Rev. Proc. 78-26

PART A -- General

Section 1. Purpose.

.01. The purpose of this revenue procedure is to state the requirements and conditions under which payers and nominees (hereinafter collectively referred to as payers) and agents thereof (hereinafter referred to as transmitters) can file annual information returns on magnetic tape instead of paper documents. The paper documents affected are:

(a) Form 1099R, Statement for Recipients of Total Distributions from Profit-Sharing Retirement Plans, and Individual Retirement Arrangements.

(b) Form 1099-DIV, Statement for Recipients of Dividends and Distributions.

(c) Form 1099-INT, Statement for Recipients of Interest Income.

(d) Form 1099-MISC, Statement for Recipients of Miscellaneous Income.

(e) Form 1099-MED, Statement for Recipients of Miscellaneous and Health Care Payments.

(f) Form 1099-OID, Statement for Recipients of Original Issue Discount.

(g) Form 1099-PATR, Statement for Recipients (Patrons) of Taxable Distributions Received From Cooperatives.

(h) Form 1099L, U.S. Information Return for Distribution in Liquidation During Calendar Year.

(i) Form 1087-DIV, Statement for Recipients of Dividends and Distributions.

(j) Form 1087-INT, Statement for Recipients of Interest Income.

(k) Form 1087-MISC, Statement for Recipients of Miscellaneous Income.

(l) Form 1087-MED, Statement for Recipients of Medical and Health Care Payments.

(m) Form 1087-OID, Statement for Recipients of Original Issue Discount.

(n) Agriculture Subsidy Payment Report.

02. This Procedure supersedes Rev. Procs. 75-20, 1975-1 C.B. 688, and 76-39, 1976-2 C.B. 661.

03. Revision of Form 1099R has necessitated certain changes in magnetic tape reporting of Individual Retirement Arrangements.

.04 Forms W-2 and W-2P will no longer be filed with the Internal Revenue Service directly. The forms will be submitted to the Social Security Administration commencing with tax year 1978. Income tax information will be forwarded to the IRS by SSA.

Sec. 2. Wage and Pension Information.

.01 Section 8(b) of Public Law 94-202, enacted in January 1976, authorizes the combined reporting of FICA detailed information (previously reported quarterly on Form 941, Schedule A) and annual W-2 (Copy A), Wage and Tax Statement, information in one consolidated annual W-2 (Copy A) to the Federal Government. By agreement between the Internal Revenue Service and the Social Security Administration, one consolidated W-2 (Copy A) for each employee is to be submitted to SSA by February 28 of the year following to satisfy the reporting requirements of the agencies beginning with tax year 1978 reports.

.02 Form W-2 will provide SSA with FICA information needed to credit employees' accounts.

.03 Form W-2P will also be filed with SSA instead of with IRS.

.04 Income tax information from both W-2s and W-2Ps will be forwarded to the IRS by SSA.

.05 The Social Security Administration will accept magnetic media for filing Forms W-2 and W-2P and has issued TIB-4a, Magnetic Tape Reporting, Submitting wage and tax data to Federal and State Agencies, TIB-4b, Magnetic Tape Reporting, Submitting Annuity, Pension, Retired Pay, or IRA Payment to the Federal Government on Magnetic Tape, and TIB-4c, Diskette and Disk Cartridge Reporting, Submitting Wage and Tax Data to the Federal Government on Diskette and Disk Cartridge, for this purpose.

.06 Payers or transmitters who desire to file Forms W-2 and W-2P on magnetic media must submit an application for authorization. An application form appears in the above mentioned TIBs-4a, 4b, and 4c. Previous approval for magnetic media reporting from the IRS will not constitute authorization for magnetic media reporting to SSA.

.07 Copies of Social Security Administration publications TIB-4a, 4b, and 4c are available from any Internal Revenue Service Center or local Social Security Administration office.

Sec. 3. Application for Magnetic Media Reporting.

.01 The above listed statements may be filed on magnetic media by payers or by transmitters acting for a single payer or group of payers. Payers may submit all or part of their information on magnetic media; a combination of magnetic media records and paper documents is acceptable providing there is no duplication or omission of documents.

.02 Payers or transmitters who desire to file statements in the form of magnetic media must file a Form 4419, Application for Magnetic Media Reporting, for approval.

.03 The Service will act on an application and notify the applicant of authorization or disapproval within 30 days of receipt of the application.

.04 An approved filer will be assigned a Transmitter Control Code which will aid the Service in the identification of payers to appropriate transmitters. This code must be entered on all transmittals and in each Payer/Transmitter "A" Record described in PART B of this procedure.

.05 Upon approval, filers will receive a Magnetic Media Reporting Package which will include all filing instructions, forms, and labels.

.06 The Service will assist new filers with their initial magnetic media submission by encouraging the submission of test tapes for review in advance of the filing period.

.07 Generally, organizations using equipment compatible with the Service's equipment can presume that the application will be approved. Compatible tape characteristics are shown in PART B, Sec. 1.04. If transmitters have the capability to prepare several types of tapes, the Service prefers that compatible tapes be prepared.

.08 Once authorization to file on magnetic media has been granted to a payer, such approval will continue in effect in succeeding years, provided that the requirements of this Revenue Procedure are met and there are no equipment changes by the transmitter. The service center magnetic media coordinator must be notified before December 31 of the year ending if there has been or will be any change in equipment, if tape reporting is being discontinued, or if there is a deletion or an addition to the list of payers. If tape filing is discontinued, a new application must be filed before it may be resumed.

.09 In accordance with Section 1.6041-7 of the Income Tax Regulations, medical payments from separate departments of a health care carrier may be reported as separate returns on magnetic media. In this case, the headquarters office will be considered to be the transmitter and the individual departments of the company filing reports will be considered to be payers. Thus, a single application form is to be submitted to one of the service centers covering all of the individual tape filers, or departments, to be submitted.

Sec. 4. Filing of Tape Reports.

.01 Transmittal instructions will be provided in the authorizing letter issued by the Service in response to an application for tape reporting.

.02 Payers submitting a portion of their statements on magnetic tape and the remainder on paper forms, should file magnetic tape records and paper documents at the same location, but in separate shipments. Form 1096 should accompany paper submissions and Form 4804 should accompany magnetic media submissions.

.03 Form 4804, Annual Summary and Transmittal of Income, Tax and Information Statements on Magnetic Media, will be required with each magnetic media shipment submitted. The affidavit provided on Form 4804 must be signed by the payer. The transmitter, service bureau, paying agent, or disbursing agent may sign on behalf of the payer, however, only if all of the following conditions are met:

(a) the transmitter, service bureau, paying agent, or disbursing agent possesses the authority to sign the affidavit under an agency agreement (either oral, written, or implied) that is valid under state law; and

(b) the transmitter, service bureau, paying agent, or disbursing agent has the responsibility (either oral, written, or implied) conferred upon it by the payer to request the taxpayer identification numbers of payees whose information documents are reported on magnetic media or paper documents; and

(c) the authorized transmitter, service bureau, paying agent, or disbursing agent signs the affidavit and appends the caption:

"For: [Name of Payer]"

.04 Although a duly authorized agent signs the affidavit, the payer will still be held responsible for the accuracy of the Form 4804 and will be liable for penalties for failure to comply with filing requirements.

.05 These requirements also apply to paper filers submitting Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Paper filers are responsible for the filing of correct, complete, and timely Form 1096. The failure of duly authorized "agents" of paper filers to comply with the filing requirements of Form 1096 and attachments does not relieve the payers of any penalties that may arise as a result of such failure to comply.

.06 If only a portion of the returns are submitted on paper documents, include a statement (that the remaining returns are being filed in the form of magnetic media) with the Form 1096. Please note that Form 1096 instructions normally apply to the filing of information returns on paper; however, filers of magnetic media must review the Form 1096 instructions and file Form 1096 if appropriate.

.07 Health care carriers, or their agents, filing Form 1099-MED per Section 3.10 above, may submit part of their returns on paper documents and part on magnetic media if the records of some departments are not maintained on computer files. However, an information return is required if the aggregate amount paid to a health care service provider from all departments equals $600 or more. For Example: Department A pays $200, Department B pays $100, and Department C pays $300, to the same health care service provider. The aggregate amount paid from all departments equals $600. The health care carrier, or agent, must submit either one information return for the aggregate amount of $600, or three separate returns, one from each department, indicating the amount paid by each department.

.08 If an extension is granted by the Service, a copy of the letter granting the extension should be attached to the Form 4804.

Sec. 5. Processing of Tape Statements.

.01 The Service will extract tax information from the tapes. Normally, the original tapes received by the Service will be returned to the payers or transmitters by August 15 of the year in which submitted.

.02 If tapes submitted are unprocessable, they will be returned to the transmitter for correction. Acceptable corrected tapes will then be returned to the transmitter by the Service within six months of receipt. Transmitters are urged to file corrected tapes with the Service as quickly as possible.

Sec. 6. Corrected Statements.

.01 If a large volume of corrected statements is necessary and the payer or transmitter possesses the capability to provide such corrections on tape, they should contact the magnetic media coordinator of the service center to which the tape statements were or are to be submitted for format instructions for corrected tapes. A corrected Form 4804 must be filed whenever corrections on tape are submitted.

.02 If corrections are not submitted on tape, the official paper Forms 1099 and 1087 must be used to correct Payee "B" Records in the magnetic tape files. Paper corrections for magnetic tape files should be marked "MAGNETIC MEDIA CORRECTION" on the upper portion of the forms. Revenue procedures containing specifications for paper documents may be obtained from most Internal Revenue Service offices.

.03 Form 1096 instructions are to be followed when paper documents are filed to correct statements submitted on magnetic media.

Sec. 7. Effect on Paper Documents.

.01 Magnetic tape reporting of the information returns listed in Section 1 above applies only to the original (Copy A). By filing with the Service on magnetic tape payers are permitted considerable flexibility in designing the copy of the information return to be furnished to the payee. The payer may combine the information return data with other reports or financial or commercial notices, or expand them to include other information of interest to a depositor, patron, or shareholder. This is permissible so long as all required information present on the official form is included and the payees' copies are conducive to proper reporting on their tax returns. Payers should also include the message "This information is being furnished on Forms 1099 or 1087 to the Internal Revenue Service" on the payees' copies.

.02 If only a portion of the statements is reported on magnetic media and the remainder is reported on paper forms, those statements not submitted on magnetic tape must be filed on the officially prescribed forms, or on paper substitutes meeting specifications in the appropriate Revenue Procedure on the reproduction of Forms 1099 and 1087 series.

Sec. 8. Filing Dates.

.01 Magnetic tape reporting to the Service for all types of Forms 1099 and 1087 must be on a calendar year basis.

.02 The dates prescribed for filing paper documents with the Service will also apply to magnetic tape filing. Tapes must be submitted to the service center by February 28. Payee copies must be furnished by January 31.

Sec. 9. Additional Information.

Requests for additional copies of this Revenue Procedure, or requests for additional information on tape reporting, should be addressed to the attention of the Magnetic Media Coordinator of one of the following:

     (a) Internal Revenue Service

.01 Under Section 6109 of the Internal Revenue Code, recipients of dividends, interest, or other payments are required to furnish taxpayer identification numbers to payers who must report such payments to the Internal Revenue Service. The number must be furnished to the payer whether or not the payee is required to file a tax return or is covered by social security.

.02 The Service expects that payers will keep to a minimum those statements submitted without taxpayer identification numbers. If, for legitimate cause, the taxpayer identification number (TIN) of a payee has not been furnished to the payer, the format specifications of PART B of this Procedure allow for its omission.

.03 The Service associates and verifies payments to payees with corresponding amounts on tax returns, principally through TINs. It is particularly important that correct social security and employer identification numbers for payees be provided on paper forms or magnetic media submitted to the Service. For each omission of a required TIN, Section 6676 of the Internal Revenue Code provides that the Service may charge a $5 penalty, unless the payer or payee responsible for furnishing the number supplies an explanation, upon request from the Service, that establishes reasonable cause for not having done so.

.04 The taxpayer identifying number to be furnished the Service depends primarily upon the manner in which the account is maintained or set up on the records of the payer. The number to be provided must be that of the owner of record. If the account is recorded in more than one name, furnish the taxpayer identifying number and name of one of the holders of the record. The number provided must be associated with the name of the holder provided in the first name line of the Payee "B" Record of Part B of this procedure. For those engaged in a trade or business (including employee trusts, retirement systems, etc.) the TIN is the employer identification number, EIN (00-0000000). For individuals, it is a social security number, SSN (000-00-0000). Do not enter hyphens or alpha characters when entering either number on magnetic tape. If a taxpayer identifying number is unavailable, enter blanks--DO NOT ENTER ALL ZEROES, OR ALL 9's.

.05 Sole proprietors who are payers should show their employer identification numbers in the Payer/Transmitter "A" Record. However, the payer should use the social security number of a sole proprietor in the Payee "B" Record. The table below will help you determine the number to be furnished to the Service.

           Chart 1. Guidelines for Social Security Numbers

PART B. -- Magnetic Tape Specifications.

SEC. 1. GENERAL.

.01 These specifications prescribe the required format and contents of the records to be included in the file, but not the methods or equipment to be used in their preparation. Usually the Service will be able to process, without translation, any compatible tape file. To be compatible, a tape file must meet any one set of the following:

(a) 7 channel BCD (binary coded decimal) with

(1) Either Even or Odd Parity and

(2) A density of either 556 or 800 BPI.

(b) 9 channel EBCDIC (Extended Binary Coded Decimal Interchange Code) with

(1) Odd Parity and

(2) A density of 800, 1600, or 6250 BPI.

(c) 9 channel ASCII (American Standard Coded Information Interchange) with

(1) Odd Parity and

(2) A density of 800, 1600, or 6250 BPI.

In addition, all compatible tape files must have the following characteristics:

(a) Type of tape--1/2 inch Mylar base, oxide coated; and

(b) Interrecord Gap--3/4 inch.

.02 The magnetic tape specifications contained in this Part must be adhered to unless deviations have been specifically granted by the Service.

.03 Service programs may be able to accommodate some minor deviations. Payers who can substantially conform to these specifications but require such minor deviations are encouraged to contract one of the service centers (see Part A, Sec. 9 for addresses). Under no circumstances may tapes deviating from the specifications in Part B be submitted without prior approval from the Service.

.04 The Service will attempt to find conversion facilities for any other characteristics listed on the Magnetic Tape Application Form that differ from the above specifications.

.05 An acceptable tape file for each payer will contain the following:

(a) Single Reel:

(1) A Payer/Transmitter "A" Record,

(2) A series of Payee "B" Records,

(3) An End of Payer "C" Record, and

(4) An End of Transmission "F" Record.

(b) Multiple Reels:

(1) A Payer/Transmitter "A" Record,

(2) A series of Payee "B" Records,

(3) An End of Payer "C" Record,

(4) An End of Reel "D" Record for each reel (except the last reel) under Option 1 only, and

(5) An End of Transmission "F" Record.

All records, including headers and trailers, must be written at the same density.

SEC. 2. CONVENTIONS AND DEFINITIONS.

.01 Certain conventions may be required by the programming system or equipment used by the payer with respect to header and trailer labels, record marks and tape marks. Their use must adhere to the following:

 Header Label            1. First four characters must be 1HDR or

 Element

.01 The tape records prescribed in these specifications may be blocked or unblocked, subject to the following:

(a) A block may not exceed 4,000 tape positions.

(b) If the use of blocked records would result in a short block, all remaining positions of the block may be filled with 9s or a short block may be written.

(c) A block may not be padded with blank records.

(d) All records may be blocked, except Header and Trailer Labels.

.02 Provision has been made for special data entries filed in the Payee "B" Record. These entries are optional. If the field is utilized, it must be present on all Payee "B" Records of a Payer. The field is intended to serve one or both of these purposes:

(a) Carry information required by state or local governments in connection with income reporting on magnetic tape to those jurisdictions when authorized.

(b) Facilitate making all records the same length.

SEC. 4. PAYER/TRANSMITTER "A" RECORD.

Identifies the payer and transmitter of the tape file and provides parameters for the succeeding Payee "B" Records. The Service's computer programs rely on the absolute relationship between the parameters in the Payer/Transmitter "A" Record and the data fields in the Payee "B" Records to which they apply.

The number of Payer/Transmitter "A" Records appearing on one tape reel will depend on the number of payers and types of statements being reported. A transmitter may include Payee "B" Records for more than one payer on a tape reel; however, each separate payer's Payee "B" Record must be preceded by a Payer/Transmitter "A" Record. A single tape reel may also contain different types of statements (e.g., 1099-INT and 1087-DIV statements) but the statements may not be intermingled. A separate Payer/Transmitter "A" Record is required for each type of statement being reported on the tape reel. An "A" Record may be blocked with "B" Records; however, the "A" Record must appear as the first record in the block.

The following are two optional ways the Payer/Transmitter "A" Record may be used:

Option 1: When multiple reels are required for a single file, the correct Payer/Transmitter "A" Record must be repeated as the first record (second record in the Header Labels are used) on every succeeding reel in the file to which it applies, and the reel sequence number must be incremented by 1 on each tape reel after the first reel.

Option 2: A Header Label must be present as the first record of every reel. The Payer/Transmitter "A" Record must appear as the second record of the first reel only and will not be repeated as the second record on subsequent reels. Enter an "X" in position 5 of the Payer/Transmitter "A" Record to indicate that the reel sequence number is in the Header Label. Enter the high order position of the 3 position reel sequence number of the Header Label in positions 3 and 4 of the Payer/Transmitter "A" Record. If your system automatically increments the reel sequence number, and you are using Option 2, ignore the "D" Record instructions in this Part. Additionally, a trailer label must be the last record on each reel.

Example 1: If the reel sequence number is in positions 20 through 22 on the Header Label, enter 20 in positions 3 and 4 of the Payer/Transmitter "A" Record and an "X" in position 5.

Example 2: If the reel sequence number is in positions 8 through 10 on the Header Label, enter 08 in positions 3 and 4 and an "X" in position 5.

This method is especially adaptable to users of COBOL.

 Tape position   Element Name      Entry or Definition

.01 Contains payment record from individual statements. All records must be fixed length. Records may be blocked or unblocked. A block may not exceed 4,000 tape positions. Do not pad unused blocks with blank records.

.02 All payee records must contain correct payee name and address information entered in the fields prescribed in this Part.

.03 The Service must be able to identify the surname associated with the taxpayer identifying number (SSN or EIN) furnished on a statement. The specifications below include a field in the payee records called "Name Control" in which the first four alphabetic characters of the payee surname are to be entered by the payers. In addition, a blank must precede the identifying surname in the first name line of all Payee "B" Records unless the surname begins in the first position of the field.

.04 If payers are unable to provide the first four characters of the surname, the specifications permit the submission of statements on magnetic tape with the Name Control Field left blank; however, compliance with the following will facilitate the Service computer programs required to generate the Name Control.

(a) The surname of the payee, whose taxpayer identifying number (SSN or EIN) is shown in the Payee "B" Record, must be the only name in the first name line.

(b) A blank must precede the surname unless the surname begins in the first position of the field.

(c) In the case of multiple payees, only the surname of the payee, whose taxpayer identifying number (SSN or EIN) is shown in the Payee "B" Record, must be present in the first name line. Surnames of any other payees in the record must be entered in the second name line.

.05 Provision is also made in these specifications for data entries required by state or local governments. This should minimize the Payer/Transmitter's programming burden should payers desire to report on tape to state or local, as well as the Federal Government.

 Tape Position   Element Name              Entry or Definition

/**/ FOOTNOTE 2: (Payment amount 8 may be present only for 1099R.)

SEC. 6. END OF PAYER "C" RECORD.

.01 Write this record after the last Payee "B" Record for each Payer/Transmitter "A" record. For every "A" record on a reel, there must be a corresponding End of Payer "C" Record or a single End of Reel "D" Record denoting a continuation of Payee "B" Records on the next tape reel of the file.

.02 Under Option 1 (see PART B, SEC. 9, Tape Layouts--Option 1), each End of Payer "C" Record must contain a count of the number of Payee "B" Records, as well as a total of the Payment amounts for all the Payee "B" Records immediately preceding the End of Payer "C" Record and following the last preceding Payer/Transmitter "A" Record. The End of Payer "C" Record must be followed by a new Payer/Transmitter "A" Record for the next Payer, if any, an End of Reel "D" Record or an End of Transmission "F" Record.

.03 Under Option 2 (see PART B, SEC. 10, Tape Layouts--Option 2), each End of Payer "C" Record must contain a count of the number of Payee "B" Records, as well as a total of the payment amounts for all the Payee "B" Records immediately preceding the End of Payer "C" Record and following the last preceding Payer/Transmitter "A" Record, regardless of the number of tape reels involved. The End of Payer "C" Record must be followed by a new Payer/Transmitter "A" Record for the next Payer, if any, or an End of Transmission "F" Record.

.04 The End of Payer "C" Record cannot be followed by a Tape Mark.

.05 Additionally, the "C" Record Length may be the same as the Payee "B" Record length for all forms. Fill positions beyond Control Total positions with blanks.

 Tape Position   Element Name              Entry or Definition

Write this record when the end of the normal writing area of each reel has been reached, but all records in the file have not been written. This record indicates that there are additional reels in the file. Each End of Reel "D" Record must contain a count of payees and totals of each payment amount reported for all Payee "B" Records not summarized in End of Payer "C" Records which may precede it on the reel. Only nines padding, Tape Mark, or Tape Mark and Trailer Label may follow an End of Reel "D" Record. (See PART "B", SEC. 2.01). The End of Reel "D" Record is present for Option 1 only.

Additionally, the "D" Record length may be the same as the Payee "B" Record length for all forms. Fill positions beyond Control Total positions with blanks.

 1               Record Type       Enter "D". Must be 1st character of

Write this record after the last End of Payer "C" Record. This record can be followed only by a Tape Mark or Tape Mark and Trailer Label (see PART B, SEC. 2.01).

 1               Record Type       Enter "F". Must be 1st character of

The following charts show, by type of file, the record types to be used in the first two and the last three records written on a tape reel when only one type of document (file) is reported on a reel or series of reels./*/

                                               2nd

(REEL SEQUENCE NUMBER IS IN THE HEADER LABEL).

Where the Header Label is the first record, the following charts show, by type of file, the record types to be used in the 2nd and 3rd records and the last three records written on a tape reel prior to the Trailer label when only one type of document (file) is reported on a reel or series of reels./*/

                               1st     2nd

² Must contain "Number of Payees" and "Control Totals" summarizing all Payee "B" Records written for this payer on this reel and on prior reel(s).

³ Must contain "Number of Payees" and "Control Totals" summarizing all Payee "B" Records written for this payer on this reel and for this payer on the prior reel(s).

/*/When more than one type of document (file) is reported on a tape reel, there will be a corresponding increase in the series of "A", "B--B" and "C" records since, within a tape reel, a file is equivalent to an "A" record, a series of "B" records and a "C" record for a single payer.