Tax Info for the Manufacturing Industry Business Types Part-II

• Individual Filer Notices
  Notices we send about Form 1040, 1040A, or 1040EZ, or any schedules, forms, or attachments included with it are Individual Filer Notice
• One of the ways we classify our notices is by the type of tax form they're about. We call notices we send about Form 1040, 1040A, 1040EZ, or any related schedules, forms, or other attachments individual filer notices. Notices we send about business-related tax forms such as Forms 941, 1065, and 1120, are called business filer notices and are listed elsewhere. If the individual filer notice you have isn't listed below, check back often. We'll be adding more on a regular basis.

  The Notices in Numerical Order

  Here's a list of notices with detailed information available.

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  CP 09 - Earned Income Credit You May Be Entitled To From IRS

  Informs the recipient that, based on information reported on their tax return, they may qualify to take the Earned Income Credit.

  CP 10 - Changes to Tax Return, Reduced Amount Applied to Next Year's Estimated Tax

  Informs the recipient of one or more changes made to their individual income tax return. The changes resulted in a reduced amount being applied to the following year's estimated tax.

  CP 11 - Changes to Tax Return, Balance Due

  Informs the recipient of one or more changes made to their tax return during processing. The changes resulted in a balance due on the account.

  CP 11A - Changes to Tax Return and Earned Income Credit, Balance Due

  Informs the recipient of one or more changes made to their tax return during processing. At least one of the changes affected the Earned Income Credit, and resulted in a balance due on the account.

  CP 12 - Changes to Tax Return, Overpayment  

  Informs the recipient of one or more changes made to their tax return during processing. The changes resulted in an overpayment that will be refunded within six weeks if no other taxes are owed.

  CP 13 - Changes to Tax Return, No Refund and No Balance Due

  Informs the recipient of one or more changes made to their tax return during processing. The changes resulted in neither a balance due nor an overpayment on the account.

  CP 13A - Changes to Tax Return and Earned Income Credit, No Refund and No Balance Due

  Informs the recipient of one or more changes made to their tax return during processing. At least one of the changes affected the Earned Income Credit. There is neither an overpayment nor a balance due on the account.

  CP 14 - Balance Due

  Informs the recipient that there is a balance due on their individual tax account.

  CP 16 - Changes to Tax Return, Resulting Overpayment Applied to a Balance Due

  Informs the recipient of one or more changes made to their individual income tax return. The changes resulted in an overpayment, all or part of which we've applied to a balance due on another tax year.

  CP 21B - Data Processing Adjustment Notice, Overpayment of $1 or more, Balance Due

  Informs the recipient of changes made to their account which resulted in an overpayment and recipient is due money back.

  CP 22A - Data Processing Adjustment Notice, Bal Due of $5 or more, Balance Due

  Informs the recipient of data processing adjustments made to their account which resulted in a balance due.

  CP 22E - Examination Adjustment Notice, Balance Due

  Informs the recipient of an exam tax  adjustment made resulting in a balace due of $5 or more .

  CP 23 - Estimated Tax Discrepancy, Balance Due

  Informs the recipient that there was a difference between the amount of Estimated Tax Payments claimed on their tax return and the amount posted to their account. This notice may also inform the recipient that we made corrections to their tax return. The notice reflects a balance due on the account.

  CP 32A - We Want to Send You a New Refund Check

  Explains why we are sending a new refund check, what needs to be done before we can send it, and what we'll do after the recipient replies to us.

  CP 45 - Reduced Amount Applied to Estimated Tax

  Informs the recipient that we weren't able to fully honor their request to apply a portion of their refund to the subsequent year's estimated tax, explains why, and shows the amount, if any, we did apply.

  CP 49 - Overpaid Tax Applied to Other Taxes You Owe

  Informs the recipient that we applied all or part of their refund to other taxes they owe, lists the amounts applied, and shows the amount, if any, to be refunded.

  CP 54B - Problem With Name and Identifying Number

  Informs the recipient that the name and identifying number used on their tax return don't match information we received from the Social Security Administration, gives examples of what might cause such a mismatch, and explains the steps the recipient needs to take to resolve it.

  CP 54E - Problem With Name and Identifying Number

  Informs the recipient that the name and identifying number used on their estimated tax payment don't match information we received from the Social Security Administration, gives examples of what might cause such a mismatch, and explains the steps the recipient needs to take to resolve it.

  CP 54G - Problem With Name and Identifying Number

  Informs the recipient that the name and identifying number used on their tax return don't match information we received from the Social Security Administration, gives examples of what might cause such a mismatch, and explains the steps the recipient needs to take to resolve it.

  CP 54Q - Problem With Name and Identifying Number

  Reminds the recipient that we're holding their refund because the name and identifying number used on their tax return don't match the information given to us by the Social Security Administration, gives examples of what might cause such a mismatch, and explains the steps the recipient needs to take to resolve it.

  CP 57 - Notice of Insufficient Funds

  Informs the recipient that we are charging a penalty for insufficient funds.

  CP 60 - Notice of Credit Reversal

  Informs the recipient that we've transferred a credit from their account leaving a balance due.

  CP 75 - EIC Portion of Refund Delayed

  Informs the recipient that we're delaying the EIC portion of their refund because we may examine parts of their tax return. The notice explains what areas we may examine and what steps we'll take next.

  CP 75A - EIC Portion of Refund Delayed

  Informs the recipient that we're delaying the EIC portion of their refund because we may examine the Form 8862, Information to Claim Earned Income Credit After Disallowance, filed with their tax return. The notice explains what steps we'll take next.

  CP 75B - EIC Portion of Refund Delayed

  Informs the recipient that we're delaying the EIC portion of their refund because we haven't received Form 8836, Qualifying Children Residency Statement, or are still reviewing it. The notice asks the recipient to send a copy of Form 8836 if they haven't already and explains what steps we'll take next.

  CP 79 - Earned Income Credit Eligibility Requirement

  Informs the recipient that they may need to complete an additional form to claim the credit if their Earned Income Credit (EIC) was disallowed or reduced by the IRS for any year after 1996.

  CP 79A - Earned Income Credit Two Year Ban

  Informs the recipient that they are banned from claiming the Earned Income Credit (EIC) for two years, and must complete an additional form to claim the EIC in the first year after the ban has been lifted.

  CP 88 - Delinquent Return Refund Hold

  Informs the recipient that we're holding their refund until they file their delinquent return or provide an acceptable explanation for not filing it.

  CP 90 - Final Notice of Intent to Levy and Notice of Your Right to a Hearing

  Informs the recipient that they still have a balance due on their account and that we intend to levy on certain assets unless they take appropriate action within 30 days.

  CP 91 - Final Notice Before Levy on Social Security Benefits

  Informs the recipient that they still have a balance due on their account and that we intend to levy on their Social Security benefits unless they take appropriate action within 30 days.

  CP 501 - Reminder - Balance Due

  Informs the recipient that they still have a balance due on their account and that we can file a Federal Tax Lien if they don't pay the entire amount within 10 days.

  CP 503 - IMF 2nd Notice - Balance Due

  Informs recipient that immediate action is required.  No contact received from previous notice and a balance due is still pending.

  CP 504 - Final Notice - Balance Due

  Informs recipient when payment has not been made and this is the final notice that a levy will be place on certain assets. 

  CP 521 - - Balance Due

  Notifies the recipient a payment is due and the penalties and interest that have accrued and will continue to accrue until the balance is paid in full. 

  CP 523 - Notice of Intent to Levy - You defaulted on Your Installment Agreement

  Informs the recipient that they defaulted on their installment agreement, provides the reason for the default, and describes the actions we intend to take and what they can do to prevent us from taking those actions.

  CP 2000 - We Are Proposing Changes to Your Tax Return

  Informs the recipient that we're proposing changes to their tax return based on different information reported to us by their employers, banks, and other payers. The CP 2000 provides detailed information about the differences, the changes we propose, and what to do if they agree or disagree with the proposal

• Business Filer Notices
  Notices we send about business-related tax forms such as Forms 941, 1065, and 1120, are Business Filer Notices.
• One of the ways we classify our notices is by the type of tax form they're about. We call notices we send about business-related tax forms such as Forms 941, 1065, and 1120, business filer notices.  Notices we send about Form 1040, 1040A, 1040EZ, or any related schedules, forms, or other attachments are called individual filer notices and are listed elsewhere.  If the business filer notice you have isn't listed below, check back often. We'll be adding more on a regular basis.

  The Notices in Numerical Order

  Here's a list of notices with detailed information available.

  ---

  CP 101 - Math Error, Balance Due on Form 940

  Informs the recipient of one or more changes made to their Form 940 or 940-EZ return during processing. The changes resulted in a balance due on the account.

  CP 102 - Math Error, Balance Due on Form 941, 941SS, 943, or 945

  Informs the recipient of one or more changes made to their Form 941, 941SS, 943, or 945 return during processing. The changes resulted in a balance due on the account.

  CP 108 - Problem With Your Federal Tax Deposit

  Informs the recipient we couldn't determine the tax type or tax period for which a federal tax deposit was intended and explains how we applied the payment.

  CP 111 - Math Error, Overpayment on Form 940

  Informs the recipient of one or more changes made to their Form 940 or 940-EZ tax return during processing. The changes resulted in an overpayment.

  CP 112 - Math Error, Overpayment on Form 941, 941SS, 943, or 945

  Informs the recipient of one or more changes made to their Form 941, 941SS, 943, or 945 tax return during processing. The changes resulted in an overpayment.

  CP 138 - Overpayment Applied to Other Federal Taxes

  Informs the recipient that we applied all or part of their overpayment to other taxes they owe.

  CP 139 - You May Not Need to File Forms 940 or 941

  Informs the recipient that they won't need to file Form 941 again unless they owe tax for the quarter.

  CP 145 - Application of Overpayment Reduced

  Informs the recipient that we weren't able to fully honor their request to apply a portion of their overpayment to the subsequent tax period, explains why, and shows the amount, if any, we did apply.

  CP 160 - Reminder of Balance Due

  Informs the recipient of a balance that is still due on their account.

  CP 161 - Balance Due - Request for Payment or Notice of Unpaid Balance

  Informs the recipient that there is an unpaid balance due on their account.

  CP 165 - Penalty for Dishonored Check (Federal Tax Deposit)

  Informs the recipient that a check they sent as payment for their federal tax deposit was returned unpaid by their bank.

  CP 166 - EFT - Notice of Insufficient Funds Penalty

  Informs the recipient insufficient funds were available for payment to cover their installment agreement..

  CP 167 - We are Proposing a Federal Unemployment Tax Increase

  Informs the recipient that we're proposing an increase to their federal unemployment tax because of information we received from their state agency.

  CP 168 - We are Proposing a Federal Unemployment Tax Decrease

  Informs the recipient that we're proposing a decrease to their federal unemployment tax because of information we received from their state agency.

  CP 174 - Unemployment Tax Return Incomplete - Exempt Payments Not Explained

  Informs the recipient that their explanation for exempt payments listed on their unemployment tax return was missing or unacceptable and requests an explanation.

  CP 207 - Proposed FTD Penalty - Request for Correct Information

  Asks the recipient to send us a completed Record of Federal Tax Liability (ROFTL).

  CP 209 - EIN Assigned in Error

  Informs the recipient that we erroneously assigned them more than one EIN.

  CP 235 - Federal Tax Deposit Penalty Waived Due to Change in Deposit Requirements

  Informs the recipient that we're waiving their FTD penalty because they meet the criteria for penalty relief.

  CP 236 - Reminder of Your Semi-Weekly Deposit Requirements

  Reminds the recipient that they're subject to semi-weekly deposits.

  CP 238 - You Made One or More Late Federal Tax Deposits But We Didn't Charge You a Penalty

  Informs the recipient that they made one or more late federal tax deposits and provides guidance on these deposits and how to make them.

  CP 253 - Your Wage Reports Do Not Match the Amounts on Your Employment Tax Returns

  Informs the recipient that the amounts they reported to the Social Security Administration on Form W-3 differ from the amounts they reported to us on Forms 941, 943, 945, or Schedule H.

  CP 260 - Credit Adjustment

  Informs the recipient that we removed one or more credits that had been erroneously applied to their account and that the account now has a balance due.

  CP 261 - Notice of Acceptance as an S-Corporation

  Informs the recipient that we've approved their election to be treated as an S-Corporation and to explain their obligations.

  CP 267 - Account Overpaid - Possibly Misapplied Payments

  Informs the recipient that they have more credit available on their account than they claimed on their tax return.

  CP 268 - Correction and Overpayment Notice

  Informs the recipient of one or more changes made to their return during processing and of a discrepancy in the total credits claimed on their return and the total credits available on their account.

  CP 297 - Notice of Intent to Levy and Notice of Your Right to a Hearing

  Informs the recipient of our intent to levy and of their right to receive appeals consideration.

  CP 297A - Notice of Levy and Notice of Your Right to a Hearing

  Informs the recipient of our intent to levy and of their right to receive appeals consideration.

  CP 298 - Final Notice Before Levy on Social Security Benefits

  Informs the recipient of our intent to levy on their social security benefits.

  CP 521 - Installment Agreement Reminder Notice

  Informs the recipient a payment is due and the penalties and interest that have accrued and will continue to accrue until the balance is paid in full

What To Do When You Disagree
If your notice or letter is listed above, follow the link for advice on handling disagreements with the notice. In general though, you need to contact IRS at the contact number provided on the notice to explain why you disagree. If that doesn't result in your satisfaction, the Taxpayer Advocate may be able to assist.

Tax Laws and Regulations - Manufacturing
This page provides links to recent revenue rulings and court cases, legal determination of business use of the home and other regulations for the small business.

Accounting Methods
The following is a partial list of issues solicited from Internal Revenue Agents on accounting method changes identified during examinations. This is posted for informational purposes only and does not represent any official position of the Internal Revenue Service.

Improper adjustment period:
Taxpayer has changed its method of accounting for depreciation, which resulted in a negative adjustment (in the taxpayer's favor). Taxpayer has taken this negative adjustment into account in the year 19x1. No form 3115 was filed requesting an accounting method change.

Analysis:
Updated Analysis: Revenue Procedure 2002-09 modified by RP 2002-19 and 2004-11 for years 2001 and subsequent: When Form 3115 is filed an automatic consent is granted. This is available if not enough or too much depreciation was claimed by using an improper method of depreciation; compliance with section 2 of the appendix necessary; one-year reporting of taxpayer favorable section 481(a) and four-year reporting of Service favorable section 481(a) adjustment.

Erroneous method becomes an accounting method:
For unknown reason, taxpayer's internal system writes up the cost of used cars (inventory) by $100. The taxpayer has done this for more than two years. Now in year 199X the taxpayer wishes to restate its inventory balance to the correct amounts and makes a large adjusting entry reducing taxable income for the amount. No form 3115 requesting an accounting method change.

Analysis:
According to the analysis in Revenue Ruling 90-38, 1990-1, CB 57 the "treatment of a material item in the same way in determining the gross income or deductions in two or more consecutively filed tax returns represents consistent treatment of that item for purposes of section 1.446-1(e)(2)(ii)(a) of the regulations." A scenario similar to this represents the use of an erroneous accounting method. Any change would require the filing of Form 3115 and an adjustment period of 4 years, rather than 1 year.

The filing of an amended return to change an accounting method:
Taxpayer elected to use the accrual method on its initial return filing in year 19X1. In 19X3, the taxpayer decided that the use of the cash method might be more favorable.

Analysis:
The use of a proper method of accounting on its first return established the method of accounting. The taxpayer, therefore, is bound by its initial election. See generally in section 1.446-1(e)(1) of the regulations and Revenue Ruling 90-38, 1990-1, CB 57

Environmental Cleanup

Revenue Ruling 94-38 - Environmental Cleanup Cost of Land
Costs incurred to clean up land and to treat groundwater that a taxpayer contaminated with hazardous waste from its business are deductible by the taxpayer as ordinary and necessary business expenses under section 162 of the Code. Costs properly allocable to constructing groundwater treatment facilities are capital expenditures under section 263. Revenue Ruling 88-57 modified.

Environmental Cleanup Rev Ruling 2000-7

Inventory

Mountain State Ford Truck Sales, Inc., 112 T.C. No. 7, March 2, 1999
LIFO - Replacement Costs
Ruling:

• For LIFO inventory purposes, taxpayers must use actual cost and not replacement cost
• The use of replacement cost does not clearly reflect income
• The IRS did not abuse its discretion by adding the taxpayer's LIFO reserve back to income since the taxpayer failed to keep adequate records to compute LIFO using any other method

Update: Automotive Alert (from Automotive section) on Revenue Procedure 2002-17
On March 11, 2002, the IRS released the long anticipated resolution to the replacement cost LIFO issue. Revenue Procedure 2002-17 describes a safe harbor method of accounting for vehicle parts inventory that allows automobile dealers to approximate the cost of their parts. The revenue procedure includes procedures for dealers to receive automatic consent to change to the replacement cost method.

Thor Power Tool Co. v. Commissioner, 439 U.S. 522 (1979), 1979-1 C.B. 167
Lower of Cost or Market Method Ruling:
The taxpayer, who used the "lower of cost or market" method of valuing inventories, wrote down what it regarded as "excess" inventory to its net realizable value, which in most cases was determined to be scrap value. The taxpayer determined that this inventory, mostly spare parts, was "excess" inventory because it was held in excess of any reasonably foreseeable future demand, although this inventory was not scrapped or sold at reduced prices. The taxpayer physically retained the excess items in inventory and continued to sell them at original prices. The Supreme Court, in disallowing the taxpayer's write-down, held that because the taxpayer provided no objective evidence of the reduced market of its excess inventory, its write-down was plainly inconsistent with the regulations and was properly disallowed by the Commissioner. The taxpayer could not have properly taken advantage of any permitted write-down because it did not scrap its "excess" inventory nor sell or offer it for sale at prices below market (replacement cost).

IRC Section 471 - General Rule for Inventories
IRC Section 472 - Last In, First Out Inventories
IRC Section 263A - Capitalization and Inclusion in Inventory Costs of Certain Expenses.

Trends and Statistics - Manufacturing

Bureau of Labor Statistics
The Bureau of Labor Statistics is the principal fact-finding agency for the Federal Government in the broad field of labor economics and statistics.

Census Non-Employer Statistics
Provides periodic statistics that count and profile U.S. businesses with no paid employment and payroll. The United States Code, Titles 13 and 26, authorizes this program.

Office of Women's Business Ownership (OWBO)
Women-owned businesses are increasing in number, range, diversity and earning power. As women business owners expand their companies, they add increasingly to our national economy.

Characteristics of Business Owners Survey
The 1992 Characteristics of Business Owners (CBO) Survey provides the only national data available for comparing selected economic, demographic, and sociological characteristics among minority, women, nonminority male, and all business owners and their businesses.

Statistics about Business Size (including Small Business) from the U.S. Census Bureau
The Census Bureau does not define small or large business, but provides statistics that allow users to define business categories in any of several ways: in terms of employers and nonemployers, employment size of firms, employment size of establishments, receipts size of firms, and legal form of organizations.

Surveys of Minority - and Women-Owned Business Enterprises
These surveys provide valuable economic data on business owners' race, ethnicity, and gender, and are part of the economic census program, which the Census Bureau is required to conduct every 5 years by law (Title 13 of the United States Code).

Related Links - Manufacturing