This chapter discusses features unique to
returns with international issues.
The Chief, Classification Section is
responsible for classifying all returns with international
characteristics manually at the service center before sending
them to the areas.
An international examiner will classify all
returns with international characteristics. Refer to the Law
Enforcement Manual for international
The jurisdiction for the field examination
of entities filing Form 1120F and individuals claiming the
foreign earned income exclusion (Form 2555 or Form 2555EZ) is
the area office (AO) where the taxpayer maintains the
principal books and reports.
The Director, Compliance will maintain
jurisdiction overall Form 1120F returns and Form 1040
returns (with Form 2555 or Form 2555EZ) if the taxpayer
keeps the principal books and records outside the United
The Philadelphia Service Center (PSC)
will transfer these returns to the appropriate service
The Chief, Classification Section will
ensure that an international examiner screens and/or
classifies these returns before transmission to the
Effective January 1, 1985, the Tax Reform
Act of 1984 replaces the existing Domestic International Sales
Corporation (DISC) with the Foreign Sales Corporation (FSC).
The FSC is a taxable foreign
corporation that files Form 1120–FSC (U.S.
Income Tax Return of a Foreign Sales Corporation)
at the PSC.
The PSC will transfer Form 1120–FSC
returns to the appropriate service center for screening
and/or classification an international classifier.
A small DISC may still exist as an
Interest Charge-Domestic International Sales Corporation
(IC-DISC). Generally, this domestic corporation will be
non-taxable and file Form 1120–IC-DISC.
Identification of Returns
Individuals responsible for the
classification of returns will do the following:
Identify returns they select for
possible examination or those they will associate with
returns already under examination as
Ensure that the Form 3210 (Document
Transmittal) sent to the Area PSP Support
Manager states that the returns were selected for
"International," and includes special
instructions. For example, Form 1120-DISC should be
associated with the related return of another area or a
return that is part of a national or area coordinated
Assign the applicable project code
from the list below to returns selected before sending
them to the area.
Project code 090 — returns selected
before transmitting them to the area
Project code 091 — all tax haven returns
Project code 155 — returns with
responses to the foreign bank account question
Project code 155 — returns if both
project codes 091 and 155 are applicable. Instructions in
the Law Enforcement Manual
apply to this international feature.
Project code 162 — Forms 1120F and 1040
(with Form 2555). Project Code 162 takes precedence over the
project codes identified in (2), (3), and (4) above.
Corporation, FSC, IC-DISC, Individual, Partnership, Fiduciary
With the exceptions stated in (3) below,
there are no mandatory requirements for selecting corporate,
IC-DISC, FSC, individual, partnership, and fiduciary returns
showing foreign business transactions or interest in a and
foreign bank, securities, and other financial accounts.
When screening returns, classifiers will
consider the objectives of the International Enforcement
Program, and carefully scrutinize returns showing foreign
business transactions and foreign financial accounts. When
foreign business activity appears to be substantial, they
should select the return for examination.
Instructions for selecting returns
identified during classification as reporting Subpart F income
(IRC 951 to 964, inclusive) appear in the Law
International Related Forms
Form 3520 Internal Processing
Form 3520 (Creation
of, or Transfers to, Certain Foreign Trusts) is
filed at the PSC. A copy is forwarded to the Classification
Section at the service center where the related tax return
will be filed.
During July of each year, the income tax
return which relates to the prior year Form 3520 will be
When Forms 3520 are received in the
service centers, they will be associated with copies of the
related returns, prior to classification by an international
examiner. The copies of Forms 3520 will remain with their
related returns. Related returns to associate are:
Person filing the return, identified
by the TIN (of the filer) on Form 3520, line 1b
Form 3520–A (Foreign
Trust Owned by U.S. Persons) identified by
TIN on Form 3520, Line 1b
Form 706, if check box describing
U.S. person filing return is identified as
Include a three-year Midwest Automated
Classification System (MACS) run of the Form 3520 and for
each related return. If the related return is already open,
the copy of the Form 3520 will be forwarded for association.
Upon receipt in the area, the related return will be
referred to the International Enforcement Program.
The potential liability for a gift tax,
generation skipping transfer tax, or income tax should be
considered when classifying the returns. Additionally,
consider the penalty for failure to timely file the Form
3520 under IRC 6677. See Figure 4.1.9–1, Form 3520
10 is YES
(the transfer is a completed gift or
706 and/or Form 709 should be filed and
12 is NO
(filer is not treated as owner of the
13 is NO
(not treated as an exempt transfer)
Form 926 (Return by
a U.S. Transferor of Property to a Foreign
Corporation, Foreign Estate or Trust, or
Foreign Partnership) with the
15 is NO
(no election under IRC 057)
16 is NO
(no election under similar principles under
Check the Currency and Banking Retrieval
System (CBRS) for the following documents and if filed,
associate with the related returns.
TD F 90–22.1 Foreign Bank and
Financial Accounts (FBAR)
Cash Transaction Report (CTR)
Suspicious Activity Report (SAR)
A foreign trust without a U.S. owner which
has effectively connected U.S. source income is filed
currently on Form 1040NR—Fiduciary. This Form is processed
on the Automated Non-Master File System (ANMF).
Taxpayers must file Form 926 (Return
by a U.S. Transferor of Property to a Foreign Corporation,
Foreign Estate or Trust, or Foreign Partnership)
on the day of the transfer and at the service center where
they normally file their return.
The excise tax per IRC 1491 does not apply
if Federal income tax avoidance is not a principal purpose
of the transfer.
After processing, Forms 926 will be
forwarded to the Chief, Classification Section, who will
enter a Transaction Code (TC) 930 on the transferor’s
account to secure the return when filed. If a transferor
files Form 926 at a service center other than the one where
the transferor normally files their return, the Chief,
Classification Section in the receiving service center will
forward Form 926 to the Chief, Classification Section at the
transferor’s controlling service center.
The transferor’s return and Form 926
will be associated before classification. An international
examiner will classify all Forms 926.
Due to their potential use in classifying
Forms 706NR (Estates of Nonresidents)
and Forms 1040NR filed by foreign trusts, copies of Forms
926 indicating that the transferee is either an Estate or
Trust should be forwarded to the Director, Compliance at the
Internal Revenue Service
Attn: Chief, Support and Services Branch OP IN D C 55
950 L’Enfant Plaza South, S.W
Washington, D.C. 20024
When classifying Forms 926, the
international examiner may generally accept as filed the
following types of transfers.
Forms 926 with a transferee that is
an exempt organization [Reg. 1492–1(a)(1)]. A copy
of the Commissioner’s determination letter must be
Transfer plans approved by the
Commissioner [Reg. 1492–1(a)(2)]. A copy of the
Commissioner’s approval letter must be attached.
Returns selected for examination will be
forwarded to the appropriate area office. Area offices
should follow normal assignment, survey, and examination
Foreign Information Documents
Income tax treaties generally provide for
the exchange of routine information relating to payments made
to residents of the contracting countries (Foreign Information
Documents). These documents reflect payments of dividends,
interest, royalties, commissions, tax refunds, etc. PSC
receives and stores documents from approximately 15 treaty
countries in many formats.
Foreign information documents showing
individual taxpayers [Individual Master File (IMF)] as
recipients are subject to processing under the Information
Returns Program (IRP).
Foreign Information Return Program (FIRP)
documents, which meet the selection criteria contained in
the Law Enforcement Manual,
will be processed as follows:
The PSP Support Manager, PSC in Service
Sort the FIRP documents
Forward them to the payees’
service centers, Attention: Chief, Classification
Forward FIRP documents with
incomplete taxpayer information to the Director,
Compliance, Attn: Chief, Tax Treaty for return to
the submitting country.
The Chief, Classification at each
service center will:
Receive FIRP documents for payees
within that service center
Perfect those documents without
Perform a cross-reference search
for spouses’ TIN
Forward FIRP documents (after TIN
perfection) to the PSP Support Manager in the
payees’ areas, or per other area instructions
The following procedures are required
for area classification.
the FIRP documents relate to:
the PSP Support Manager will:
in Status 06 or 08
the return from the service center.
in Status 10 or 12
FIRP documents to the group manager.
Examination Program (CEP) cases—open
FIRP documents to the CEP manager.
FIRP documents to the district CEP Program
or insurance companies
FIRP documents to banking or insurance group
FIRP documents to Chief, TE/GE Commissioner.
FIRP documents to the return.
Personnel screening FIRP documents to
decide whether to secure related returns, should consider
the following factors:
The impact Foreign Tax Credits
(FTC) which may be available to the taxpayer
The source and type of the foreign
The underlying asset and the
method of acquisition
The PSP Support Manager will place
returns selected for examination into the appropriate
program (Tax Auditor or Revenue Agent). If a return is surveyed,
the FIRP document should be attached to the return.
ALL PERSONNEL WILL CONSIDER THESE
DOCUMENTS SENSITIVE UNDER THE EXCHANGE OF INFORMATION
PROVISIONS OF THE VARIOUS TAX TREATIES AND WILL NOT MAKE
THEM AVAILABLE EXCEPT FOR FEDERAL TAX ADMINISTRATION
PURPOSES UNDER ANY DISCLOSURE PROVISIONS. ADDRESS ALL
INQUIRIES CONCERNING THE DISCLOSURE OF THIS INFORMATION TO
THE DIRECTOR, COMMUNICATIONS, NATIONAL HEADQUARTERS.
Foreign Information Return Program (FIRP) Document Referrals
FIRP Documents which meet the following
criteria will be referred to service center Collection:
FIRP Documents with TINs for which
no TC 150 has posted on the taxpayer’s account.
Undeliverable documents will not be
sent to Collection.
A cross reference on the Spouse’s
TIN must be done before forwarding and FIRP document
to Collection. All other research done on the FIRP
document should be forwarded with the referral.
FIRP documents forwarded to the
controlling service centers, which are then determined to
warrant referral to Collection, must be returned to the
Chief, Classification, PSC. The Chief, Classification, PSC,
will forward these returned documents to Collection, PSC.
Forward all referrals of FIRP documents to
the service center Collection on Form 3210. Itemize FIRP
Documents on the Form 3210, and identify them as
"Foreign Information Documents."
If the collection function determines that
a substitute for return is required, they will forward the
information to the PSP Support Manager on Form 3449 (Referral
Form 5074, Allocation of Individual Income Tax to Guam or
Northern Mariana Islands
Forms 1040 requiring a Form 5074 are filed
at the PSC.
These returns are processed, coded, and
delivered to Examination as prompt examination returns.
The Service Center Classification Section
takes the following actions:
Completes page 2 of Form 5074
Forwards a copy of the completed Form
5074 to the Service Center Accounting Branch
Classifies the return
Director, Compliance Special Instructions
Procedures, instructions, and information
for the Identification and Selection of Returns are applicable
to Director, Compliance returns except as provided
The mathematical DIF formulas for
individual returns with certain modifications are applicable
to returns identified for Director, Compliance.
No minimum cutoff scores are applicable to
Director, Compliance individual DIF returns. All individual
returns except Specials are maintained on the DIF computer
Returns with APO/FPO addresses are also
selected under the DIF System. Military personnel stationed
overseas or on ships generally file these returns. They fall
under the jurisdiction of the Director, Compliance, Office
of International/Area Operations OP:IN:D. Taxpayers should
file all APO/FPO returns at PSC.
The same audit codes used for all
individual returns apply when identifying individual returns
as Special Returns. Many codes will not apply to Forms
1040NR, 1040PR, and 1040SS, since the criteria for
identifying these special features will not be present on
Computer reports for individual returns
(1040–1, 1040–2, etc.) and corporate returns (1120–1,
1120–2, etc.) are generated for the Director, Compliance
DOs 66 (Puerto Rico) and 98 (Washington, D.C.).
Computer report 1040–2 contains the
number of returns filed which have a Form 2555 or 2555EZ
The individual returns Post-of-Duty (POD)
report 1040–1 is generated for AOs 66 and 98 by country or
Separate PODs are used for APO/FPO
All Forms 1040NR, except Specials,
are assigned to AO 98 and POD 81.
Various PODs within AO 66 will be
assigned Forms 1040PR and 1040SS.
POD 99 will be primarily assigned AO
66 returns and APO/FPO returns without valid ZIP
Submit all orders for returns to the PSC.
On orders for individual returns for AO
98, specify if the orders are to include the related Forms
2555 or 2555EZ.
Use indicator code F to order
returns with Form 2555 or 2555EZ attached.
Use indicator code G to order
returns without Form 2555 or 2555EZ attached.
Forms 1040NR, 1040PR, or 1040SS may be
deleted from AO 98 or 66 return orders by excluding the
applicable POD(s) to which these returns are assigned from
the individual return order.
Forms 1040NR, 1040PR or 1040SS may be
separately ordered for Assistant Commissioner
(International) by placing a POD Supplemental Order for
Forms 1040NR are delivered only when the
indicator code is either blank or a "J."
Forms 1040PR and 1040SS are delivered only
when the indicator code is blank.
Classification of Returns
Tax Auditors from the Director, Compliance
will classify the following returns:
Revenue Agents from the Director,
Compliance will classify Forms 1120F.