Rev. Proc. 86-33

SECTION 1. PURPOSE

.01 The purpose of this revenue procedure is to outline the requirements and instructions for reporting agents who perform a payroll service and who, in connection with this service, submit employment federal tax deposit payments for their clients. These payments are described in the Employment Tax Regulations (26 CFR Part 31) under section 6302 of the Internal Revenue Code. All federal tax deposit payments are required to be deposited through a qualified federal tax depositary, as defined in 31 CFR Part 203.

.02 Under the provisions of this revenue procedure, qualifying agents may request permission to prepare magnetic tapes for federal tax deposits instead of using the preprinted forms provided by the Internal Revenue Service (IRS). Authorization will extend only to those agents who have a minimum of 250 clients and who satisfy all the requirements of this revenue procedure.

SEC. 2. BACKGROUND

.01 The IRS furnishes federal tax deposit forms to those taxpayers who can reasonably be expected to make tax deposits. These forms are preprinted with essential identifying information for processing the payment data to the appropriate tax account. Many payroll and tax preparation businesses do not have the preprinted deposit forms for making the required tax deposits and, in most instances, this occurs because the agent has not requested that the client forward the deposit forms furnished by the IRS. Some of these reporting agents have mailed deposits directly to an Internal Revenue Service office when the forms were not available to them. This practice is not in conformity with Section 31.6302(c) 1(a)(2) of the Employment Tax Regulations.

.02 Authorization for preparing Form FTD 501, Federal Tax Deposit, Withheld Income and FICA Taxes (FTDs), first appeared in Rev. Proc. 75-12, 1975-1 C.B. 653. The authority to prepare federal tax deposit magnetic tapes is not dependent on the authority to file Form 941, Employer's Quarterly Federal Tax Return, on magnetic tape.

SEC. 3. FTD PAYMENTS SUBMITTED BY REPORTING AGENTS

.01 All FTD payments prepared by an authorized agent must be submitted through a qualified federal tax depository or Federal Reserve Bank. The only acceptable agent-prepared deposit tapes are those relating to Forms 941, 940, and 943. All FTD tapes prepared by an authorized agent must be submitted to the service center of jurisdiction, Attention: Service Center Computer Branch Tape Library. Addresses are shown on pages 16 and 17. Form 2284, Advice of Credit (AOC), facsimile must be transmitted to the Federal Reserve Bank of jurisdiction.

.02 Deposits for other taxes and for clients who have not been accepted and validated by the IRS for this program must be made to a depositary by means of the pre-printed forms provided by IRS. Reporting agents authorized under this program who mail payments directly to an IRS office will have their remittances returned to them with instructions that they obtain the appropriate deposit forms from their client and that they submit the payments through a qualified federal tax depositary, as required. Taxpayers whose payments are returned to their reporting agent may be subject to appropriate penalty and interest charges. Reporting agents must not assume the responsibility for making tax deposits on behalf of a client for any deposit that may become due before the client is actually under this program.

.03 Agent-prepared FTD deposits must be submitted through a qualified depositary.

SEC. 4. APPLICATION TO SUBMIT FTD TAPES

.01 Agents who wish to submit FTD information on magnetic tape must first file a letter of application with the Director of the Internal Revenue Service Center where the deposits will be processed. In most cases this will be the same service center that processes the related tax forms. See pages 14 and 15 for a list of service centers and their respective addresses. The letter of application should include all the following information:

1. The full name, address, and employer identification number of the firm making the application. If the reporting agent will prepare tapes at more than one branch or location, each location must be identified in the letter of application.

2. The name, title, and telephone number of a person the service center can contact regarding the application. In most cases, any problem with the letter of application can be resolved by telephone and this will expedite processing by the service center.

3. The name, address, Federal Reserve Bank Code, bank identification number / check digit code, and branch code of the federal tax depositary. Prior to submitting the letter of application, the reporting agent must have an agreement with a depositary that the depositary will allow the agent to utilize its Treasury Tax and Loan Account (TT & L). A copy of the agreement should accompany the application.

4. A listing of the taxpayers who will have their FTD payments prepared by the reporting agent. See Section 5 for the information required on this listing. See Exhibit 1 for an example of a list of clients.

5. A power of attorney (POA) for each taxpayer on the listing. See Section 6 for information concerning the power of attorney. See Exhibit 2 for an example of a properly prepared power of attorney.

.02 Applications containing a listing of less than 250 clients will be denied. If an agent has previously been preparing FTDs under the provisions of Rev. Proc. 75-12 before supersession by Rev. Proc. 79-15, 1979-1 C.B. 498, the agent is exempt from this qualification.

SEC. 5. LISTING OF CLIENTS

.01 Each letter of application must include a listing of the taxpayers who will have their FTDs prepared by the reporting agent. The listing must include each taxpayer's complete business name, address (including zip code), federal employer identification number (EIN) and a customer identification number assigned to the client by the agent. For each client, the listing must specify the types of taxes that will be prepared.

.02 The listing must be double spaced to allow room for notations by the service center. The clients must be listed in EIN number sequence. A duplicate listing must be submitted so that the Service can maintain a file of taxpayers accepted under this program. See Section 8 for updates to the initial listing of clients. See Exhibit 1 for an example of the format of the listing.

SEC. 6. POWER OF ATTORNEY

.01 A power of attorney must be submitted for each client on the listing. The power of attorney may be submitted on Form 2848, Power of Attorney and Declaration of Representative, which is available on request. A sample power of attorney is set forth in Exhibit 2. If this form is not used, the power of attorney must clearly state that it is a limited power of attorney granting the authority to prepare and submit FTDs for Forms 940, 941, 943 Employment Taxes and must include the following information.

(a) The client's name, address and employer identification number

(b) The reporting agent's name and address

(c) Type of tax, Employment Taxes, Forms 940, 941, 943

(d) A specific period of time, i.e., 1986-1991

(e) Both the taxpayer or authorized representative, and the reporting agent must sign the POA.

(f) If the reporting agent would like to receive copies of notices the POA must specify authorization as a "designee" of the taxpayer under section 6103 of the Code to receive copies of notices and correspondence with regard to these payments.

(g) Agents should be cautioned that if their client already has a POA on file with the IRS, the automated centralized POA file will accept the latest date and revoke prior POA's unless noted on the limited POA to retain all existing POA's on file.

.02 If a power of attorney is already on file for full tax reporting, it is not necessary to execute a new agreement. If a power of attorney is already on file for magnetic tape filing of Form 941, it does not need to be revoked, however, a new power of attorney must be submitted to cover any federal tax deposits not already covered.

.03 The power of attorney for agent-prepared FTDs will be a limited power of attorney. Refunds, tax forms, notices and other output will be mailed to the taxpayer. Requests from a reporting agent for information or adjustments on an account will be honored by the IRS only to the extent covered by the power of attorney.

.04 Requests for taxpayer name and address changes may not be made by a reporting agent with a limited power of attorney. The only requests that will be honored will be those originating from the taxpayer, or an attorney-in-fact, if the attorney has a full power of attorney for all tax matters concerning a taxpayer and has filed a copy of the full power of attorney with the IRS center.

.05 The reporting agent must keep copies of the power of attorney on file at the agent's principal place of business for examination by the IRS upon request. If the power of attorney includes the authority to sign and file tax returns, it must be retained until the statute of limitations for the last return filed under its authority expires.

.06 The power of attorney will remain in effect until such time as it is revoked by the taxpayer, terminated by written notification by the reporting agent, or expires under its own terms.

.07 The power of attorney is automatically revoked when the reporting agent notifies the Service that the taxpayer will no longer have FTD payments submitted by the agent. It is also automatically revoked when the Service notifies the reporting agent that the requirements of this revenue procedure have not been adhered to and the Service will no longer accept the agent-prepared FTD payments from the agent.

.08 Any time a power of attorney has been terminated or revoked a new power of attorney will be required if a client re-enters this program. The new power of attorney must be signed and dated subsequent to the revocation.

SEC. 7. ACCEPTANCE OF AGENT'S APPLICATION

.01 The IRS will process each letter of application within thirty days of receipt. The authorization letter will include a two digit identifying number, which the IRS will assign to the reporting agent. If the reporting agent will prepare tapes at more than one location or branch, each location or branch will be assigned a separate identifying number. After an agent has been assigned an identifying number, all communication regarding the preparation FTD tapes should include this number. Updates to the agent's listing of clients must always contain the identifying number of the location or branch handling the particular client's records. The agent-identifying number must be in tape positions 52-53, on both the AOC and FTD records.

.02 One copy of the listing of the reporting agent's clients will be returned with the authorization letter. The Service will verify each client's employer identification number and will provide the client's name control. The name control must appear in tape positions 14-17 on the FTD records. An IRS office code will be provided to the agent for each taxpayer and must appear in tape positions 18-19 of the FTD record. If there is a discrepancy, the IRS will also provide the business name as it is maintained on record with the IRS. Corrections will be indicated by a line through the agent's information with the corrected information written above.

.03 Reporting agents must not change the validated employer identification number, name control, or service center code except when notified to do so by the Internal Revenue Service.

.04 All discrepancies in taxpayer filing requirements will be resolved by telephone if a contact is established in the letter of application. If, for any reason, a particular taxpayer whose name is recited on the agent's list is not accepted by the IRS under this program, the name of the taxpayer will be circled out and the reason for non-acceptance will be stated in the acceptance letter.

.05 Payroll agents who submit data on magnetic tape and are located in IRS regions having more than one IRS center will have the option to consolidate and file FTDs at only one service center. Only those agents using magnetic tape are allowed this option. If an agent deals with more than one regional service center and wishes to consolidate, the agent must write to the Director of the IRS center and obtain approval prior to beginning to file with only one service center.

SEC. 8. UPDATES TO THE AGENT'S LIST OF CLIENTS

.01 After acceptance of the reporting agent's initial list of clients, all additions and deletions must be reported to the service center. New clients must not be included in the preparation of FTDs by a reporting agent until they are accepted and the entity information (EIN, name control, service center code, and filing requirements) is validated and provided by the IRS. If the reporting agent chooses to make FTDs for a new client prior to being accepted, the agent must use the IRS preprinted forms and deposit the payment with a qualified depositary separate from the agent-magnetic tape.

Note: When the additions or deletions list exceeds 500, that listing must be sent to the service center within one week. If the additions and deletions are less than 500, submit no later than the first day of the last month of the quarter.

.02 The IRS will process updates to the agent's addition listing within two weeks of receipt. The update listing should be in the same format as the initial listing, with the additions preceding and on a separate page from the deletions. Two copies of this listing should be submitted to enable the Service to maintain a file copy. The service center will process the additions on an expedite basis and in the same manner as the initial listing. Deletions will be acknowledged to the reporting agent within 30 days.

.03 Once a client has been deleted under this program, the reporting agent may not request to re-enter that client until the next quarter. For example, if a client is deleted in the first quarter of the year (Jan., Feb., Mar.), the client may not be added back onto the accepted list of clients until the second quarter of the year (Apr., May, June). A new power of attorney must be submitted when the request to re-enter the program is sent to the Service.

.04 The reporting agent must send a consolidated listing of their clients currently accepted by the Service within 14 days after the end of each quarter. This listing must not include current additions or deletions which must be sent separately. The consolidated listing is for information only and will not be returned to the agent.

SEC. 9. PREPARATION OF THE MAGNETIC TAPE DATA

.01 Tape must be: a. 9 Track b. ASCII c. 1600BPI

.02 Instructions for the record layouts of the Advice of Credit, Form 2284, and the Federal Tax Deposits are included in this revenue procedure as Exhibits 3 & 4. Exhibit 5 is the FTD Data Tape record layout. Each tape must be clearly labeled as agent prepared (state agent name), FTD Tape.

.03 The Advice of Credit record layout is an 81 character record and must include the following:

1. Problem Code, 1 position, Always Zero

2. Service Center code, 2 positions, must be numeric and is assigned by the IRS.

3. Federal Reserve Bank code, 2 positions, must be numeric and is also assigned by the IRS.

4. Bank account number, 8 positions, is the routing and transmittal number authorized by the depositary bank.

5. Check digit, 1 position, and is for the routing and transmittal number.

6. Branch code, 3 positions, and represents the depositary branch code, under which the agent is authorized to submit FTD data.

7. Transmittal Serial number, 3 positions, must be numeric. Must be separate for each AOC and in incrementing order, beginning with 001 and ending with 999. The number must not be duplicated within two calendar months.

8. Deposit Date, 6 positions, in MMDDYY format. The deposit date must agree with the deposit date in the FTD data record.

9. Number of FTDs, 3 positions, numeric, in groups up to 440. If less than 100, zero fill, right justify.

10. Amount, 11 positions, numeric, and must represent the total of the related FTD's.

11. Agent code, 2 positions, numeric. This number will be assigned by IRS upon approval of the application.

12. Microfilm number, 6 positions and will always be filled with 999999.

13. Record type ID code, 1 position, and is a constant 3.

.04 The Federal Tax Deposit record is an 81 character record and must include the following information.

1. Problem Code, 1 position, always zero.

2. The taxpayer identification, name control, service center code, and agent code must be from the information provided and verified by the IRS. No change should be made to this information for a particular client unless the IRS notifies the reporting agent to do so.

3. Name Control, 4 positions, Name control is provided by the IRS center on the approved client list.

4. Service Center Code, 2 positions, must be numeric and is assigned by the IRS.

5. Tax class code, 1 position, and must be a "1" for withholding, "8" for unemployment, "6" for agriculture withholding or a "5" for backup withholding.

6. Tax period, 2 positions, Month / Year format. NOTE: December = & (Ampersand) November = -(hyphen).

7. Payment date, 4 positions in MMDD format, must be numeric. It is essential that the payment date reflect the date the taxpayer's liability must be paid. Also the payment date must agree with the deposit date in the related AOC. In no case should these dates be different.

8. Amount, 12 positions, zero fill, right justify and must reflect the taxpayer's liability due and balance to the AOC.

9. Agent code, 2 positions, a unique code assigned by IRS to identify magnetic tape filers and to accumulate statistical data.

10. Customer ID number, is 6 positions, numeric, zero fill, right justify. If the customer ID number is alpha / numeric it is not acceptable by the program. You must use the AOC serial number, 3 positions (001-999) and the FTD sequence number, 3 positions (001-440) in this field.

SEC. 10. SUBMISSION OF AGENT PREPARED FEDERAL TAX DEPOSITS

.01 Prior to submission of the first tapes sent to the service center, each agent must provide:

(a) A tape of test data for validation by the service center. The tape must be in the tape format in Exhibits 4 and 5 and must be 9 Track, ASCII, 1600 BPI. The test tape will be verified and returned with the authorization letter.

(b) New agents will be accepted to begin filing new client data at the beginning of a quarter only.

(c) A yearly schedule calendar showing the schedule shipment dates and the number of magnetic tapes the agent expects to ship each week.

The funds must be deposited in the Treasury Tax and Loan Account of an authorized depositary within 24 hours after the date of deposit. The transaction data must be received at the IRS service center within 5 workdays of the date of credit to the Treasury Tax and Loan account of the authorized depositary. If an agent fails to meet the deposit criteria above a cautionary letter will be issued, which may result in termination of authority. The IRS will schedule to process the FTD data not later than 2 workdays from the date of service center receipt.

.02 The magnetic tape data must be accompanied by a summary list of the Advice of Credit, in transmittal order and must provide the following information:

1. Transmittal number,

2. Count of FTD's,

3. Dollar amount of each Advice of Credit.

.03 Within 14 days after deposit date:

1. A listing must be provided giving specific deposit information. This data must be provided on microfiche. The listing should be titled FTD PROOF LIST, and contain the agent name and code on the title line. The listing must contain the following header information:

(a) Deposit date, 6 positions, MMDDYY format,

(b) Advice of Credit (AOC) serial number, 3 positions,

NOTE: The Advice of Credit serial number must appear on each page that has FTD client data for that AOC,

(c) FTD sequence, number 3 positions (beginning with 001, not to exceed 440),

(d) Federal Employer Number, 10 positions in the following format: NNNNNNNNN,

(e) Name Control, 4 positions,

(f) Deposit type, 3 positions (form number),

(g) Deposit period, 5 positions, MM / YY,

(h) FTD Amount, 11 positions, See Exhibit 7.

2. A microfiche copy of the AOC transmittal must be provided. Each page must have a heading showing:

(a) Agent name and code,

(b) From and to, AOC serial numbers,

(c) Deposit date, MMDDYY format. See Exhibit 6.

Note: Microfiche data must be received by the service center within 14 days after the deposit date.

.04 Form 8482, Transmittal of Magnetic Tape of Federal Tax Deposits, will be used for transmitting tapes, and microfiche data between the service center and the agent. The initial supply of Form 8482 will be provided upon approval of the agents application to prepare deposit tapes. Additional supply will be obtained from the service center of jurisdiction. See Exhibit 8

.05 Each tape must be clearly identified by affixing a completed Form 3298, File Identity Label, (initial supply provided by the service center). Each tape box must have an expedite label. The label must state:

EXPEDITE

FEDERAL TAX DEPOSIT

ON MAGNETIC TAPE

DELIVER UNOPENED TO

TAPE LIBRARY

See Exhibit 9

.06 Tapes will be retained at the IRS service center for 14 days for data verification purposes and then returned to the agent.

.07 The agent will receive an acknowledgement of receipt of the deposit tapes within seven days of receipt by the service center. Nonreceipt of the acknowledgement transmittal should be reported to the service center Interagency Coordinator immediately.

SEC. 11. TERMINATION OF THIS AUTHORIZATION

The Service reserves the right to terminate this agreement with reporting agents because of possible systemic changes which may preclude the use of magnetic tapes, or an agent's failure to comply with the requirements of this procedure. If the reporting agent cannot modify processing to accommodate these changes or continuously neglects the revenue procedure requirements, the agreement may be terminated with sixty days notice. Requests for additional copies of this revenue procedure, applications to prepare FTD, and update listings of authorized clients, should be addressed to the Director, Internal Revenue Service Center, Attn: FTD Coordinator, at one of the following addresses:

     1. NORTHATLANTIC REGION

     1. NORTHATLANTIC REGION

This revenue procedure is effective on an optional basis from August 18, 1986, and will be mandatory after February 18, 1987.

SEC. 13 EFFECT ON OTHER DOCUMENTS

Rev. Proc. 80-31 is modified and, as modified is superseded.

                               EXHIBIT 1

                               EXHIBIT 7