Rev. Proc. 86-28

CONTENTS

PART A. GENERAL

SECTION 1. PURPOSE

SECTION 1. GENERAL

PART A. -- GENERAL

SECTION 1. PURPOSE

.01 The purpose of this revenue procedure is to provide the requirements and conditions for filing information return Forms 1098, 1099, 5498, and W 2G on magnetic tape. Other revenue procedures provide instructions for filing on magnetic diskette and cassette or mini-disk. THIS REVENUE PROCEDURE IS TO BE USED FOR THE PREPARATION OF TAX YEAR 1986 INFORMATION RETURNS ONLY. THIS PROCEDURE IS UPDATED YEARLY TO REFLECT NECESSARY CHANGES. PLEASE READ THIS PUBLICATION CAREFULLY. Specifications for filing the following forms are contained in this procedure:

(a) Form 1098, Mortgage Interest Statement.

(b) Form 1099 A, Information Return for Acquisition or Abandonment of Secured Property.

(c) Form 1099 B, Statement for Recipients of Proceeds from Broker and Barter Exchange Transactions.

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

(e) Form 1099 G, Statement for Recipients of Certain Government Payments.

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

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

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

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

(j) Form 1099 R, Statement for Recipients of Total Distributions From Profit-Sharing, Retirement Plans, Individual Retirement Arrangements, Insurance Contracts, Etc.

(k) Form 5498, Individual Retirement Arrangement Information.

(l) Form W 2G, Statement for Recipients of Certain Gambling Winnings.

Specifications for filing Forms 1042S, 6248, 8027, W 2 and W 2P are contained in separate publications.

.02 Section 1.6045-1(1) of the Income Tax Regulations requires brokers and barter exchanges to use magnetic media to report ALL Form 1099 B data to IRS. THIS REQUIREMENT APPLIES TO BOTH ORIGINAL AND CORRECTED RETURNS. Section 6011(e) of the Internal Revenue Code as amended by the Interest and Dividend Tax Compliance Act of 1983, Pub.L. 98-67, 1983-2 C.B. 352, 359, requires that any person, including corporations, partnerships, individuals, estates and trusts, required to file more than 50 information returns in the aggregate for payments of certain interest (Forms 1099 INT and 1099 OID), dividends-(Form 1099 DIV), or patronage dividends (Form 1099 PATR), for any calendar year, must file such returns on magnetic media. THIS REQUIREMENT APPLIES TO BOTH ORIGINAL AND CORRECTED RETURNS. For example, if you must file 30 Forms 1099 DIV and 25 Forms 1099 INT, filing on magnetic media is required. In addition, for returns filed in 1987 (for tax year 1986), magnetic media reporting is required if you file 500 or more of each of the following forms: Forms W 2, W 2P, W 2G, 1098, 1099 A, 1099 G, 1099 MISC. 1099 R.5498, 1042S, 6248 and 8027. THIS REQUIREMENT APPLIES TO BOTH ORIGINAL AND CORRECTED RETURNS. Form W 2c is not included in these filing requirements. The 500 or more requirement for these forms will drop to 250 or more for returns (original or corrected) filed in 1988 (for tax year 1987) and later years. Forms W 2 and W 2P are filed with the Social Security Administration (SSA), NOT the Internal Revenue Service (IRS). At this time, corrected returns filed on Form W 2c with SSA are not required on magnetic media. These requirements shall not apply if you establish that it will cause you undue hardship. Refer to Part A. Sec. 5.

.03 This procedure also provides the requirements and specifications for magnetic tape filing under the Combined Federal / State Filing Program. Refer to Part A, Sec. 14.

.04 The following revenue procedures and publications provide more detailed filing procedures for certain information returns:

(a) 1986 "Instructions for Forms 1096, 1098, 5498, 1096 and W 2G" provide further information on filing returns with IRS. These instructions are available at IRS offices.

(b) Rev. Proc. 84-24, 1984-1 C.B. 465, regarding preparation of transmittal documents (Forms 1099 and 4804) for information returns.

(c) Rev. Proc. 84-33, 1984-1 C.B. 502, regarding the optional method for agents to report and deposit backup withholding.

(d) Publication 1179, Specifications for Paper Substitutes for Forms 1096, 1098, 1099, 5498 and W 2G.

.05 This procedure supersedes the following revenue procedure: Rev. Proc. 85-40, 1985-2 C.B. 445, also published in Publication 1220 (Rev. 8-85), Requirements and Conditions for Filing Information Returns in the Forms 1099, 5498, and W 2G Series on Magnetic Tape.

.06 Refer to Part A, Sec. 15 for definitions of terms used in this publication.

SEC. 2. BACKGROUND-PRIOR YEAR CHANGES (TAX YEAR 1985)

DUE TO NUMEROUS LEGISLATIVE AND FORMS CHANGES BETWEEN TAX YEARS 1984 AND 1985, CHANGES WERE NOT LISTED INDIVIDUALLY UNDER THIS SECTION. THE ENTIRE PUBLICATION WAS REVISED. FOR TAX YEAR 1985, SEE REV.PROC. 85-40, 1985-2 C.B. 445, FOR SPECIFIC CHANGES.

SEC. 3. NATURE OF CHANGES-CURRENT YEAR (TAX YEAR 1986)

.01 Numerous editorial changes have been made to the publication. The following changes must be incorporated into your programs for tax year 1986.

.02 GENERAL CHANGES ARE AS FOLLOWS:

(a) The note on the cover and which follows the index was revised to alert filers that their data should be reviewed for accuracy before submission to prevent erroneous notices to the persons for whom reports are filed.

(b) Part A, Sec. 1.02 lists the forms described in this revenue procedure that must be filed on magnetic media. THESE REQUIREMENTS APPLY TO BOTH ORIGINAL AND CORRECTED RETURNS. Corrected returns filed on Form W 2c with SSA are not required at this time on magnetic media.

(c) A note was added to Part A, Sec. 4.01 to alert filers that applications to file Forms W 2 and W 2P on magnetic media are requested from SSA; however, requests for magnetic media related undue hardship waivers and extensions of time to file Forms W 2 and W 2P on magnetic media are requested from the IRS National Computer Center. Waiver requests for these forms must be filed by June 30 for the tax year requested.

(d) Transmitter Control Codes may be alpha / numeric. This has been noted in several places within the publication.

(e) The dates for submission of "test" files have been revised in Part A, Sec. 5. "Test" files should be submitted between August 15 and December 15 each year. Also, "test" data for the "A" Record must be actual data, not fictitious information.

(f) Part A, Sec. 5.04 has been revised to alert filers that a transmittal Form 4804, 4802 or computer generated substitute must accompany "test" files. The transmittal Form 4804 and 4802 have been updated for 1986. Agencies who produce a computer generated substitute must update their format for these forms. The Form 4804 now includes a Checkbox 1 to indicate the type of file (e.g., original, correction, replacement, test).

(g) Part A, Sec. 5 includes new information concerning undue hardship waiver requests. Filers are now required to submit Form 8508, Request for Waiver From Filing Information Returns on Magnetic Media. THIS REQUIREMENT APPLIES TO BOTH ORIGINAL AND CORRECTED RETURNS WITH THE EXCEPTION OF FORM W 2C.

(h) Part A, Sec. 6 has been updated to include the retention requirements for information returns and the new affidavit requirements for transmittal documents.

(i) For documents filed on paper with the appropriate service center, it is no longer necessary to note on the transmittal Form 1096 that a portion of the returns are being filed on magnetic media. This has been deleted from Part A, Sec. 6.07.

(j) Part A, Sec. 6.08 has been reworded to clarify that reports from different branches for one payer, if submitted on the same file, must be consolidated under one "A" Record for each type of information return.

(k) A note has been added to Part A, Sec. 7 that Form 5498 is used to report amounts contributed during or after the calendar year but not later than April 15.

(l) Part A, Sec. 8(h) has been added to inform persons who file extension requests for multiple payers that the request must include a list of all payers and their TINs (SSN or EIN).

(m) Part A, Sec. 10 alerts filers that the magnetic media filing requirements apply to both original and corrected returns with the exception of Form W 2c filed with SSA. Refer to Part A, Sec. 1 for the filing requirements. Corrected returns should be aggregated and submitted as soon as possible but not later than October 1 of each year. Also, corrections should be submitted only for the returns filed in error, not the entire file.

(n) In prior years, tape position 5 of the "B" Record was used as the corrected return indicator. Part A, Sec. 0.01 indicates that this has now been changed to position 6. Chart 1 of Sec. 10 has also been updated to reflect this change. You must adjust your programs. This change was necessary to facilitate the need for a second position in the "B" Record, Document Specific Code field.

(o) Transmittal Form W 3G is now obsolete. This form was used to transmit paper Forms 1099 R and W 2G. These two forms are now to be transmitted to the service center with Form 1096. References to Form W 3G have been deleted from this publication.

(p) Two new charts were added to the publication last year to provide instructions for filing corrections on magnetic media and on paper forms. Chart 2, Guidelines for Filing Corrected Returns on Paper Forms has been deleted. The instructions for filing corrections on paper forms are now available in the 1986 "Instructions for Forms 1099, 1098, 5498, 1096, and W 2G."

(q) Part A, Sec. 10 Chart 1 has been revised. If a return was filed with NO Payee TIN (SSN or EIN), or the return was filed with an incorrect Payee TIN, only one transaction is now necessary to make the correction.

(r) Part A, Sec. 12 has been completely revised. Refer to this section for specific changes.

(s) Service center addresses have been deleted from this publication. They are available in the 1986 "Instructions for Forms 1099, 1098, 5498, 1096 and W 2G."

(t) Part A, Sec. 14.02 has been revised to inform filers of the authorization to sign consent Form 6847. Filers who have received approval to file on this program in prior years may be required to resubmit a consent Form 6847 signed by each payer. Refer to Part A, Sec. 14.02 for specific information.

(u) The dollar criteria in Table 2 of Part A, Sec. 14 has changed. For the state of Minnesota, Form 5498 must now be reported. Also, two footnotes for Minnesota have now been deleted: $10.01 for Savings and Loan Associations and Credit Unions; and $600.01 for Rents and Royalties.

(v) Acceptable foreign country codes have been added to Part A, Sec. 16 to assist you in developing the address field.

(w) A note has been added to Part B, Sec. 1.02 concerning the consistency in the use of recording codes and density.

(x) Part B, Sec. 1.05 has been revised to indicate changes made to the external media labels. Form 5064 is the external media label and has been updated for tax year 1986. You must use the updated label for 1986. These will be included in your magnetic media reporting packages.

(y) Part B, Sec. 3 has been revised to instruct filers that the Header label and data must be in the same recording mode. Unnecessary information concerning options for filing has been deleted.

(z) A note has been added to Part B, Sec. 3 to inform filers that IRS prefers the use of Standard or ANSI labeled tapes. If you submit an unlabeled tape, this must be indicated on the external label and on Form 4804 or a computer generated substitute.

.03 THE FOLLOWING CHANGES HAVE BEEN MADE TO THE PAYER / TRANSMITTER "A" RECORD:

(a) A note has been added to Part B, Sec. 4.03 to indicate that all alpha characters should be uppercase.

(b) Tape positions 3-5 contain the Reel Sequence Number. The description of this field has been clarified.

(c) Form 1099 MISC, Amount Code "8", Direct Sales Indicator, NOTE 1, has been clarified.

(d) Form 1099 OID, the title of Amount Code 2 has been changed from "Stated interest" to "Other periodic interest."

(e) Form 1099 R, the term "Insurance contracts" has been added to the title of the form and insurance premiums has been added to Amount Code "5."

(f) Amount Code "7" has been added to Form 1099 R to report "State income tax withheld."

(g) A note has been added for reporting distributions from KEOGH plans on Form 1099 R.

(h) Form 5498, Amount Code "1" has been changed to report "Regular SEP contributions made in 1986 and 1987 for 1986." The regular SEP contributions have been deleted from Amount Code "3" and now appear separately as Amount Code "1."

(i) Form 5498, the title of Amount Code "4" has been changed to "Life insurance cost included in Code 1 or 3 for endowment contracts only."

(j) Amount Code "3" has been added for Form W 2G to report "State income tax withheld."

(k) The First Payer Name Line has been clarified for those reporting on Form 1098, "Mortgage Interest Statement." Refer to the First Payer Name Line field description for specific information.

.04 THE FOLLOWING CHANGES HAVE BEEN MADE TO THE PAYEE "B" RECORD:

(a) A note has been added to Part B, Sec. 5.03 concerning invalid addresses.

(b) A note has been added to Part B, Sec. 5.08 to indicate that all alpha characters should be upper-case.

(c) The Document Specific Code field length has been increased from 1 to 2 positions. Tape positions 4-5 now represent this coding. This change was necessary due to multiple coding required in certain cases for Form 1099 R.

(d) Additional coding and clarification has been added to the Document Specific Code for Form 1099 R. A Code "9" represents PS 58 Costs; Code "P" represents excess contributions refunded plus earnings on such excess contributions taxable in 1985; Code "A" represents distributions that qualify for 10 year averaging; Code "B" represents distributions that qualify for the death benefit exclusion; and Code "C" indicates that the distribution qualifies for both "A" and "B."

(e) The Document Specific Code, Direct Sales indicator has been clarified.

(f) In prior years, tape position 5 was used as the corrected return indicator. This has now changed to tape position 6. You must adjust your programs.

(g) Examples have been added to assist you in the development of the Name Control field.

(h) The Type of TIN indicator field has been clarified for those accounts that are questionable. Code "9" has been deleted.

(i) The Payer's Account Number for the Payee field has been clarified.

(j) The First Payee Name Line field description has been clarified for those reporting Form 1098, "Mortgage Interest Statement." Refer to the First Payee Name Line field description for specific information.

(k) The Payee City, Payee State and Payee Zip Code are three separate fields. If the payee lives outside of the United States, insert a "1" in position "1" of the Payee City field and spell out the name in the remaining positions. Use the appropriate Country Code as shown in Part A, Sec. 16 in the Payee State field. Some foreign countries utilize alpha characters in the ZIP Code. The use of alpha characters is only acceptable if there is a "1" in position "1" of the Payee City field.

.05 THE FOLLOWING CHANGES HAVE BEEN MADE TO THE END OF PAYER "C" RECORD:

(a) Part B, Sec. 6.03 clarifies the totals required in the "C" Record.

(b) Part B, Sec. 6.04 provides instructions to assist you in the development of the "C" Record.

.06 THE FOLLOWING CHANGES HAVE BEEN MADE TO THE END OF TRANSMISSION "F" RECORD:

(a) The Number of Payers field name and description have been reworded.

(b) The Number of Reels field description has been reworded.

SEC. 4. WAGE AND PENSION INFORMATION FILED WITH SSA

.01 Section 8(b), Pub.L. 94-202, 1976-1 C.B. 503, enacted in January 1976, authorized the combined reporting of FICA detailed information in one consolidated annual W 2 (Copy A) to the Federal government. AS A RESULT, FORMS W 2 AND W 2P ARE TO BE FILED WITH THE SOCIAL SECURITY ADMINISTRATION (SSA), NOT WITH THE IRS. Applications to file Forms W 2 and W 2P on magnetic media are to be mailed to SSA; however, undue hardship waivers and extensions of time to file Forms W 2 and W 2P are to be requested from IRS National Computer Center, NOT from SSA. Requests for undue hardship exemption for these two forms must be filed with IRS National Computer Center by July 31, 1986, for the tax year 1986, for returns to be filed in 1987. Refer to Part A, Sec. 13 for the address and Part A, Sec. 5.08 and Sec. 8 for the required information.

.02 SSA will accept magnetic media filing of Forms W 2 and W 2P and has issued the following concerning this: 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." Applications for filing Forms W 2 and W 2P on magnetic media appear in TIBs 4a, 4b, and 4c.

.03 Copies of Social Security Administration publications TIB 4a, 4b, and 4c are available from any local Social Security Administration office or the SSA Regional Magnetic Media Coordinators.

SEC. 5. APPLICATION FOR MAGNETIC MEDIA REPORTING AND REQUESTS FOR UNDUE HARDSHIP WAIVERS

.01 For purposes of this revenue procedure, the PAYER includes the person making payments, a recipient of mortgage interest payments, a broker, a barter exchange, a trustee or issuer of an IRA, SEP or DEC, or a lender who acquires an interest in secured property or who has reason to know that the property has been abandoned. The TRANSMITTER is the organization preparing the magnetic tape file. The payer and transmitter may be the same organization. Payers or their transmitters are required to complete Form 4419, Application for Magnetic Media Reporting of Information Returns. A copy of this form, for your use, can be found at the end of this publication. Requests for additional information or forms related to magnetic media processing should be addressed to the National Computer Center. Beginning January 1, 1986, magnetic media processing was centralized at the National Computer Center. The address is listed in Part A, Sec. 13.

.02 Applications should be filed with the National Computer Center before "test" files are submitted. ("Test" files must be submitted between August 15 and December 15 each year.) IRS will act on an application and notify the applicant, in writing, of authorization to file. A five character alpha / numeric Transmitter Control Code will be assigned and included in an acknowledgement letter within 30 days of receipt of the application. Magnetic tape returns may not be filed with IRS until the application has been approved. Do not enter blanks in the "A" Record Transmitter Control Code field; enter the five character alpha / numeric Transmitter Control Code that is assigned you by IRS after you have filed an application and it has been approved. Applications for approval to file Forms W 2 and W 2P on magnetic media must be filed with the Social Security Administration (SSA), not with IRS. Refer to Part A, Sec. 4.

.03 After you have received approval to file on magnetic media, you do not need to reapply each year; however, notify IRS in writing if:

(a) there are hardware or software changes that would affect the characteristics of the magnetic media submission (e.g., changing from diskette to tape filing or vice versa), a new Transmitter Control Code may be necessary or,

(b) You discontinue filing on magnetic media for a year (your five character alpha / numeric Transmitter Control Code may be reassigned).

If either of these conditions applies to you, you should contact IRS for clarification. In All correspondence, refer to your current five character alpha / numeric Transmitter Control Code to assist IRS in locating your files.

.04 IRS will assist new filers with their initial magnetic tape submission by reviewing "test" files submitted in advance of the filing season. The "test" data should be actual data for the "A" Record, not fictitious information. This applies to all records submitted in the "test" file. Approved payers or transmitters should submit "test" files to the National Computer Center. You MUST submit a "test" file in order to participate in the Combined Federal / State Program; however, you are encouraged to submit "test" files if you are a new filer on magnetic media. As a guideline, IRS prefers that all "test" files be submitted between August 15 and December 15 each year. Refer to Part A, Sec. 13 for the address. Do not submit "test" files after December 15. If you are unable to submit your "test" file by this date, you may only send a sample hardcopy printout or tape dump that shows a sample of each type of record (A, B, C, K and F) used to the National Computer Center. Clearly mark the hardcopy printout or tape dump as "TEST DATA," and include identifying information such as name, address and telephone number of someone familiar with the "test" print or tape dump who may be contacted to discuss its acceptability. With all "test" data, include a transmittal Form 4804, 4802 or computer generated substitute marked as "TEST DATA" that identifies your five character alpha / numeric Transmitter Control Code and total record and money amounts. The transmittal Form 4804 and 4802 have been updated for tax year 1986. Agencies that produce a computer generated substitute must include the additional information required on these forms. The Form 4804 now includes a Checkbox 1 to indicate the type of file (e.g., original, correction, replacement, test). The "test" data must be a sample of actual data coded according to the proper revenue procedure.

.05 If your magnetic media files have been prepared for you in the past by a service agency, and you now have computer equipment compatible with that of IRS and wish to prepare your own files, you must request your own five character alpha / numeric Transmitter Control Code by filing an application, Form 4419, as described above.

.06 If you as an individual or organization are an approved filer on magnetic media and you change the name of your organization, please notify the National Computer Center in writing so that your file may be updated to reflect the proper name.

.07 In accordance with section 1.6041-7(b) of the Income Tax Regulations, payments to providers of medical and health care services 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. A single application form covering all the departments that will be filing on magnetic tape should be submitted. One five character alpha / numeric Transmitter Control Code may be used for all departments.

.08 Any person required to file original or corrected returns on magnetic media may request a waiver from the filing requirements by submitting Form 8508, Request For Waiver From Filing Information Returns on Magnetic Media, with the IRS National Computer Center if filing on magnetic media would be an undue hardship. Requests for waivers for Forms W 2 and W 2P are due by July 31, 1986 for tax year 1986, for returns to be filed in 1987. For all other returns required to be filed on magnetic media, waiver requests must be filed at least 90 days before the returns are due. This waiver, if approved, will only provide exemption from magnetic media filing for one tax year. Filers may not apply for a waiver for more than one tax year at a time. You must reapply each year that a waiver is necessary. Copies of Form 8508 may be obtained from the IRS National Computer Center. See Part A, Sec. 13 for the address.

.09 Section 1.6045-1(1) of the Income Tax Regulations requires brokers and barter exchanges to use magnetic media in reporting ALL Form 1099 B data to IRS. THIS REQUIREMENT APPLIES TO BOTH ORIGINAL AND CORRECTED RETURNS. Generally NEW brokers and NEW barter exchanges may request an undue hardship exemption by filing a request for waiver with the National Computer Center by the end of the second month following the month in which they became a broker or barter exchange.

.10 All requests for magnetic media related undue hardship exemptions should be submitted to IRS National Computer Center at least 90 days before the due date of the return except as stated in Sec. 5.09. All magnetic media related undue hardship requests for Forms W 2 and W 2P are to be filed with IRS National Computer Center, not SSA and must be filed by July 31, 1986, for tax year 1986, for returns to be filed in 1987. Refer to Part A, Sec. 13 for the address.

.11 If you request a waiver from filing on magnetic media and it is approved, do not send a copy of the approved waiver to the service center where you file your paper returns. Keep the waiver for your records. Do not staple, paperclip or use rubberbands on any scannable forms. Paper information returns are read by an optical scanner (OCR) at the service centers.

.12 Waivers are granted on a case-by-case basis and may be approved at the discretion of the National Computer Center.

.13 If you are required to file on magnetic media but fail to do so, and you do not have an approved waiver on record, you may be subject to a failure to file penalty. Refer to Sec. 6.01 below.

.14 An approved waiver from filing information returns on magnetic media does not provide exemption from filing; you MUST still file your information returns on acceptable paper forms.

.15 A magnetic media reporting package, which includes all the necessary transmittals, labels, and instructions will be mailed to the last known address of all approved filers each year.

SEC. 6. FILING OF MAGNETIC MEDIA REPORTS AND RETENTION REQUIREMENTS

.01 If you do not file your returns on time, you may be subject to a $50 per document failure to file penalty. If you file without following the instructions in this revenue procedure, you may also be subject to a $50 per document failure to file penalty. The maximum penalty is $50,000. However, there is no maximum penalty for returns of 1099 INT, 1099 OID, 1099 DIV, 1099 PATR, 5498 or if the failure to file is due to intentional disregard of the filing requirements.

.02 Generally, you are now subject to a $50 penalty for each failure to include the payee's correct TIN on an information return unless the payer can demonstrate that the payer met the due diligence requirements. Refer to Part A, Sec. 11.

.03 Rev. Proc. 84-24, 1984-1 C.B. 465, gives detailed information on preparing transmittal documents (Forms 1096 and 4804) for information returns and is available at IRS offices. Specific guidelines are given on how to report the payer's name, address and TIN on transmittal documents and information returns. Instructions for multiple transmittals and the submission of transmittals by service bureaus or agents are also covered.

.04 THE MAGNETIC TAPE RECORDS ARE TO BE SUBMITTED TO THE NATIONAL COMPUTER CENTER; HOWEVER, PAPER INFORMATION RETURNS ARE TO CONTINUE TO BE FILED WITH THE SERVICE CENTERS. Form 4804, Transmittal of Information Returns Reported on Magnetic Media, must accompany magnetic tape submissions. If you file for multiple payers and have the authority to sign the affidavit on Form 4804, you should also submit Form 4802, Transmittal for Multiple Magnetic Media Reporting. For IRS to ensure that your actual data records were formatted following THIS revenue procedure, include a hardcopy printout, fast print or tape dump of the first five and last five blocks of the data that shows a sample of each type of record (A, B, C, K and F) used on the tape. This will be reviewed prior to actual processing to ensure that the data is in the proper format. Be sure to include Form 4804, 4802 or computer generated substitute with your tape shipment. DO NOT MAIL THE TAPES AND THE TRANSMITTAL DOCUMENTS SEPARATELY. IRS encourages the use of a computer generated Form 4804 which includes all necessary information requested on the actual form.

Paper information returns must be transmitted to the appropriate service center using Form 1096, Annual Summary and Transmittal of U.S. Information Returns. Do not send information returns filed on paper forms to the National Computer Center.

.05 The affidavit for Form 4804 should be signed by the payer; however, the transmitter, service bureau, paying agent, or disbursing agent may sign the affidavit on behalf of the payer if all of the following conditions are met:

(a) Has the authority to sign the affidavit under an agency agreement (either oral, written, or implied) that is valid under the state law.

(b)(i) It has the responsibility (either oral, written or implied) conferred on it by the payer to request the TINs of recipients (or others for whom information is being reported), or

(ii) If the return of more than one payer is included in a single tape submission, covered by a single Form 4804, each payer has attested by affidavit to the transmitter, service bureau, paying agent, or disbursing agent that the payer has complied with the law in attempting to secure correct TINs.

(c) It signs the affidavit and adds the caption "For: (name of payer)."

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

.07 DO NOT REPORT THE SAME INFORMATION ON PAPER FORMS THAT YOU REPORT ON MAGNETIC MEDIA. IF YOU REPORT PART OF YOUR RETURNS ON PAPER AND PART ON MAGNETIC MEDIA, BE SURE THAT DUPLICATE RETURNS, WITH THE SAME INFORMATION, ARE NOT INCLUDED ON BOTH. This does not mean that corrected documents are not to be filed. If a return has been prepared and submitted improperly, you must file a corrected return as soon as possible. Refer to Part A, Sec. 10 for requirements and instructions on filing corrected returns.

.08 Reports from different branches or locations for one payer, if submitted on the same file, MUST be consolidated under one Payer / Transmitter "A" Record for each type of information return. For example, all Forms 1099 INT for the same payer on a single file must be sorted together under one Payer / Transmitter "A" Record followed by the appropriate "B" Records and one "C" Record.

.09 Payers are required to retain a copy of the information returns filed with IRS or the ability to reconstruct the data for at least three years.

.10 Before submitting magnetic media files, include the following:

(a) A signed Form 4804 or computer generated substitute.

(b) A Form 4802 (if you transmit for multiple payers).

(c) A hardcopy printout or listing of the first five and last five blocks of your file. The listing should show a sample of each type of record (A, B, C, K and F) used on the magnetic media being submitted.

(d) The magnetic media with an external identifying label as described in Part B, Sec. 1.

(e) On the outside of the shipping container, include a Form 4801 or a substitute for the form which reads "DELIVER UNOPENED TO TAPE LIBRARY-MAGNETIC MEDIA REPORTING-BOX ___ of ___ If there is only one container, mark the outside as Box 1 of 1. For multiple containers, include the sequence (e.g., Box 1 of 33, 2 of 33, etc.).

(f) If you were granted an extension, include a copy of the approval letter with the magnetic media shipment.

.11 IRS will not pay or accept "Collect on Delivery" or "Charged to IRS" shipments of reportable tax information that an individual or organization is legally required to submit.

.12 Files returned to you due to coding or format errors are to be corrected and returned to IRS within 30 days of your receipt or the payer may be subject to a failure to file penalty.

SEC. 7. FILING DATES

.01 The dates prescribed for filing paper returns with IRS also apply to magnetic media filing. Magnetic media reporting to IRS for Forms 1098, 1099 and W 2G must be on a calendar year basis. Form 5498 is used to report amounts contributed during or after the calendar year but not later than April 15.

.02 Information returns filed on magnetic media for Forms 1098, all types of Forms 1099, and W 2G must be submitted to IRS and postmarked by February 28. The due date for furnishing the required copy or statement to the recipient is January 31.

.03 Information returns filed on magnetic media for Form 5498 must be submitted to IRS and postmarked by May 31. Copies of this form or statements are due to the participant by May 31 for contributions made to IRAs and SEPs for the prior calendar year; however, participant copies or statements for DECs are due at the time the contribution is made or January 31, whichever is later. Form 5498 is filed for contributions to be applied to 1986 that are made between January 1, 1986, and April 15, 1987.

SEC. 8. EXTENSIONS OF TIME TO FILE

.01 If a payer or transmitter of returns on magnetic media filed with IRS or SSA is unable to submit their magnetic media file by the dates prescribed in Sec. 7.02 and 7.03 above, submit a letter requesting an extension of up to 30 days to file, as soon as you are aware that an extension will be necessary. In order to be considered, the request MUST be filed before the due date of the return; otherwise, you will be subject to the late filing penalty. The letter should be sent to the attention of the Magnetic Media Reporting Program at IRS National Computer Center. See Part A, Sec. 13 for the address. The request should include:

(a) The filer's (or transmitter's, if filing for multiple payers) name and address.

(b) The filer's Taxpayer Identification Number (SSN or EIN).

(c) The tax year for which the extension of time is requested: tax year 1986.

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

(e) The type of returns and expected volume (e.g., 5000 Forms 1099 INT).

(f) The five character alpha / numeric Transmitter Control Code assigned to the organization or individual requesting the extension (if a number has been assigned).

(g) The reason for the delay and date that you will be able to file.

(h) If you file for multiple payers, the request must include a list of all payers and their TINs (SSN or EIN).

An approved extension for magnetic media filing does not provide additional time for supplying a copy to the payee and is not an extension to file paper "Copy A" with the appropriate service center.

.02 If an extension of time to file on magnetic media is granted by the National Computer Center, a copy of the letter granting the extension MUST be attached to the transmittal Form 4804 or computer generated substitute when the file is submitted.

SEC. 9. PROCESSING OF MAGNETIC MEDIA RETURNS

.01 The National Computer Center will process tax information from magnetic media files. All magnetic media files that are received timely by the National Computer Center will be returned to the filers by August 15 of the year in which submitted.

.02 Due to the volume of input received and the cost to return special containers, special shipping containers should not be used for transmitting data to the National Computer Center since IRS cannot guarantee return of such containers.

.03 Files will be returned to you for correction if they are unprocessable due to format or coding errors, or by the request of the filer. Unprocessable files must be corrected and returned to the National Computer Center within 30 days of your receipt or the payer may be subject to a failure to file penalty. The corrected files will be returned to the filer by the National Computer Center within 6 months of receipt. PLEASE BE SURE THAT YOUR FORMAT AND CODING COMPLY WITH THIS REVENUE PROCEDURE. THIS REVENUE PROCEDURE IS TO BE USED FOR THE PREPARATION OF TAX YEAR 1986 INFORMATION RETURNS ONLY. LEGISLATIVE AND FORMS CHANGES AFFECTING INFORMATION RETURNS MAY OCCUR EACH YEAR. THESE PROCEDURES ARE UPDATED TO REFLECT NECESSARY CHANGES. PLEASE READ THIS PUBLICATION CAREFULLY.

SEC. 10. HOW TO FILE CORRECTED RETURNS

.01 The filing requirements listed in Part A, Sec. 1 apply to both original and corrected returns. Corrections should be aggregated and filed as soon as possible but not later than October 1 of each year. ALL FIELDS OR BOXES MUST BE COMPLETED WITH THE CORRECT INFORMATION, NOT JUST THE DATA FIELDS NEEDING CORRECTION. Submit corrections only for the returns filed in error, not the entire file. If your complete file is in error, contact the National Computer Center immediately. If you file corrected returns on paper forms, submit Copy A to the appropriate service center. There are numerous types of errors. It may require more than one transaction to properly correct the initial error. In prior years, tape position 5 of the "B" Record was used as the corrected return indicator. This has now been changed to position 6. You must adjust your programs. You are strongly encouraged to read this ENTIRE section before attempting to make ANY correction. If the initial return was filed as an aggregate, you must consider this in filing the corrected return.

.02 Corrected returns submitted to IRS on magnetic media, using a "G" coded Payee "B" Record, may be submitted on the same tape as those corrections submitted without the "G" code; however, they must be submitted using a separate "A" Record. Corrected returns for different tax years may not be submitted on the same file. Corrected returns are to be identified as corrections on the transmittal document and the EXTERNAL affixed label of the file.

.03 The instructions that follow will provide information on how to file corrected returns on magnetic media. The 1986 "Instructions for Forms 1099, 1098, 5498, 1096, and W 2G" provide more specific instructions for filing corrections on paper forms and are available from IRS.

.04 If you are not required to file your corrections on magnetic media and you file them on paper forms, do not submit the paper returns to the National Computer Center. All paper returns, whether original or corrected, must be filed with the appropriate service center. Corrected returns filed on magnetic media must be filed with the National Computer Center. Refer to Part A, Sec. 13 for the address.

.05 Statements to the recipient or participant should be identified as "CORRECTED" and should be provided to them as soon as possible.

.06 If you file corrected returns on paper forms, use IRS forms or acceptable OCR scannable paper substitutes. Pinhole feeds on the forms are not acceptable. Always submit Copy A to the appropriate service center. NOTE: Form W 2G is not required to be in OCR scannable format. Publication 1179, "Specifications for Paper Substitutes for Forms 1096, 1098, 1099, 5498 and W 2G" provides requirements and instructions.

.07 For instructions on filing information returns with IRS, refer to the 1986 "Instructions for Forms 1099, 1098, 5498, 1096, and W 2G." If these instructions are not included in your magnetic media reporting packages, request a copy from IRS.

.08 Type or machine print in black carbon based ink all information on returns filed on paper. Print money amounts without dollar signs ($), ampersands (&), asterisks (*), commas (,), or other special characters. Use decimal points (.) to indicate dollars and cents on paper forms only, not on magnetic media.

.09 Use the proper form. If you are in doubt, review the instructions noted in .07 above or contact IRS.

.10 Use only the boxes provided on the paper forms. Do not add additional boxes.

.11 Do not change the title of any box on any forms and do not insert data in the untitled shaded areas.

.12 Use the same name and TIN (SSN or EIN) for the filer on the Form 1096 transmittal form and all related forms that follow.

.13 A separate transmittal Form 1096 is required for each type of paper information return filed in the 1098, 5498, W 2G, and 1099 series. DO NOT USE THE SAME TRANSMITTAL DOCUMENT TO FILE ORIGINAL AND CORRECTED RETURNS WHETHER ON PAPER FORMS OR MAGNETIC MEDIA. A transmittal Form 4804 or computer generated substitute is used to transmit magnetic media. A Form 4802 is a continuation form for a Form 4804. Please utilize a Form 4802 if you file on magnetic media for multiple payers and are an authorized agent for the payers.

.14 Do not cut, staple, fold, paperclip, tape, or use rubberbands on any paper information returns filed with IRS. This could impair the OCR scanning process. No photocopies of any forms are allowable.

.15 Use the correct tax year's forms to file information returns with IRS (i.e., do not submit tax year 1986 returns using 1985 forms). The same is true for magnetic media filing. You must submit your returns filed on magnetic media using the revenue procedure for the tax year of the returns. Forms and revenue procedures are normally updated each year to include necessary changes.

.16 Most information returns contain a "VOID" box and a "CORRECTED" box. The "VOID" box is used only if you make an error while typing or printing the paper forms. Mark this box ONLY when you wish the return to be disregarded or passed over. The OCR scanner at the service centers will not read a "VOID" return; it will pass over it and go to the next form if the "VOID" box is marked. Do not confuse the "VOID" box and the "CORRECTED" box.

.17 On magnetic media files, the Payee "B" Record provides space to enter a Payer's Account Number for the Payee. This same account number may be provided on paper forms. In order to properly file corrected returns, this number will help identify the appropriate incorrect return. DO NOT ENTER A TIN (SSN OR EIN). A PAYER'S ACCOUNT NUMBER FOR THE PAYEE MAY BE A CHECKING ACCOUNT NUMBER, SAVINGS ACCOUNT NUMBER, SERIAL NUMBER, OR ANY OTHER NUMBER ASSIGNED TO THE PAYEE BY THE PAYER, THAT WILL DISTINGUISH THE SPECIFIC ACCOUNT. THIS NUMBER MUST APPEAR ON THE INITIAL RETURN AND ON THE CORRECTED RETURN IN ORDER TO IDENTIFY AND PROCESS THE CORRECTION PROPERLY.

.18 REVIEW THE CHART THAT FOLLOWS. The types of errors made will normally fall under one of the three categories listed. Next to each type of error made, you will find a list of instructions to tell you how to properly file the corrected return for that type of error. READ ALL OF THE INSTRUCTIONS LISTED AND FOLLOW THEM FOR THE TYPE OF ERROR MADE ON THE INITIAL RETURN. IN SOME CASES TWO TRANSACTIONS ARE REQUIRED TO PROPERLY FILE CORRECTIONS. IF THE ORIGINAL RETURN WAS FILED AS AN AGGREGATE, YOU MUST CONSIDER THIS IN FILING CORRECTED RETURNS.

       Guidelines for Filing Corrected Returns On Magnetic Media

.01 Under section 6109 of the Internal Revenue Code, recipients of all reportable payments on information returns are required to furnish taxpayer identification numbers (TINs) to the payer. 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. Refer to Part A, Sec. 15 for a definition of taxpayer identification number (TIN).

.02 The recipient's TIN is used to associate and verify amounts reported to IRS with corresponding amounts on tax returns. Therefore, it is particularly important that correct social security and employer identification numbers for payees be provided on magnetic media or paper forms submitted to IRS. DO NOT ENTER HYPHENS, ALPHA CHARACTERS, ALL 9s OR ALL ZEROS.

.03 Under section 6676 of the Internal Revenue Code, a $50 penalty applies for each failure to furnish a TIN to another person who is required to file an information return, and for each failure to include a TIN on an information return. The penalty applies unless the failure to comply is due to reasonable cause and not willful neglect.

.04 With respect to all payers of interest and dividends, section 6676 of the Internal Revenue Code provides that the payer must self-assess a $50 penalty for each failure to include a payee's TIN or each inclusion of an incorrect TIN on an information return, unless the payer can demonstrate that the payer met the due diligence requirements in attempting to acquire correct TINs for payees. Use Form 8210, Self-Assessed Penalties Return.

.05 For any reportable payment, if the payee fails to provide a TIN to the payer then backup withholding must be instituted for that payee. If the payer receives another TIN in the manner required from the payee within 30 days of notice from IRS, no backup withholding is required. If the payee has applied for a TIN, the payee may certify to this on Form W 9 by noting "Applied For" in the TIN block and by signing the form. This form then becomes an "awaiting-TIN certificate." If the TIN is not received and certified, if required, within 60 days, begin withholding and continue until you receive a TIN in the manner required.

.06 The TIN to be furnished to IRS depends primarily upon the manner in which the account is maintained or set up on the payer's record. The TIN to be provided must be that of the owner of the account. If the account is recorded in more than one name, furnish the TIN and name of one of the owners of the account. The TIN provided must be associated with the name of the payee provided in the first name line of the Payee "B" Record. For individuals, including sole proprietors, the payee TIN is the payee's social security number. For other entities, the payee TIN is the payee's employer identification number.

.07 Sole proprietors who are payers should show their employer identification number in the Payer / Transmitter "A" Record. However, sole proprietors who are not otherwise required to have an employer identification number should use their social security number.

.08 Sole proprietors' social security numbers must be used in the Payee "B" Record.

.09 The charts below will help you determine the number to be furnished to IRS for recipients of reportable payments (payees).

            CHART 1. Guidelines for Social Security Numbers

.01 Magnetic tape reporting of the information returns listed in Part A, Sec. 1 applies only to the original (Copy A).

.02 For payments of dividends or interest (reported on Forms 1099 DIV, 1099 PATR, 1099 INT or 1099 OID) the payer is required to furnish an official Form 1099 to a payee either in a separate mailing by First-Class mail or in person. These forms may not be combined or mailed with other information furnished to the recipient except Forms W 8, W 9, or other Forms 1099. The payer may use substitute Forms 1099 if they utilize the proper language, are substantially similar to the official forms and if the payer complies with all revenue procedures relating to substitute Forms 1099 in effect at the time (see Publication 1179). Copy B (For Recipient) of the substitute forms must contain the statement "This is important tax information and is being furnished to IRS. If you are required to file a return, a negligence penalty will be imposed on you if this income is taxable and IRS determines that it has not been reported." The substitute form must contain instructions substantially similar to those on the back of Copy B of the official form.

.03 Statements to recipients for Forms 1098, 1099 A, 1099 B, 1099 G, 1099 MISC (except for substitute payments in lieu of dividends and tax-exempt interest), 1099 R, 5498 or W 2G need not be a copy of the paper form filed with IRS. It is important that income items be properly classified for Federal tax purposes on the statement the payer gives to recipients. The message "This information is being furnished to IRS" must appear on the statements. In addition, Form 1098 statements must contain the message, "The amount shown is deductible by you for Federal income tax purposes only to the extent it was actually paid by you and not reimbursed by another person." The space provisions on official paper forms do not agree with those used in magnetic media. The amount of space on paper forms is less than that allowed on magnetic media. Filers may wish to seek a substitute form for Copy B (For Recipient) that accommodates the space provisions used in magnetic media. Payers are permitted considerable flexibility in designing Copy B 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 so long as all required information is present and worded properly and the payee's copy is conducive to proper reporting of income on tax returns. (This does not apply to Forms 1099 INT, 1099 OID, 1099 DIV and 1099 PATR. See .02 above for the requirements for these four forms.) However, when information not requested on the official form is included on these substitute statements, they can no longer be mailed with recipient copies of 1099 DIV, INT, OID, or PATR without violating the separate mailing requirements.

.04 If a portion of the returns is reported on magnetic tape and the remainder is reported on paper forms, those returns not submitted on magnetic tape (including corrected returns) may require a waiver depending on the type of return and volume. Returns filed on paper must be filed on official forms or on acceptable paper substitutes meeting the specifications in Publication 1179.

Do not submit proposed substitutes of Copy A to the National Computer Center.

Your proposed substitutes must comply to the official form and the specifications outlined in Publication 1179. DO NOT submit any substitutes for approval. Only those forms that comply with the official form and the specifications in Publication 1179 are acceptable.

SEC. 13. TO CONTACT THE IRS NATIONAL COMPUTER CENTER

.01 Effective January 1, 1986, magnetic media processing for all service centers was centralized at the IRS National Computer Center. Please direct all requests for IRS magnetic media related publications, information, undue hardship waivers, extensions or forms to the following addresses (if Postal Service or land carrier):

     Magnetic Media Reporting

Requests for paper returns, publications or forms not related to magnetic media processing should be requested from local IRS offices or by calling the toll-free number in your area.

.02 The National Computer Center will process returns filed on magnetic media only. All information returns, including corrections, filed on paper forms should be submitted to the appropriate service center, not the National Computer Center. Organizations that file their information returns on magnetic media but that submit their corrected returns on paper forms, refer to the 1986 "Instructions for Forms 1099, 1098, 5498, 1096, and W 2G" for the service center addresses.

SEC. 14. COMBINED FEDERAL / STATE FILING

.01 The Combined Federal / State Program was established to simplify information returns filing for the taxpayer. IRS will accept, upon prior approval, magnetic tape files containing state reporting information only for those states listed in Table 1 in this section. FORMS 1098, 1099 A, 1099 B AND W 2G CANNOT BE FILED UNDER THE COMBINED FEDERAL / STATE FILING PROGRAM.

.02 To request approval to participate in the Combined Federal / State Program, a "test" file, coded for this program, must be submitted by the transmitter to the IRS National Computer Center between August 15 and December 15 using the revenue procedure that will be used for the actual data files. Blanket approval will not be given to software packages. The "test" file is only required for the first year. Once you are approved, you do not need to resubmit "tests" each year, except when notified by IRS. Refer to Part A, Sec. 13 for the address. See Part A, Sec. 5.04 for general guidelines on submission of "test" files. Each record, both in the "test" file and actual data file, must be 360 positions in length, and the file must conform exactly to the revenue procedure for the tax year of the actual data. Combined Federal / State records must be coded using each state's dollar criteria from Table 2 of this Section for each type of return.

If the "test" file is determined to be acceptable, IRS will return it to the filer with Form 6847, Consent For Internal Revenue Service to Release Tax Information. The payer must complete Form 6847. The 5 character alpha / numeric Transmitter Control Code must be included on the form. The form should then be returned to IRS before IRS will release tax information to any of the participating states.

Form 6847 must be signed by one of the individuals listed at the bottom of the form. If the form is signed by an attorney-in-fact, the written consent from the taxpayer to the attorney-in-fact must be included with the Form 6847. This consent by language and / or scope must clearly indicate that the attorney-in-fact is empowered to authorize release of the information document returns to the state(s). A separate Form 6847 is required for each payer. A transmitter may not combine payers on one Form 6847 even though acting as attorney-in-fact for several payers. Form 6847 may be photocopied if you receive an insufficient number of the form. If you have filed on this program in the past and have not met these requirements, you must resubmit the Form 6847 with the proper signatures as specified. If you file for multiple payers, only code the records to go to the state(s) for those payers that participate and have properly submitted Form 6847. Do not submit actual data records coded for the Combined Federal / State Program without prior approval from IRS.

.03 States that participate in this program and the valid state code assigned to each are listed in Table 1 of this Section. If the state that you wish information released to does not participate in the program, do not code your records for that state. If the state participates, if you have received prior approval, and if all other conditions are met, IRS will forward the tax information to the participating state at no charge to the filer. You do not need to reapply each year.

.04 IF CORRECTIONS MUST BE MADE, IRS WILL NOT TRANSMIT CORRECTED RETURNS TO THE STATES; THIS WILL BE THE RESPONSIBILITY OF THE FILER.

.05 IRS will make no attempt to process files with any deviations. Approval to participate in the Combined Federal / State Program will be revoked if any files are submitted that do not totally conform.

.06 IRS is acting as a forwarding agent ONLY. Some participating states require separate notification that you are filing in this manner. It is your responsibility to contact the appropriate states for further information.

.07 The appropriate state code should be entered for those documents which meet that state's filing requirements. It is the filer's responsibility to determine the state code to be used and to obtain the filing requirements from the appropriate state(s).

.08 If you meet all of the requirements for this program, you must provide the state totals from the "K" Record on a separate Form 4804, Transmittal of Information Returns on Magnetic Media (or Form 4802, Transmittal For Multiple Magnetic Media Reporting) or computer generated substitute for each state, or you must include a listing which identifies each state and the "K" Record totals for each.

.09 If you have met ALL of the above conditions:

(a) You must submit all records using 360 positions which indicate the appropriate coding related to this program.

(b) The "C" Record must be followed by a "K" Record for each state. The "K" Record indicates the number of payees being reported to each particular state.

(c) Payment amount totals and the valid participating state code must be included in the state totals "K" Record. Refer to Part B, Sec. 7, for a description of the "K" Record.

(d) The "K" Record is followed by an end of transmission "F" Record (if this is the last record of the entire file).

.10 Only those states listed in Table 1 below will receive information from IRS. It is the filer's responsibility to file information returns with states that do not participate in this program.

             TABLE 1. PARTICIPATING STATES AND THEIR CODES

                       TABLE 2. DOLLAR CRITERIA

 Element                   Description

.01 You MUST use the following U.S. Postal Service state abbreviations and foreign country codes when developing the state code portion of address fields. (This table provides state abbreviations only and does not represent those states participating in the Combined Federal / State Program. For a list of states that participate in the Combined Federal / State Program, refer to Part A, Sec. 14.10.)

 State                                                           Code

 Province                                                        Code

 Foreign Country                                                 Code

SECTION 1. GENERAL

.01 The specifications contained in this part of the revenue procedure define the required format and contents of the records to be included in the tape file. These specifications must be adhered to unless deviations have been specifically granted by IRS.

.02 In most instances, IRS will be able to process any compatible tape files. Tape files must be EBCDIC, ASCII or BCD and must meet the following criteria:

(a) 9 track EBCDIC (Extended Binary Coded Decimal Interchange Code) with

(1) Odd Parity and

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

(3) If you use UNIVAC Series 1100, you must submit an interchange tape.

(b) 9 track ASCII (American Standard Coded Information Interchange) with

(1) Odd Parity and

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

(c) 7 track BCD (Binary Coded Decimal) with

(1) Either Even or Odd Parity and

(2) A density of 556 or 800 BPI (IRS will accept and process 7 track tapes; however, 9 track is preferred.)

Please be consistent in the use of recording codes and density on your files. Enter the recording code and density on the exterior label. If files are generated in more than one recording code and / or density, multiple shipments would be appreciated.

.03 All compatible tape files must have the following characteristics:

Type of tape-0.5 inch (12.7 mm) wide, computer grade magnetic tape on reels of up to 2400 feet (731.52 m) within the following specifications:

(a) Tape thickness: 1.0 or 1.5 mils and

(b) Reel diameter: 10.5 inch (26.67 cm), 8.5 inch (21.59 cm), or 7 inch (17.78 cm).

.04 Payers who can substantially conform to these specifications, but who require some minor deviations, MUST contact the National Computer Center. Under no circumstances may tapes deviating from the specifications in this revenue procedure be submitted without prior approval from IRS. If you file on the Combined Federal / State Program, your files must conform totally to this revenue procedure.

.05 An external affixed label, Form 5064, must appear on each tape submitted for processing. The following information is needed:

(a) The transmitter's name.

(b) The five character alpha / numeric Transmitter Control Code.

(c) State of sender (e.g., NY).

(d) Tape density.

(e) Checkbox (indicates whether tape contains header label or is unlabeled).

(f) Track (7 or 9).

(g) Recording code (e.g., EBCDIC or ASCII).

(h) The tax year of the data (e.g., 1986).

(i) Document types (e.g., 1099 INT).

(j) The total number of "B" Records after each "A" Record (this figure is taken from the "C" Records).

(k) A number assigned by the transmitter to the tape.

(l) The sequence of each tape (e.g., 001 of 008).

The external media label, Form 5064, was updated for tax year 1986. You must use the updated label. This information will assist IRS in processing the file or in locating a file, should the transmitter request that it be returned due to errors. IRS advises that special shipping containers not be used for transmitting data since it cannot be guaranteed that they will be returned.

SEC. 2. RECORD LENGTH

.01 The tape records defined in this revenue procedure may be blocked or unblocked, subject to the following:

(a) A block must not exceed 10,000 tape positions.

(b) A record must be a minimum of 200 positions and a maximum of 360 positions. A FIXED RECORD OF 360 POSITIONS IS RECOMMENDED. If you report as a Combined Federal / State filer, the length must be 360 for all records: A, B, C, K, and F. Use a "K" Record only if you are an approved Combined Federal / State filer.

(c) If the use of blocked records would result in a short block, all remaining positions of the block must be filled with 9's. Do not pad a block with blanks.

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

(e) Records may not span blocks.

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

(a) Contain information required by state or local governments. Filers who wish to use this option for satisfying state or local reporting requirements should contact their state or local department of revenue for filing instructions. Also refer to Part A, Sec. 14.

(b) Facilitate making all records the same length.

SEC. 3. LABEL CHARACTERISTICS

For the purposes of this revenue procedure the following must be used. Header Label:

1. The Header Label and data must be in the same recording mode.

2. Consist of a maximum of 80 positions.

IRS PREFERS STANDARD OR ANSI LABELED TAPES. IF YOU SUBMIT AN UNLABELED TAPE, THIS MUST BE INDICATED ON THE EXTERNAL LABEL AND ON THE FORM 4804 OR COMPUTER GENERATED SUBSTITUTE.

Trailer Label:

1. Standard trailer labels may be used provided that they begin with 1EOR, 1EOF, EOR1, EOF1, EOV1 or EOV2.

2. Consist of a maximum of 80 positions.

Tape Mark:

1. Used to signify the physical end of the recording on tape.

2. For even parity, use BCD configuration 001111 ("8421").

3. May follow the header label and precede and / or follow the trailer label.

SEC. 4. PAYER / TRANSMITTER "A" RECORD

.01 Identifies the payer and transmitter of the tape file and provides parameters for the succeeding Payee "B" Records. IRS computer programs rely on the absolute relationship between the parameters and data fields in the "A" Record and the data fields in the "B" Records to which they apply.

.02 The number of "A" Records appearing on a tape reel will depend on the number of payers and the different types of returns being reported. After the header label on the tape, the first record appearing in the file must be an "A" Record. For magnetic tape filing, the actual record lengths for the "A" and "B" Records must agree with whatever is entered in tape positions 28-30 and 31-33 of the "A" Record. A transmitter may include Payee "B" Records for more than one payer on a tape reel; however, each GROUP of Payee "B" Records must be preceded by an "A" Record. A single tape reel may also contain different types of returns, but the types of returns must not be intermingled. A separate "A" Record is required for each payer and each type of return being reported. An "A" Record may be blocked with "B" Records; however, the initial record on a file must be an "A" Record. The IRS will accept an "A" Record after a "C" Record; but RECORDS MAY NOT SPAN BLOCKS. Do not begin any record at the end of a block and continue the same record into the next block.

.03 All alpha characters entered in the "A" Record should be uppercase.

.04 WHEN REPORTING FORM 1098, "MORTGAGE INTEREST STATEMENT," THE "A" RECORD WILL REFLECT THE NAME OF THE RECIPIENT OF THE INTEREST. THE "B" RECORD WILL REFLECT THE INDIVIDUAL PAYING THE INTEREST AND THE AMOUNT PAID.

               RECORD NAME: PAYER/TRANSMITTER "A" RECORD

.01 The Payee "B" Record contains the payment information from the individual statements. When filing information documents on tape(s), the format for the Payee "B" Records will vary in relation to the number of payment amount fields being reported. The number of payment amount fields will depend upon the number of Payment Amount Indicator Codes used in positions 18-26 of the Payer / Transmitter "A" Record. For example, if you are reporting 1099 INT, position 17 of the Payer / Transmitter "A" Record will be coded with a "6". If the Amount Indicators used to report this interest are Amount Codes "1", "2", and "3", then tape positions 18-26 of the "A" Record will be coded "123bbbbbb" (b represents a blank position). To correspond with Amount Indicators "1", "2" and "3" of the "A" Record, the "B" Record will contain three payment amount fields. Tape positions 31-40 of the "B" Record will contain the payment amount to be reported for Amount Code "1" (earnings from savings and loan associations, credit unions, bank deposits, bearer certificates of deposits, etc.); tape positions 41-50 of the "B" Record will contain the payment amount to be reported for Amount Code "2" (amount of forfeiture); and tape positions 51-60 of the "B" Record will contain the payment amount to be reported for Amount Code "3" (Federal income tax withheld). The First Payee Name Line must begin immediately after the last payment amount that is indicated as being used. In this example, the First Payee Name Line will begin in tape position 61.

.02 All records must be a fixed length. Records may be blocked or unblocked. Records may not span blocks. A block may not exceed 10,000 positions. DO NOT PAD A BLOCK WITH BLANKS. If the use of blocked records would result in a short block, all remaining positions of the block must be filled with 9s.

.03 All payee records must contain correct payee name and address information entered in the fields prescribed in this section. Records containing an invalid TIN (SSN or EIN) and having no address data present may be returned for correction. In searching for a payee address, if your efforts fail and you know that the address is invalid, supply the invalid address rather than leave the field blank.

.04 IRS must be able to identify the surname associated with the TIN (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's surname or last name are to be entered by the payer. The surname or last name should appear first in the First Payee Name Line of all Payee "B" Records; however, if your records have been developed using the first name first, IRS programs will accept this but a blank must appear between the first and last name.

.05 If payers are unable to provide the first four characters of the surname, the Name Control Field may be left blank; however, compliance with the following will facilitate IRS computer programs in generating the Name Control.

(a) The surname of the payee whose TIN (SSN or EIN) is shown in the Payee "B" Record should always appear first. If, however, you enter the first name first, you must leave a blank space between the first and last name.

(b) In the case of multiple payees, only the surname of the payee whose TIN (SSN or EIN) is shown in the Payee "B" Record, must be present in the First Payee Name Line. Surnames of any other payees in the record must be entered in the Second Payee Name Line.

.06 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 governments. See Part A, Sec. 14, for the Combined Federal / State filing requirements.

.07 Those filers participating in the Combined Federal / State Filing Program must have 360 position records. Positions 359 and 360 in the Payee "B" Records must contain the appropriate state code for the state to receive the information. The file should also meet the money criteria described in Part A, Sec. 14.11. Do not code for the states unless prior approval to participate has been granted by IRS. See Part A, Sec. 14.10 for a list of the valid participating state codes. FORMS 1098, 1099 A, 1099 B AND W 2G CANNOT BE FILED UNDER THE COMBINED FEDERAL / STATE FILING PROGRAM. Your files must meet all of the requirements specified in Part A, Sec. 14 in order to participate in this program.

.08 All alpha characters entered in the "B" Record should be upper-case.

.09 IRS STRONGLY ENCOURAGES FILERS TO REVIEW THEIR DATA FOR ACCURACY BEFORE SUBMISSION TO PREVENT ERRONEOUS NOTICES TO PERSONS FOR WHOM REPORTS ARE FILED. FILERS SHOULD BE ESPECIALLY CAREFUL THAT THEIR TAXPAYER NAMES, SOCIAL SECURITY NUMBERS (SSNs), ACCOUNT NUMBERS, TYPES OF INCOME, AND INCOME AMOUNTS ARE CORRECT. ALTHOUGH IRS ENCOURAGES PAYERS TO FILL IN THE PAYER'S ACCOUNT NUMBER FOR THE PAYEE FIELD, THEY SHOULD NOT INCLUDE EXTRANEOUS DIGITS AS THIS FIELD IS LIMITED, IN MAGNETIC MEDIA FILING, TO 10 POSITIONS.

.10 WHEN REPORTING FORM 1098, "MORTGAGE INTEREST STATEMENT," THE "A" RECORD WILL REFLECT THE NAME OF THE RECIPIENT OF THE INTEREST. THE "B" RECORD WILL REFLECT THE INDIVIDUAL PAYING THE INTEREST AND THE AMOUNT PAID.

                     RECORD NAME: PAYEE "B" RECORD

.01 The Control Total fields have been expanded from 12 to 15 positions. Adjust your programs accordingly.

.02 The End of Payer "C" Record is a summary record for a type of return for a given payer. It MUST be the same length as the "B" Records in the payer's file.

.03 The "C" Record will contain the total number of payees and the totals of the payment amount fields filed by a given payer. The "C" Record must be written after the last Payee "B" Record for each type of return for a given payer. For each "A" Record and group of "B" Records on the file, there must be a corresponding "C" Record.

.04 In developing the "C" Record, for example, if you used Amount Codes 1, 3 and 6 in the "A" Record, the totals from the "B" Records will appear in Control Total 1, 2 and 3 of the "C" Record. Positions 53-142 would be zero filled and positions 143-360 would be blank filled in this example.

.05 Payers / Transmitters must verify the accuracy of the totals in the "C" Record and must enter the totals on the transmittal, Form 4804, 4802 or computer generated substitute, which will accompany the shipment. The lines used on Forms 4804 and 4802 to record payment amounts correspond with the Amount Codes used in the "A" Record. These forms have been updated for 1986.

                 RECORD NAME: END OF PAYER "C" RECORD

.01 The Control Total fields have been expanded from 12 to 15 positions. Adjust your programs accordingly.

.02 The State Totals "K" Record is a summary for a given payer and a given state in the Combined Federal / State Filing Program, used ONLY when state reporting approval has been granted. IT MUST BE 360 POSITIONS IN LENGTH.

.03 The "K" Record will contain the total number of payees and the totals of the payment amount fields filed by a given payer for a given state. The "K" Record(s) must be written after the "C" Record for the related "A" Record.

.04 There MUST be a separate "K" Record for each state being reported.

.05 Refer to Part A, Sec. 14 for the requirements and conditions that MUST be met to file on this program.

                 RECORD NAME: STATE TOTALS "K" RECORD

01. The "F" Record is a summary of the number of payers and tapes in the entire file.

.02 This record should be written after the last "C" Record (or "K" Record, when applicable) of the entire file.

.03 Only a Tape Mark or a Tape Mark and Trailer Label may follow the "F" Record (except when fixed blocks are used in this instance, 9s may follow the "F" Record).

              RECORD NAME: END OF TRANSMISSION "F" RECORD