts and adjust the interest as appropriate.
-
If an obvious error is discovered in the interest
computation on Form 2285 during an update of the interest, correct the error
with the update.
20.2.8.9.4
(07-31-2001)
Non Examination Combination Adjustments
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Areas processing requests for carryback allowances
will also encounter combination adjustments, generally on a claim for a carryback
allowance. Instructions for processing multiple carryback adjustments can
be found in IRM 21.5.8.5.10.
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