IRS TELLS FILERS OF INFORMATION RETURNS HOW TO APPLY FOR MAGNETIC MEDIUM APPROVAL OR TO REQUEST 'UNDUE HARDSHIP' WAIVER FROM MAGNETIC MEDIA FILING

Rev. Proc. 86-31

SECTION 1. PURPOSE

01 The purpose of this revenue procedure is to provide guidance to filers of certain information returns about the procedures for requesting approval for filing such information returns on a particular form of magnetic medium, or for requesting a waiver of the magnetic media filing requirements of section 6011(e) of the Internal Revenue Code and section 1.6045-1(l) of the Income Tax Regulations.

02 Magnetic media reporting is required for the following forms: Form W-2, Wage and Tax Statement; Form W-2P, Statement for Recipients of Annuities, Pensions, Retired Pay, or IRA Pay-ments; Form W-2G, Statement for Recipients of Certain Gambling Winnings; Form 1099 Series, Information Returns; Form 1042S, Foreign Person's U.S. Source Income Subject to Withholding; Form 1098, Mortgage Interest Statement; Form 5498, Individual Retirement Arrangement Information; Form 6248, Annual Information Return of Windfall Profit Tax; and Form 8027, Employer's Annual Information Return on Tip Income and Allocated Tips.

SEC. 2. BACKGROUND

01 Section 6011(e) of the Code provides that the Secretary may prescribe regulations setting forth standards for determining which returns must be filed on magnetic media.

02 Under section 6011(e)(2)(A) of the Code and section 301.6011- 2(c)(2) of the Regulations on Procedure and Administration, effective for payments made after December 31, 1983, any Payor of interest, dividends, or patronage dividends that is required to file returns under sections 6042(a), 6044(a), or 6049(a) must use magnetic media if the payor has more than 50 returns for any calendar year.

03 Under section 1.6045-a(l)(1) of the regulations, in general, a broker or barter exchange required to file information returns must file such returns on magnetic media. Under section 1.6045-1(l)(2), the Commissioner may waive the magnetic media requirements upon a written showing of hardship by the filer.

04 Under section 301.6011-2(c)(1)(i) of the regulations, effective for returns filed after December 31, 1986, a person that is required to make a return of information on a particular type of form specified in section 301.6011-2(b) (other than Forms 1099-INT, i099- DIV, 1099-PATR, or 1099-OID) must submit such information on magnetic media if:

(A) in the case of calendar year 1986,

(1) the person reasonably expected on the first day of such year to file 500 or more returns on such form, or

(2) the person was required to file 500 or more returns on such form for the 1985 calendar year, or

(B) in the case of a calendar year beginning on or after January 1, 1987,

(1) the person reasonably expects on the first day of such year to file 250 or more returns on such form, or

(2) the person was required to file 250 or more returns on such form for the preceding year.

05 As is more fully explained in sections 3 and 4 below, under section 301.6011-2(b) of the regulations, magnetic media filers are required to obtain prior approval from the Internal Revenue Service (IRS) or the Social Security Administration (SSA) of the medium used to report the information.

06 Under section 301.6011-2(c)(4) of the regulations, the Commissioner may waive the magnetic media requirements upon a written showing of hardship by the filer. In determining whether hardship has been shown, the principal factor to be taken into account is the amount, if any, by which the cost of filing returns using magnetic media exceeds the cost of filing returns on paper forms. Except in the case of returns on Forms W-2 and W-2P for 1986 or 1987 (which are filed in 1987 and 1988, respectively), a request for waiver must be filed at least 90 days before the filing of the first return for which a waiver is requested. In the case of 1987 returns on Forms W-2 or W-2P filed in 1988, a request for waiver must be filed on or before June 30, 1987. In the case of 1986 returns on Forms W-2 or W- 2P filed in 1987, under the current regulations, a request for waiver must be filed on or before June 30, 1986; however, on June 18, 1986, the IRS announced that the regulations would be amended to permit requests for waiver to be filed on or before July 31, 1986, in the case of 1986 returns on Forms W-2 and W-2P filed in 1987.

07 There may be situations in which the filer is seeking approval for filing on a particular form of magnetic medium for some forms and requesting a waiver from filing on magnetic media for other forms, or the filer may be unsure whether its magnetic medium is compatible with the IRS's or with the SSA's systems, or whether its waiver request will be granted. In such cases, because applications for approval of the filer's particular form of magnetic medium are due at the same time as requests for waivers from filing, certain filers may seek approval or waiver, as alternatives, by filing a single application. Filers must follow procedures outlined in Sections 3 and 4 below.

SEC. 3. APPLICATION FOR MAGNETIC MEDIA REPORTING AND REQUESTS FOR UNDUE HARDSHIP WAIVERS

CONSENTS

01 All filers of information returns, OTHER THAN FORMS W-2 AND W-2P, must obtain approval of their magnetic medium from the IRS before their first filing on magnetic media by submitting Form 4419, Application for Magnetic Media Reporting of Information Returns, to the address listed in Section 3.05 below, at least 90 days before filing the return.

02 The IRS will review Form 4419 and, if acceptable, will send an authorization letter within 30 days. Do not submit magnetic media until the IRS sends authorization to do so.

03 Requests for consent to file Forms W-2 and W-2P on magnetic media MUST be submitted to the SSA. See Section 4 for additional information.

WAIVER REQUESTS

04 Generally, all waiver requests, including requests for waiver from filing Forms W-2 and W-2P on magnetic media, must be sent by the filer to the IRS. However, if, in a single application with the SSA, the filer is submitting a request to file Forms W-2 and W-2P on a particular form of magnetic medium and, alternatively, seeking a waiver from the magnetic media filing requirements in the event approval is not granted, the SSA will forward the waiver request to the IRS. See Section 4 below.

05 Effective January 1, 1986, magnetic media processing for all the IRS service centers was centralized at the National Computer Center. Forms 44i9 and waiver requests should be directed to the following address:

     Magnetic Media Reporting

(a) The filer's name and address.

(b) The filer's taxpayer identification number.

(c) The tax year for which the waiver is requested.

(d) The name and telephone number of a person to contact who is familiar with the information contained in the waiver request.

(e) The form number for which the waiver is requested.

(f) The type and expected volume of each return for the tax year for which a waiver is requested and the number and type of returns to be filed on magnetic media, if any.

(g) If the filer does not currently have a magnetic media system, a cost analysis that shows the cost to convert from the filer's current paper system to a magnetic media system compatible with the IRS's or SSA's systems. Specify the type of magnetic medium considered, such as tape, cartridge, cassette, mini-disk or diskette, and

(1) a copy of a written cost estimate for magnetic media filing from two service bureaus, or

(2) written statements from at least two service bureaus indicating that they will not handle the volume of documents required by the filer.

(h) If the filer has a magnetic media system that is incompatible with the IRS's or SSA's system, or is currently in the process of installing a magnetic media system:

(1) a firm date by which the filer's system will be capable of providing a form of magnetic medium that is compatible, or

(2) a written commitment of a date from a service bureau that will convert the returns to magnetic media.

(i) In the case of Form W-2 filers, the number of permanent employees for whom Forms W-2 will be filed and the total number of employees, if different, for whom Forms W-2 will be filed.

07 The waiver request must contain the following statement signed by a responsible person who is duly authorized to make and sign a return, statement, or other document:

"Under penalties of perjury, I declare that I have examined this request, including accompanying documents, and to the best of my knowledge and belief the facts presented in support of this request are true, correct and complete."

08 The IRS will notify the filer whether the request is granted or denied.

09 With respect to returns filed on forms other than Forms W-2 and W-2P, if the filer is seeking, in a single application, approval for filing the returns on a particular form of magnetic medium and alternatively, a waiver from the magnetic media filing requirements if approval is not granted, Forms 4419 and 8508 (or a written request) should both be submitted to the IRS.

SEC. 4. PROCEDURES FOR CONSENTS/WAIVERS FOR WAGE AND PENSION INFORMATION

01 Forms W-2 and W-2P MUST be filed with the SSA. The SSA will accept magnetic media filing for Forms W-2 and W-2P and has issued the following Specification booklets: TIB-4a, "Magnetic Tape Reporting, Submitting FICA Wage and Tax Data to the Social Security Administration," TIB-4b, "Magnetic Tape Reporting, Submitting Annuity, Pension, Retired Pay or IRA Payment to the Social Security Administration," and TIB-4c, "Diskette Reporting, Submitting FICA Wage and Tax Data to the Social Security Administration." All filers must obtain approval of their magnetic medium before their first filing on magnetic media by submitting an SSA authorization request. The authorization request forms appear in TIBs-4a, 4b, and 4c. Copies of these publications are available from the SSA Regional Magnetic Media Coordinators. Filers must send authorization requests to:

     Social Security Administration

03 if the filer is seeking approval for filing on a particular form of magnetic medium and alternatively, requesting a waiver from the magnetic media filing requirements in a single application, Form 8508 (or a written waiver request) should be submitted with the authorization request. The SSA will forward the waiver request to the IRS for its consideration.

04 A filer may submit Form 8508 (or a written waiver request) directly to the IRS.

05 Under the current regulations, the authorization request and/or the waiver request must be filed with the appropriate agency on or before June 30, 1986, in the case of 1986 Forms W-2 and W-2P to be filed in 1987; however, on June 18, 1986, the IRS announced that the regulations would be amended to permit authorization requests and/or waiver requests to be filed on or before July 31, 1986, in the case of 1986 returns on Forms W-2 or W-2P filed in 1987. The authorization request and/or the waiver request must be filed on or before June 30, 1987, in the case of 1987 Forms W-2 and W-2P to be filed in 1988.

SEC. 5 APPLICABLE PENALTIES

If a filer fails to file on magnetic media when required to do so, and has not received a waiver from the filing requirements, the filer is subject to the penalties for failure to file a return under sections 6652 and 6693.

SEC. 6. EFFECTIVE DATE

This revenue procedure is effective June 18, 1986, for returns filed after December 31, 1986.