Rev. Proc. 86-27

SECTION 1. PURPOSE

.01 The purpose of this revenue procedure is to provide a means whereby reporting agents preparing Form 941, Employer's Quarterly Federal Tax Return, and Form 941E, Quarterly Return of Withheld Federal Income Tax, for groups of taxpayers can furnish the required information in the form of magnetic tape instead of paper documents.

.02 This revenue procedure reflects the current changes to the tape specifications.

.03 This revenue procedure supersedes Rev. Proc. 84-11, 1984-1 C.B. 414. If a current reporting agent is unable to comply with the changes in specification, he / she should contact the local Magnetic Tape Coordinator for Business Tax Returns for further instructions.

SEC. 2. APPLICATION FOR TAPE REPORTING

.01 Agents who desire to file authorized federal tax returns on magnetic tape must first file a letter of application or submit Form 4995, Application for Magnetic Tape Filing of Federal Business Tax Returns (previously known as Application for Magnetic Tape Filing of Form 941, Employer's Quarterly Federal Tax Return). A separate application must be submitted for each type of tax return filed (e.g. 941, 941E, 940). The letter of application should be addressed to the Director, Internal Revenue Service Center, Attention: Magnetic Tape Coordinator for Business Tax Returns, of the service center that serves the primary business address of the reporting agent. Addresses of the Internal Revenue Service Centers are shown in Section 11 of this revenue procedure. The letter of application must contain the following:

1. Name, address and EIN (Employer Identification Number) of the person, organization, or firm making the application.

2. Name, title, and telephone number of the person to contact regarding the application.

3. Type and nature of equipment to be used to prepare the tape file, i.e., manufacturer and model of main frame and tape drives, tape width, density (characters per inch), and recording mode (e.g. Excess 3, Octal, etc.).

4. List of the taxpayers to be included on the initial establishment of the Magnetic Tape Filing system. The list must be in triplicate with the data shown in the exact order as Exhibit 1. Show each taxpayer's name, complete address (including Zip Code), and EIN: sort into EIN sequence. See Section 6.03 for additional details.

5. Service center where paper tax returns were last filed.

6. Signature of the agent or agent's employee authorized to prepare federal tax returns for taxpayers.

7. An agreement by the reporting agent to keep copies of the Powers of Attorney (POA) on file at the agent's principal place of business for examination by the Service upon request. Such copies must be retained until the statute of limitations for the last return filed under its authority expires.

8. An agreement to fully pay the tax by Federal Tax Deposits (FTDs).

NOTE: This revenue procedure does not restrict a non-financial organization who performs a payroll or tax service from being a reporting agent. See Rev. Proc. 80-31, 1980-2 C.B. 760, concerning the requirements under which FTDs can be made by the reporting agent.

9. The first tax period for which the agent plans to file returns on magnetic tape.

10. The estimated volume of returns the agent plans to file by type of return (e.g. 941, 941E or 940).

SEC. 3. POWER OF ATTORNEY

.01 A POA must be submitted for each filer on the list attached to Form 4995 or the letter of application. The POA must be submitted for each filer on the list attached to Form 4995 or the letter of application. The POA may be submitted on Form 2848, Power of Attorney and Declaration of Representative, which is available on request; or any other instrument which clearly states that the reporting agent is granted the authority to file and sign the return. The POA filed under this revenue procedure is not subject to the rules contained in the Conference and Practice Requirements (Treasury Regulation 601.502). The POA may cover the filing of both Forms 940 and 941 if desired.

.02 Both the taxpayer, or his authorized representative, and the reporting agent must sign the POA. The signed document will remain in effect until such time as it is revoked by the taxpayer, terminated by written notification from the reporting agent, or expires under its own terms.

1. The following persons may execute a POA on behalf of a corporation or other business taxpayer:

(a) The individual, if the person required to make the return is an individual;

(b) The president, vice president, or other principal officer, if the person required to make the return is a corporation;

(c) A responsible and duly authorized member or officer having knowledge of its affairs, if the person required to make the return is a partnership or other unincorporated organization;

(d) The fiduciary, if the person required to make the return is a trust or estate; or

(e) An agent who is duly authorized in accordance with section 31.6011(a) 7 of the Employment Tax Regulations.

.03 The scope of the POA for magnetic tape filing will be governed according to the following:

1. The POA will delegate to the reporting agent the power to sign and file appropriate federal tax returns.

2. The POA becomes effective for the tax period the agent notifies the service that the employer or filer is being added to the Magnetic Tape Filing system and remains in effect for subsequent periods until revoked, terminated or expired.

3. The POA is automatically revoked when the reporting agent notifies the Service that a taxpayer is no longer included in the Magnetic Tape Filing system.

4. The receipt of a POA for magnetic tape filing has no effect on prior POA on file for other purposes for a given taxpayer.

5. The POA for magnetic tape filing will be a limited POA, i.e., notices, refunds and other output resulting from filing on magnetic tape will be mailed to the taxpayer.

6. Requests from a reporting agent for information or adjustments or an account for which the taxpayer has authorized magnetic tape filing will be honored by the service center.

7. Requests for address changes may not be made by the reporting agent. Requests for address changes for taxpayers that are reported under magnetic tape filing will be processed only if they originate with one of the following:

(a) The taxpayer,

(b) An employee of the Service, or

(c) An attorney-in-fact if the attorney has a full POA for all tax matters concerning a taxpayer, and has filed a copy of the POA with the Service.

SEC. 4. APPROVAL OF AGENTS APPLICATION

.01 The Service will act on applications and notify applicants of authorization or disapproval within 30 days of receipt of Form 4995 or a letter of application as defined in Section 2.

.02 Generally, reporting agents using equipment compatible with the Service's can presume that tape filing will be approved. Compatible tape characteristics are shown in Section 13. If the reporting agent has the capability to prepare several types of tapes, the Service prefers that compatible tapes be prepared.

.03 If the reporting agents propose to submit convertible tapes, i.e., tapes requiring translation, the Service will either translate these tapes or provide translation through other government agencies. Magnetic tape filing will be disapproved when the Service is unable to obtain facilities to translate a reporting agent's file to a compatible form. (See Sections 12 and 13 for specifications.)

.04 Once authorization to file tax data on magnetic tape has been granted to a reporting agent, such approval will continue to effect in succeeding tax periods as long as the requirements of this revenue procedure are met, and there are no equipment changes by the reporting agent. However, new applications are required if users change from compatible tapes to equipment producing tapes that require translation, or if they discontinue magnetic tape filing for one or more periods, then decide to resume this method of reporting.

SEC. 5. EFFECT ON PAPER DOCUMENTS

.01 Authorization to file on magnetic tape does not prohibit the filing of paper tax returns, but merely permits filing on such returns through the Magnetic Tape Filing system. If for some reason (e.g. late receipt of records), an agent prefers to file a paper return for a given taxpayer, the agent may do so even after having been given authorization to file that taxpayer's return on magnetic tape.

.02 The initial filing of tax returns on magnetic tape will be on a trial basis. Each taxpayer included on the magnetic tape must also be on the paper form until authorized by the Service to discontinue filing returns on paper. The paper returns must be arranged in the same period as the returns reported on the magnetic tape and filed at the same location and in the same shipment. In general, the Service will be able to notify the reporting agent to discontinue filing paper returns within one quarter after the initial filing of magnetic tape. The notification will depend upon the feasibility of processing the magnetic tape submitted.

.03 Paper and magnetic tape returns for the same tax period at the same time must never be filed by a reporting agent for a taxpayer unless the returns are filed during the trial period for the reporting agent described in section 5.02.

.04 Form 941 / 941E filers are required to transmit with their return, copies of any W 4's claiming 14 or more exemptions. If the reporting agent files magnetic tape 941 / 941E for a taxpayer, but does not report W 4 information or magnetic tape, the paper W 4's should be submitted to the service center with a cover letter.

SEC. 6. FILING TAPE RETURNS

.01 Packaging, shipping, and mailing instructions will be provided in the letter granting initial approval issued by the Service in response to the letter of application for magnetic tape filing.

.02 The Service will allow a tape return to be submitted for those individually approved magnetic tape filers until the reporting agent formally notifies IRS that specific employers are being deleted from their current magnetic tape filing inventory.

.03 Section 6091(b) of the Internal Revenue Code requires that tax returns be filed at the Internal Revenue District (or service center serving that district) that services the legal residence or principal business address of the taxpayer. Thus, reporting agents must normally file taxpayer's returns at the appropriate service center as described above even if it means submitting magnetic tapes to more than one service center. This rule may not be violated unless a reporting agent has applied for and received permission from the Service to do so. Contact your Magnetic Tape Coordinator for Business Tax Returns for details.

.04 Approval by the Service of Form 4995 or a letter of application allows a reporting agent to file at any service center that services his / her clients. If a reporting agent wishes to file at additional service centers, he / she should notify the Magnetic Tape Coordinator for Business Tax Returns of the service center where he / she originally applied at least 90 days prior to the initial transmittal to the new service center.

.05 The reporting agent will be provided with a validated copy of the agent's listing for taxpayers authorized to file on magnetic tape. This authorization will contain each taxpayer's EIN, four position alpha Name Control, and the DO (District Office) Code. This authorization will be the source of the EIN and Name Control to be used in magnetic tape by the reporting agent as an identification of each taxpayer.

It is imperative that this Name Control be retained in the agent's records and be used in each taxpayer's Tax Data "B" Record (positions 72-75). It is used by the Service to ensure the correct recording of the taxpayer's return. Failure to use the correct Name Control can result in delays in processing the return and notices of delinquent filing being sent to the taxpayer.

.06 Enclose in the first box of the tape shipment to the service center the following:

1. Form 4996, Magnetic Tape Filing Transmittal for Federal Business Returns (previously known as Magnetic Tape Filing Transmittal for Form 941, Employer's Quarterly Federal Tax Return) or a letter of transmittal containing the information described below. File the Form 4996 or the letter of transmittal in duplicate.

2. The letter of transmittal should include:

a. Name and address of reporting agent

b. Type of tax return filed on the magnetic tape

c. Tax period

d. Number of tax returns filed on accompanying tape

e. Total taxes reported

f. Total taxes deposited

g. Service center in which the POA for filing returns on magnetic tape is located.

h. Total forms 941c and other attachments to support adjustments included in this shipment.

i. Signature of transmitter, title and date.

3. A control listing identifying actual taxpayers previously approved by the Service for magnetic tape filing that are contained on the current tape file being submitted. List the taxpayers in EIN sequence with each taxpayer's name and address.

4. The reporting agent should notify the Magnetic Tape Coordinator for Business Tax Returns if the agent does not receive notification of the receipt of the transmittal within 15 days from the date he / she sent the transmittal.

SEC. 7. ADDING AND DELETING FILERS FROM MAGNETIC TAPE FILING SYSTEM

.01 When adding or deleting filers, the Service must receive (in triplicate and in the same format as shown on Exhibit 1) a listing which contains the complete names, addresses and EIN's of the taxpayers the reporting agent wants added or deleted from the Magnetic Tape Filing system, the word "ADDITIONS" or "DELETIONS" should be entered after the title, "Agent's Listing," and the effective date.

.02 The Service will provide a validated copy of the updated agent's listing to the reporting agent. Under no circumstances is a new filer to be included on the Magnetic Tape Filing system until the validated copy is received from the Service.

.03 A POA authorization must be included for each taxpayer to be added to the Magnetic Tape Filing system.

.04 The reporting agent should indicate on the last magnetic tape return submitted for a filer that it is either the "Final Return" or a "Discontinued Filer" in the Tax Data "B" Record.

.05 The reporting agent may not always know that the final magnetic tape return for a particular taxpayer is being submitted at the time the tape is being sent in. When the reporting agent determines that the previous tape contained the last return to be prepared for the individual filer, action should be taken to notify the service center which authorized the magnetic tape filing of one of the following conditions:

1. The taxpayer is out of business (state the effective date) and will no longer be liable for filing returns (Final Return), or

2. The reporting agent will no longer be submitting returns on magnetic tape for the taxpayer who is still in business and is still liable for such returns (Discontinued Filer).

.06 Lists of proposed quarterly (Form 941 / 941E) filer additions, deletions, etc., must be received in the service center prior to the end of the second month of a quarter. This will permit the Service to properly validate applications and to respond to the agent within 30 days of receipt of the lists. However, at the time of filing, if the agent has not received a validated listing with the additions, he / she should not file a magnetic tape return for those taxpayers because he / she does not have the valid Name Control.

SEC. 8. DUE DATES

.01 The due dates prescribed for filing paper returns with the Service will also apply to magnetic tape filing of Federal business tax returns.

.02 In no case should returns with more than one date be included on one tape file.

SEC. 9. ADJUSTMENTS TO 941 AND 941E RETURNS

.01 Adjustments may be made on returns submitted on magnetic tape.

.02 Positions 329-338 of Tax Data "B" Record are used to report adjustment of social security (FICA) taxes reported. These positions must be used in conjunction with the FICA Adjustment Indicator (position 155) of the Tax Data "B" Record. If there is no adjustment of FICA taxes, the adjustment indicator should be zero. If there is an adjustment of FICA taxes, the adjustment indicator must be set to 1, 2, 3 or 4 depending on the circumstances explained as follows:

The FICA Adjustment Indicator should be set to 1 if the adjustment to FICA taxes consists only of the difference between the total social security taxes (positions 318-327) of the Tax Data "B" Record and the amount actually collected from your employees wages consists only of fractions of cents added or dropped due to rounding.

The FICA Adjustment Indicator should be set to 3 if the Adjustment To FICA Taxes consists only of total uncollected employee social security tax on tips (i.e. employee previously reached maximum limitation through combination of wages and tips).

The FICA Adjustment Indicator should be set to 4 if the Adjustment To FICA Taxes consists only of FICA tax on third-party sick pay for which the employer is not responsible.

If the description for the adjustment to FICA taxes listed above is not applicable or the adjustment to FICA taxes is significant for more than one reason, the FICA Adjustment Indicator should be set to 2, and a statement or Form 941c should be submitted with the tape identifying the taxpayer and explaining the adjustment to FICA tax. If the second reason for a FICA adjustment is "FRACTIONS ONLY," then it may be ignored and either "FICA TIP" or "sick pay" values may be used.

Note: A FICA tax adjustment is valid only on the Form 941 and is not valid on Form 941E.

.03 Adjustments to proceding quarters (income tax withholding adjustments) should be reported in positions 201-210 of the Tax Data "B" Record. Any magnetic tape return with a significant adjustment to preceding quarters should be supported by a statement submitted with the magnetic tape. The statement should identify the taxpayer and explain the adjustment. The Adjustment Indicator for Income Tax Withheld (position 156 of the Tax Data "B" Record) should be set to "1" if there is an adjustment or be set to zero if there is no adjustment.

.04 Adjustments to backup withholding should be reported in positions 356-374 of the Tax Data "B" Record. Any magnetic tape return with a significant adjustment to backup withholding should be supported by a statement submitted with the magnetic tape. The statement should identify the taxpayer and explain the adjustment. The Adjustment Indicator for Backup Withholding (position 157 of the Tax Data "B" Record) should be set to "1" if there is an adjustment or be set to zero if there is no adjustment.

.05 Include all statements and forms 941c with the magnetic tape shipment for approval and subsequent adjustment action.

SEC. 10. FILING FORMS W 2 (COPY A) WITH THE SOCIAL SECURITY ADMINISTRATION

The reporting agents who file Forms 941 on magnetic tape for employers must file the wage information directly with the Social Security Administration on tape or paper documents. For directions for tape filing, you may call or write the appropriate Service Center Magnetic Tape Coordinator for Business Tax Returns, or any Social Security Administration office and ask for Technical Information Bulletin 4a (TIB 4a), or you can write to the following address:

     Social Security Administration

Requests for additional copies of this revenue procedure, applications for magnetic tape filing, requests for copies of appropriate input record element specifications, and requests for tape filing information should be addressed to the Director, Internal Revenue Service Center, Attention: Magnetic Tape Coordinator for Business Tax Returns, at one of the following addresses:

     1. North-Atlantic Region

.01 Conventions

Certain conventions may be required by the programming system or equipment used by the reporting agent, with respect to header and trailer labels, record and tape marks. If present, the Service prefers that they adhere to American National Standards Institute (ANSI) X3.27 specifications. The Service will accept other specifications if the facilities to accommodate them can be found. The Service reserves the right to reject tapes with other than ANSI X3.27 specifications. The tapes must adhere to the following at a minimum:

(a) Label

(1) The first record on a reel only.

(2) In accordance with ANSI X3.27, Volume Header Label (VOL1), First File Header Label (HDR1) and Second File Header Label (HDR2) are strongly preferred.

(b) Trailer Label

(1) The last record on a reel only.

(2) No restrictions apply as to number of characters or type of characters used.

(c) Record Mark

(1) No restrictions apply to record marks.

(d) Tape Mark

The tape mark should only follow an End of Reel "F" Record or an End of File "E" Record.

.02 Definitions

 Element                 Description

.01 These specifications prescribe the required format and content of the records to be included in the file, but not the methods or equipment to be used in their preparation. A compatible tape file must conform to all of the following:

 Type of tape                    1/2 inch Mylar base, oxide coated

1. An Agent "A" Record,

2. A series of Tax Data "B" Records,

3. A series of Checkpoint "C" Records, and

4. An End of File "E" Record,

5. Multiple reel files will have an End of Reel "F" Record.

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

.04 Affix an external label to each tape with the following information:

1. Name of reporting agent,

2. Number of tax returns submitted on this reel of tape,

3. Payment period in YYMM (Year, Year, month, month) format, for example 8109,

4. Density (800, 1600, 6250),

5. Channel (7 or 9),

6. Parity (odd or even),

7. Name of computer manufacturer,

8. Computer type (manufacturer's designation),

9. Tape Drive (manufacturer and type),

10. Sequence number of reel and total number of reels in file (for example, 1 of 3).

. 05 Since the Service is not restricting magnetic tape filing or reporting agents with specific types of equipment, or prescribing the methods used to prepare the tape files, the Agent "A" Record, End of Reel "F" Record and End of File "E" Record perform the functions normally assigned to header and trailer labels and related conventions. The Agent "A" Records are written on the file for a given location of the reporting agent, the End of Reel "F" Record signals that no more Tax Data "B" Records are written on the reel, and the End of File "E" Record indicates that there is no further data to be processed.

.06 Record Length

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

(a) A block may not exceed 12,100 tape positions.

(b) If the use of blocked records would result in a short block at the end of a Tax Data "B" Record and the next record is too large to include in the block, the remaining positions of the block should be filled with 9's or spaces. No other digits or characters other than 9's or spaces are specified or acceptable for filling (or padding) any tape input data blocks.

(c) Two forms of blocking are acceptable:

(1) Only Tax Data "B" Records are blocked; all other records are unblocked.

(2) All records, except header and trailer labels, if used, are blocked. In this case, if employers from more than one location are reported on the same tape, the Agent "A" Record cannot be in the middle of a block, but must be the first record in a block.

.07 Data

1. Only character data may be used. This means numeric fields cannot use overpunched signs and should be right justified and zero filled. Special characters should be limited to = , &, %or / and can only be used in the name line fields and the street address fields of Agent "A" Record and Tax Data "B" Record. Otherwise, characters must be numeric or alphabetic.

.08 Agent "A" Record

1. Identifies the reporting agent who prepares and transmits the tape file. When multiple reels are required for a single file, the Agent "A" Record must be repeated at the first record (second record if header labels are used) on every succeeding reel in the file, and the reel number must be incremented by 1 for each tape reel after the first reel. A reporting agent may include Tax Data "B" Records prepared at more than one location, on the same tape, but they must have the same DO Code; however, Tax Data "B" Records prepared at different locations with different DO Codes must be on separate files and preceded by an Agent "A" Record. Contact the Magnetic Tape Coordinator for Business Tax Returns for additional details if necessary.

   Tape

1. Contains tax information reported by the reporting agent. The number of Tax Data "B" Records appearing on one tape reel will depend on the number of taxpayers represented (only one tax return for each EIN).

2. Tax Data "B" Records may be blocked together with Record Types A, C, E, and F unblocked. Records should have a blocking factor for which blocks will not exceed 12,100 tape positions. All records must be fixed length and for the current tax period. All money amount fields must contain dollars and cents, must be right justified with zero filling on left and must be zero filled if non-significant. Fields identified as indicators or signs should always carry a value. Other non-money fields must be left justified and blank filled on right with blank filling of non-significant fields.

   Tape

1. Write this record after each 100 or fewer (if less than 100 remain) Tax Data "B" Records. Each Checkpoint Totals "C" Record must contain a count of Tax Data "B" Records, the sum of Total Taxes, the Total Number of FTDs made and the sum of the Total Amounts of FTDs for all Tax Data "B" Records which have not been summarized in preceding Checkpoint Totals "C" Records.

2. The Checkpoint Totals "C" Record must be followed by a Tax Data "B" Record except as follows: If the Checkpoint Totals "C" Record is at the end of the reel, it will be followed by an End of Reel "F" Record. If the Checkpoint Totals "C" Record is at the end of the file, it will be followed by an End of File "E" Record.

3. All Checkpoint Totals "C" Records must be fixed length. All money amount fields will contain dollars and cents. The Checkpoint Totals "C" Records cannot be followed by a tape mark.

                     CHECKPOINT TOTALS "C" RECORD

1. Write this record after the last Checkpoint Totals "C" Record in the file. All money amounts will contain dollars and cents. All End of File "E" Records must be fixed length. This record can be followed only by a tape mark or tape mark and trailer label.

                        END OF FILE "E" RECORD

1. 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 "F" Record must contain a count of Tax Data "B" Records, the sum of Total Taxes, the Total Number of FTDs made and the sum of the Total Amount of FTDs for all Checkpoint Totals "C" Records on that reel.

2. The End of Reel "F" Record cannot be followed by an Agent "A" Record, Tax Data "B" Record, Checkpoint Totals "C" Record or End Of File "E" Record. A tape mark or tape mark and trailer label only can follow this record.

3. Do not use this record on the final reel of the file being transmitted.

                        END OF REEL "F" RECORD

Enter the official two position Post Office State Code abbreviations for States and Territories in the Agent "A" Records and Tax Data "B" according to the following:

 STATE                                                            CODE

This Revenue Procedure supersedes Rev. Proc. 84-11.

SEC. 16. EFFECTIVE DATE

This Revenue Procedure is effective January 1, 1986.

                              Exhibit 1