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This article applies to:

  • Product: SurePrep
  • Sub-Product: 1040Scan

Matching security descriptions

You can choose the settings for Tax Exempt Income allocation for state purposes. The muni-bond data is captured based on your firm-wide settings or customized on individual binders. This article will highlight the criteria for matching securities that determine if the security is marked state-taxable or non-taxable.
You can decide from one of the three options:
  • SurePrep automatically determines state taxability
  • State non-taxable
  • State taxable
When creating a binder, firm-level options are selected by default across the firm. However, you can select a different option when creating a binder.

Tax Exempt Income: Automatically determine state taxability

Auto-calculation of Muni Bond Interest as State Taxable/Non-Taxable for Tax Exempt Dividends/Interest and Bond Premium:
If the
Automatically determine state taxability
 option is selected, then 1040SCAN completes the following steps to match the security descriptions with a predefined list, in the Pre-Verification process.
Automatically determine state taxability
note
The ability to automatically determine state taxability begins processing for new binder around Feb 15th of the calendar year.
The security descriptions are displayed in the Verification Wizard as per the following criteria:
  • Security Description matches with the predefined list
  • Recognition of Security Description based on state

'Security Description' matches with the predefined list

When the security description on the source document matches the security description provided in the predefined list, an m icon icon is placed to the right side of the
Security Description
. The m icon icon indicates that the system has automatically calculated the percentage in the
EXEMPT % OR AMOUNT
 column based on the amount captured by the OCR in the
State Exempt Amount
 column.
m icon in the template
You can point to the m icon icon to see the tooltip:
Exempt% determined based on Description
.
note
The m icon icon disappears if the verifier manually edits a value in the '
EXEMPT % OR AMOUNT
' column.
The
Security Description
 gets replaced automatically with the security description found in the predefined list.
If the
Security Description
 matches with more than one security description from the predefined list, the highest matched security description among the two or more matches found will be considered for calculating the
EXEMPT % OR AMOUNT
value.

Recognition of Security Description based on State

1040SCAN will check for the proforma resident state code (Home State) and will consider that as a base state. Next, it will search for the base state name /state abbreviation /state short form within the
DESCRIPTION
 field captured during the OCR process (i.e. California, CA).
  • Home State of California
  • Search for 'California' or 'CA' in the
    DESCRIPTION
     field.
A match must have a space after/before it. It should not have any spaces or special characters between them.
When the state name/abbreviation/short form is found, an s icon icon gets displayed on the right side of the
DESCRIPTION
 field, indicating that the taxability is determined based on the state.
Use your mouse to point to the s icon icon to see one of the following messages:
  • Deemed Non-Taxable as Resident State is found in Description.
  • Deemed Taxable as Non-Resident State is found in Description.

Deemed Non-Taxable as Resident State is found in Description.

The taxability is determined based on the resident state. The
DESCRIPTION
 is marked as state taxable/state exempt based on the resident state.
s icon appearing for non-taxable transaction
If the security description is matched with the proforma’d resident state then:
  • State Exempt Amount
     field =
    State Non Taxable
  • EXEMPT % OR AMOUNT
     field = 1 (to indicate state non taxable)
  • In the
    State Taxable
     option checkmark will not be cleared.
For
Puerto Rico
,
Guam
,
Virgin Islands
, and
Samoa
, the
DESCRIPTION
 field will be considered State Non Taxable:
  • State Exempt Amount
     field =
    State Non Taxable
  • EXEMPT % OR AMOUNT
     field = 1 (to indicate state non taxable)
  • In the
    State Taxable
     option checkmark will not be cleared.

Deemed Taxable as Non-Resident State is found in Description.

If there is no resident state(s) in the security description, the taxability will be determined based on the Non-Resident state. The security description is marked as state taxable/state exempt.
s icon appearing for taxable non-state transaction
If any state name/short form/abbreviation other than the resident state name is found in the security description, it will consider the 'State Exempt Amount' as 'State Taxable', with populating
0
 in the
EXEMPT % OR AMOUNT
 column and the
State Taxable
 checkbox will be checked automatically.
note
If more than one state name/abbreviation is found from the security description, the resident state will be considered first for determining the taxability.
For example: If there exists a client with:
  • the proforma'd home state of
    NJ
  • and a
    DESCRIPTION
     in which two state abbreviations are found (i.e.
    NY
     and
    NJ
    )
then the state abbreviation
NJ
 will be considered because it is the resident state
and
 it is the same state found in the security description. Consequently, the
State Exempt Amount
 will be calculated as
Fully Exempt
.
note
For some specific resident states like FL, TX, NV, WA where determining the state taxability is not required, the amount inEXEMPT % OR AMOUNT will always be considered asState Non-Taxable.
The security descriptions that do not match the predefined security description, and were read as certain by the OCR will directly appear in the Verification wizard.
  • If none of the state name/abbreviations/short form is found in the security descriptions, and no proforma’d state information is provided, then the security description will be shown under the Verification Wizard and the amount will be shown in the
    State Exempt Amount
     column as
    State Nontaxable
    .
  • When the verifier corrects that description and to the next, the system will begin matching it to the security descriptions in the predefined list. The process will end once the verifier provides a value in the '
    EXEMPT % OR AMOUNT
    ' field or moves on to the next security description.
  • The '
    EXEMPT % OR AMOUNT
    ' field is editable. If the security description is state taxable then '0' appears automatically in that field along with a checkmark in the 'State Taxable' check box. Once you edit the '
    EXEMPT % OR AMOUNT
    ' field, the checkmark for 'State Taxable' will be removed.
  • If you enter [0.1 to 1.0] in '
    EXEMPT % OR AMOUNT
    ' field, it will be treated as an Exempt percentage and more than 1 will be treated as an Exempt amount. If you enter a negative amount, a message 'Invalid amount or %' is displayed.
  • Those security descriptions matched with the predefined list will have an icon on the right side of security description and those which are determined based on state will have an icon on the right side of the security description.
  • If the verifier clicks the 'Submit' option without verifying the uncertain security description, a message pops up for verification 'There are some uncertain fields to verify. Would you like to skip verification and continue?'
  • If the verifier clicks on the 'Yes' option, then all the uncertain security descriptions will get converted to certain, but will not be processed for the determination of taxability. Clicking the 'No' option will take the verifier to the uncertain security descriptions.
  • Alternatively, you can also change the security transactions as 'State Taxable' or 'State Exempt' manually by entering '0/0.1' in the field of '
    EXEMPT % OR AMOUNT
    ' to make the whole State Exempt Amount as 'State Taxable'/ 'State Exempt' or can also enter the calculated exempt amount or percentage (should not be a negative amount) and the balance will be considered as 'State Taxable'.
note
If in some cases, descriptions appear in more than one line then the determination of taxability will not be applied.

Tax Exempt Income: State non-taxable

When the
State non-taxable
 option is selected in the
Create New Binder
 window, or through the
Admin > TAX RETURN >
Tax Exempt Income
 tab of FileRoom, then it will
not
 follow the steps mentioned above.
State non-taxable is selected
  • The security descriptions as captured by the OCR appears in the
    DESCRIPTION
    field.
  • The
    TAX-EXEMPT INTEREST
     field will display the amount of the tax-exempt interest.
  • The
    EXEMPT % or AMOUNT
     field will populate with
    1
     indicating the amount as 'State Non Taxable'.
  • The
    State Taxable
     checkbox will be unchecked.
    Unchecked checkboxes
  • To change the security descriptions to
    STATE TAXABLE
    , you can select the STATE TAXABLE checkbox. As a result, the value in the corresponding
    EXEMPT % or AMOUNT
    field will automatically update to
    0
    .
  • If you enter any amount greater than
    1
    , it will be treated as an
    EXEMPT AMOUNT
     and the balance will be treated as
    STATE TAXABLE
    .

Tax Exempt Income: State taxable

When the
State taxable
 option is selected in the
Create New Binder
 window, or through the
Admin > TAX RETURN >
Tax Exempt Income
 tab of FileRoom, then it will
not
 follow the steps mentioned above.
State taxable selected
  • The security descriptions captured by the OCR will appear in the
    DESCRIPTION
    fields.
  • The
    TAX-EXEMPT INTEREST
     field will display the amount of the tax-exempt interest.
  • The
    EXEMPT % or AMOUNT
     field will populate with
    0
     indicating the amount as
    State Taxable
    .
  • STATE TAXABLE
     checkboxes will be selected.
    Checked transaction checkboxes
  • To change the security transactions as State Non-Taxable, you can enter [0.1 - 1] and it will be treated as a percentage equal to or more than 1, and the same will be treated as an exempt amount, but it should be less than or equal to the State Exempt Amount. This will deselect the
    State Taxable
     checkboxes.
  • If you enter the Exempt percentage or Amount in the 'Exempt% or Amount' field, the check mark will be removed and the State Exempt Amount will break down on the basis of the exempt percentage or the amount entered and the check box of the 'State Taxable' field will be inactive.
  • If the verifier does not verify the uncertain description in the Verification wizard and submits the wizard, then the same security transactions will be displayed in the Tax Exempt Interest Income Wizard.

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