SERVICE ISSUES GUIDANCE FOR ELECTRONIC FILING OF INFORMATION RETURNS.

Rev. Proc. 87-36

                              CONTENTS

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 8 inch magnetic diskette, 5 1/4 inch magnetic diskette and on Burroughs mini-disk. THIS REVENUE PROCEDURE IS TO BE USED FOR THE PREPARATION OF TAX YEAR 1987 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 Real Estate, 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 All filing requirements that follow apply individually to each reporting entity as defined by its separate TIN (Social Security Number or Employer Identification Number). For example, if you are a corporation with several branches or locations and each uses the same EIN, you must aggregate the total volume of returns to be filed for that EIN and apply the filing requirements for each type of return accordingly.

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 with the exception of real estate transactions to IRS. For real estate transactions, magnetic media filing is required if 250 or more Forms 1099-B must be filed. THESE REQUIREMENTS APPLY SEPARATELY TO BOTH ORIGINAL AND CORRECTED RETURNS.

Section 6011(e) of the Internal Revenue Code and the regulations thereunder, require any person, including corporations, partnerships, individuals, estates, and trusts, who must file, or were required to file for the prior year, more than 50 information returns in the aggregate for payments of 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. For example, if you must file 30 Forms 1099-DIV and 25 Forms 1099-INT, filing on magnetic media is required. THIS REQUIREMENT APPLIES SEPARATELY TO BOTH ORIGINAL AND CORRECTED RETURNS.

In addition, for returns filed in 1988 (for tax year 1987), magnetic media reporting is required if you file, or were required to file for the prior year, 250 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 SEPARATELY TO BOTH ORIGINAL AND CORRECTED RETURNS. For example, if you file 300 1099-MISC returns and later file 50 corrections for Forms 1099-MISC, only the original 300 returns would be required to be filed on magnetic media. The 50 1099-MISC corrections could be filed on paper since there are less than 250 corrections to be filed. To determine the number of returns you are required to file, or were required to file for the prior year, count each type of form separately. For example, if you must file 450 Forms 1098 and 100 Forms 1099-A, the 450 Forms 1098 must be filed on magnetic media; however, you are not required to file the 100 Forms 1099-A on magnetic media. All Forms 1099-B are required to be filed on magnetic media with the exception of real estate transactions. For 1099-B real estate transactions, magnetic media filing is required if 250 or more returns must be filed. Forms W-2 and W-2P are filed with the Social Security Administration (SSA), NOT Internal Revenue Service (IRS). These requirements shall not apply if you establish that it will cause you undue hardship. Refer to Part A, Sec. 3.

.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. 12.

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

(a) 1987 "Instructions for Forms 1099, 1098, 5498, 1096, and W-2G," provide further information on filing returns with IRS. These instructions are available at IRS offices and are included in magnetic media reporting packages mailed to filers on this program each year.

(b) 1987 "Instructions for Reporting Real Estate Transactions on Form 1099-B" which are available at IRS offices.

(c) Rev. Proc. 84-24, 1984-1 C.B. 465, or other current revenue procedure, regarding preparation of transmittal documents (Forms 1096 and 4804) for information returns.

(d) Rev. Proc. 84-33, 1984-1 C.B. 502, or other current revenue procedure, regarding the optional method for agents to report and deposit backup withholding.

(e) Publication 1179, Specifications for Paper Document Reporting and Paper Substitutes for Forms 1096, 1098, 1099, 5498, and W-2G.

.05 This procedure supersedes the following revenue procedure: Rev. Proc. 86-28, 1986-1 C.B. 624, also published in Publication 1220 (Rev. 6-86), Requirements and Conditions for Filing Information Returns in the Forms 1098, 1099, 5498, and W-2G Series on Magnetic Tape.

.06 Refer to Part A, Sec. 13 for definitions of terms used in this publication.

SEC. 2. NATURE OF CHANGES--CURRENT YEAR (TAX YEAR 1987)

.01 Numerous editorial changes have been made to the publication. The following changes must be incorporated into your programs for tax year 1987.

.02 GENERAL CHANGES ARE AS FOLLOWS:

(a) The note on the cover was revised to indicate changes to the maximum penalty per calendar year and to alert filers that penalties may be assessed for failure to include correct information.

(b) Information returns can no longer be filed on cassette.

(c) If you were required to file on magnetic media for tax year 1986, you are also required to file on magnetic media for tax year 1987.

(d) The title of Form 1099-B has been changed to include real estate transactions. For a real estate transaction closing after 1986, proceeds of certain sales must be reported on Form 1099-B. For more information on this new reporting requirement, refer to the 1987 "Instructions for Reporting Real Estate Transactions on Form 1099-B." All Forms 1099-B are required to be filed on magnetic media with the exception of real estate transactions. For real estate transactions, if 250 or more returns are to be filed on Form 1099-B, they must be filed on magnetic media.

(e) A note was added to Part A, Sec. 1.02 concerning the magnetic media filing requirements as they apply to each TIN (SSN or EIN).

(f) References to Forms W-2 and W-2P have been deleted from several sections in the revenue procedure since these forms are filed with SSA.

(g) Additional information concerning the application Form 4419 has been added to Part A, Sec. 3.01.

(h) Filers are no longer required to submit a hardcopy printout or dump of their files except when submitting a "test" file after December 15.

(i) All test files must be submitted between October 1 and December 15. Only a hardcopy printout test will be accepted after December 15 and it must be postmarked by January 15, 1988.

(j) Part A, Sec. 3.05 instructs filers to submit separate application Forms 4419 if they submit two types of magnetic media.

(k) Transmitters may request waivers on behalf of persons required to file on magnetic media if all information requested on Form 8508 is provided for each player and each type of information return. Refer to Part A, Sec. 3.08.

(l) Filers are instructed in Part A, Sec. 7.01 to open all files returned to them as soon as they are received. In some cases, files are returned due to errors and must be corrected and returned to IRS within 30 days of your receipt.

(m) Part A, Sec. 8 has been revised in its entirety to delete instructions concerning filing corrected returns on paper forms. This information is available in the 1987 "Instructions for Forms 1099, 1098, 5498, 1096, and W-2G."

(n) The chart in Part A, Sec. 8.10 has been changed to indicate that two transactions are required to correct a payee TIN.

(o) Information concerning penalties has been revised in Part A, Sec. 9.

(p) Part A, Sec. 10 has been revised in its entirety to update information concerning machine scannable forms and statements provided to the payee.

(q) To contact the IRS National Computer Center by telephone, calls must be placed between 8:30 A.M. and 6:30 P.M. Eastern Time Zone. Part A, Sec. 11 has been updated to reflect the new hours.

(r) Part A, Sec. 12.02 includes a note to filers requesting approval to participate in the Combined Federal/State Program. When "test" files are submitted for this program, attach a letter to the Form 4804 submitted with the "test" which indicates that you wish to participate.

(s) The dollar criteria in Table 2 of Part A, Sec. 12 has changed. For the state of New York, Form 1099-PATR must now be reported if the amount is $600.00 or greater. The dollar criteria for Forms 1099-R, 1099-DIV, 1099-INT, and 1099-PATR has been increased for the state of Wisconsin to $600.00. For the state of Minnesota all Forms 5498 must be reported.

(t) A definition has been added to Part A, Sec. 13 for PS58 Costs.

(u) Part A, Sec. 14 has been revised to include new instructions in the usage of foreign country codes.

(v) Part B, Sec. 2.01(b) instructs filers that all records must be a fixed length of 420 positions.

(w) Part B, Sec. 2.01(c) indicates that the last block of the file may be truncated if the use of blocked records would result in a short block.

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

(a) Part B, Sec. 4.02 informs filers that all records must be a fixed length of 420 positions.

(b) Tape positions 2 and 3 of the "A" Record now represent the payment year.

(c) Tape positions 4 through 6 now represent the Reel Sequence Number. You may enter the reel sequence incremented by 1 for each tape in the file or you may enter blanks or zeros. IRS bypasses this sequence check. You must indicate the proper sequence on the external label Form 5064.

(d) A Payer Name Control has been added to the "A" Record.

(e) The Amount Indicators now appear in positions 23-31. Wherever possible, these codes have been changed to agree with the box number on paper forms.

(f) Form 1099-B now includes real estate transactions. Amount Code "1" has been added for reporting gross proceeds from real estate. Refer to the 1987 "Instructions for Reporting Real Estate Transactions on Form 1099-B" for information on this new reporting requirement.

(g) Form 1099-DIV has been revised considerably for tax year 1987. Dividends qualifying and dividends not qualifying for exclusion have been eliminated. Amount Code "2" now represents "Investment expenses included in Amount Code 1." Amount Code "3" is now "Capital gain distributions." Amount Code "5" is "Nontaxable distributions (if determinable)" and Amount Code "6" is "Foreign tax paid."

(h) The Amount Codes for Form 1099-INT have also changed for tax year 1987. Amount Code "2" represents "Early withdrawal penalty." "U.S. Savings Bonds" are now Amount Code "3." Amount Code "4" is "Federal income tax withheld," and Amount Code "5" is "Foreign tax paid (if eligible for foreign tax credit)."

(i) Two changes have been made to the Amount Codes for Form 1099-MISC. Amount Code "8" is now "Substitute payments in lieu of dividends or interest," and Amount Code "9" is the "Direct sales indicator." Royalty payments must now be reported in Amount Code "2" if they total $10 or more. The old reporting requirement for royalties was $600 or more.

(j) The title of Amount Code "3" for Form 1099-OID is now "Early withdrawal penalty."

(k) Two changes have been made to the Amount Codes for Form 1099-R. Amount Code "6" is now "Net unrealized appreciation in employer's securities" and Amount Code "8" is "IRA or SEP distributions." For distributions of qualified deductible voluntary employee contributions (DECs) made in 1987 and later years, do not report the distributions in Amount Code "8" as you have in the past. Rather, report these in Amount Codes "1" and "3." Only IRAs and SEPs are to be reported in Amount Code "8."

(l) The Amount Codes for Form 5498 have also changed considerably. Amount Code "1" is "Regular IRA contributions made in 1987 and 1988 for 1987," Amount Code "2" is "Rollover IRA contributions," Amount Code "3" is "Life insurance cost included in Code 1," and Amount Code "4" is "Fair market value of account." The Amount Code for reporting contributions to an SEP has been eliminated. Only the value of the account is to be reported in Amount Code "4" for SEPs. Do not report employer contributions to an SEP on Form 5498. Also, DECs can no longer be made; therefore, they have been eliminated from the Amount Codes. A new Amount Code for the value of the account has been added. Trustees and issuers of IRAs and SEPs should use this Amount Code to report the value of the accounts in existence during the year, even if no contributions were made during the year.

(m) A Foreign Corporation Indicator has been added to the "A" Record for payers who are foreign corporations.

(n) It is no longer necessary to indicate the "A" and "B" Record lengths in the "A" Record since all records are a fixed length of 420 positions.

(o) The Second Payer Name Line is now 40 positions in length.

(p) If the Payer and Transmitter are the same, positions 211 through 420 of the "A" Record will be blank.

(q) Record layouts have been included in Part B, Sec. 5 to assist you in developing the "A" Record.

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

(a) Part B, Sec. 6.01 informs filers that all "B" Records must be a fixed length of 420 positions.

(b) Information has been added to the Document Specific Code, Description and Remarks section for DEC distributions reported on Form 1099-R.

(c) The Direct Sales Indicator in the Document Specific Code of the Payee "B" Record for Form 1099-MISC has been eliminated.

(d) For tax year 1987, a new indicator has been added to the Document Specific Code for Form 1099-MISC to report crop insurance proceeds. Tape position 4 of the "B" Record will be used to indicate that the amount being reported for Amount Code "7," "Nonemployee compensation," represents crop insurance proceeds.

(e) The Payer's Account Number for Payee field length has been increased from 10 to 20 positions.

(f) Due to the fixed record length of 420 positions, the payment amount fields are no longer variable. All payment amounts are indicated as being used. For payment amounts where no amount is to be reported, you will enter zeros. For example, if you are indicating Amount Codes 2, 4, and 7 as being used in the "A" Record, positions 23 through 31 of the "A" Record will be "247bbbbbb". The "B" Record will have zeros in Payment Amounts 1, 3, 5, 6, 8, and 9. Payment Amounts 2, 4, and 7 will reflect the dollar amount to be reported. All money amounts must be reported in U.S. dollars.

(g) If you are reporting for a payee in a foreign country, enter a "1" in the Foreign Country Indicator field. This field appears in position 161 of the "B" Record. This will allow any format for the Payee Address, City, State and ZIP Code. For foreign addresses, you are not required to use the foreign country codes provided in the revenue procedure. You may spell out or abbreviate the foreign country. This free format is only allowable for foreign addresses. U.S. addresses must utilize the 2 position state codes provided in Part A, Sec. 14.

(h) Due to the fixed record lengths, the Special Data Entries field is now a fixed length and will only vary depending on the type of return being reported. IRS does not utilize the information in this field. It may be used for state reporting requirements or for the filer's own purposes.

(i) Negative amounts must not be reported for Bartering transactions on Form 1099-B.

(j) A Principal Residence Indicator has been added to Form 1099-B for real estate transactions; however, this indicator is not required to be used for tax year 1987.

(k) The Date of Sale field, Form 1099-B, may also represent a Closing Date for real estate transactions.

(l) The Cusip Number field for Form 1099-B has been increased from 8 to 15 positions.

(m) Record layouts have been included in the revenue procedure to assist you in developing the "B" Record.

.05 THE FOLLOWING CHANGES HAVE BEEN MADE TO THE "C," "K," AND "F" RECORDS:

(a) All records must be a fixed length of 420 positions.

(b) Record layouts have been included in the revenue procedure to assist you in developing these records.

SEC. 3. 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 real estate broker, a trustee or issuer of an IRA or SEP, 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 single Form 4419 should be filed no matter how many types of returns the payer or transmitter will be submitting. For example, if you plan to file Forms 1099-INT and Forms 1099-DIV on magnetic media, submit one Form 4419. If you later wish to file another type of return on magnetic media in the Form 1099, 1098, 5498, or W-2G series, it is not necessary to submit a new Form 4419.

If you plan to file for multiple payers, IRS encourages filers to submit one application and to use one Transmitter Control Code for all payers. Include a list of all payers and their TINs with the Form 4419. If you file for additional payers in later years, you may simply notify IRS in writing providing the additional names and TINs. Do not submit a new application for these additional payers.

Copies of Form 4419, for your use, are included in this publication. Requests for additional information or forms related to magnetic media processing should be addressed to the IRS National Computer Center. The address is listed in Part A, Sec. 11.

.02 Application Form 4419 should be filed with the IRS National Computer Center before "test" files are submitted. ("Test" files must be submitted between October 1 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. Magnetic tape returns may not be filed with IRS until the application has been approved and a Transmitter Control Code assigned. Do not enter blanks in the "A" Record Transmitter Control Code field; enter the five character alpha/numeric Transmitter Control Code that is assigned to you by IRS after you have filed an application and it has been approved.

.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, or reporting using more than one type of magnetic media), a new Transmittal 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 apply 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" Records, not fictitious information. Approved payers or transmitters should submit "test" files to the IRS 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. All "test" files must be submitted between October 1 and December 15 each year. Refer to Part A, Sec. 11 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 IRS National Computer Center. This sample hardcopy printout must be postmarked by January 15, 1988. 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 were updated in tax year 1986. Agencies who produce a computer generated substitute must include the additional information required on these forms. The Form 4804 includes a checkbox 1 to indicate the type of file (e.g., original, correction, replacement, test). The "test" data must be coded according to the current 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. If you should happen to file on two types of magnetic media (e.g., tape and 5 1/4 inch diskette), you must submit two applications. IRS assigns different Transmitter Control Codes to each type of magnetic media. This ensures that IRS will provide the proper revenue procedure to filers each year.

.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 IRS 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 create an undue hardship. A SEPARATE FORM 8508 MUST BE SUBMITTED FOR EACH PAYER AND FOR EACH TYPE OF RETURN. It is not acceptable to submit a list of payers. You must submit a separate Form 8508 for each payer and each type of return. You must specify the specific type of return, e.g., 1099-DIV. If you only indicate that the waiver request is for 1099, the waiver will be denied. Transmitters may file Form 8508 for persons required to file on magnetic media if all information requested on Form 8508 is provided for each payer and each type of information return and if the payer or transmitter signs the request attesting that all information is true, correct, and complete. Requests for waivers for Forms W-2 and W-2P are due by June 30 for the tax year requested. 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 are included in this publication and may be obtained from the IRS National Computer Center and other IRS offices. See Part A, Sec. 11 for the address of the IRS National Computer Center.

.09 Section 1.6045-1(1) of the Income Tax Regulations requires brokers and barter exchanges to use magnetic media in reporting to IRS ALL Form 1099-B data, with the exception of real estate transactions. THIS REQUIREMENT APPLIES SEPARATELY 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 IRS 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 must be submitted to the IRS National Computer Center at least 90 days before the due date of the return except as stated in Part A, Sec. 3.09. All magnetic media related undue hardship requests for Forms W-2 and W-2P are to be filed with the IRS National Computer Center, not SSA, and must be filed by June 30 for the tax year requested. Refer to Part A, Sec. 11 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 IRS 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 Part A, Sec. 4.01.

.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. 4. 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 $100,000 per calendar year. 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 interest or dividend (1099-DIV, 1099-INT, 1099-OID, 1099-PATR) information return unless the payer can demonstrate that the payer met the due diligence requirements. Refer to Part A, Sec. 9. For the definition of Payer and Payee see Part A, Sec. 13.

.03 Rev. Proc. 84-24, 1984-1 C.B. 465, or other current revenue procedure 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 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. 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 current 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 IRS 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 (all hereafter referred to as agent), may sign the affidavit on behalf of the payer if the conditions in (a), (b)(i), or (b)(ii), and (c) are met:

(a) The agent 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) The agent has the responsibility (either oral, written or implied) conferred on it by the payer to request the TINs of payees (or others for whom information is being reported),

OR

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

(c) The agent 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. 8 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 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 and have the authority to sign the affidavit on Form 4804.

(c) The magnetic media with an external identifying label as described in Part B, Sec. 1. Be sure to include the proper sequence on this label.

(d) 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.).

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

.10 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.

.11 Files may be returned to you due to coding or format errors. These 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. If you are unable to return the file within 30 days, request an extension of time.

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

SEC. 5. 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 but not before January 1. The due date for furnishing the required copy or statement to the payee is January 31.

.03 Information returns filed on magnetic media for Form 5498 must be submitted to IRS and postmarked by May 31. Trustees or issuers of IRA's or SEP's must provide participant's with a statement of the value of the participant's account by January 31, in any written format. Statements are due to the participants by May 31 for contributions made to IRAs for the prior calendar year. Form 5498 is filed for contributions to be applied to 1987 that are made between January 1, 1987, and April 15, 1988.

SEC. 6. EXTENSIONS OF TIME TO FILE

.01 If a payer or transmitter of returns on magnetic media or paper forms filed with IRS, or on magnetic media filed with SSA, is unable to submit their magnetic media file by the dates prescribed in Sec. 5.02 and 5.03 above, submit a letter requesting an extension of time for a maximum of 60 days 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 of $50 per document. The letter should be sent to the attention of the Magnetic Media Reporting Program at the IRS National Computer Center. See Part A, Sec. 11 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 1987.

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

(e) The specific 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. If additional time is needed in providing a copy to the payee, contact the District Director of the IRS District in which you reside or in which your business is located.

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

SEC. 7. PROCESSING OF MAGNETIC MEDIA RETURNS

.01 All data received at the IRS National Computer Center for processing will be given the same protection as individual returns (1040), and will be returned to the originator after processing. Please open all returned files as soon as you receive them. In some cases, files are returned due to errors and they must be corrected and returned to IRS within 30 days of your receipt or you may be subject to a failure to file penalty.

.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 IRS 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 IRS 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 IRS National Computer Center after processing. 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 1987 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. 8. HOW TO FILE CORRECTED RETURNS

.01 The filing requirement thresholds listed in Part A, Sec. 1 apply separately to both original and corrected returns. A hardship waiver is only required for corrected returns if the total number of corrections for a particular tax year exceeds the magnetic media threshold. For example, if 100 corrections for Form 1099-A are filed, they may be submitted on paper forms and no waiver is required; however, if 300 corrected Forms 1099-A are to be filed on paper, a waiver is required. Corrections should be aggregated and filed as soon as possible but not later than October 1 of each year. ALL FIELDS 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 IRS 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, placing a "G" in tape position 6 of the "B" Record was used as the corrected return indicator. This has been changed to position 7. 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 are to be identified as corrections on the transmittal document, by marking the appropriate checkbox, and on 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 1987 "Instructions for Forms 1099, 1098, 5498, 1096, and W-2G," provide more specific instructions for filing corrections on paper forms and are included in your magnetic media reporting packages each year. The 1987 "Instructions for Forms 1099, 1098, 5498, 1096, and W-2G" specify that one transaction is necessary to correct a payee TIN; however, for magnetic media filing, this will require two transactions. See Part A, Sec. 8.10 for instructions on how to correct the payee TIN on magnetic media.

.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 IRS 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 IRS National Computer Center. Refer to Part A, Sec. 11 for the address.

.05 Statements to payees should be identified as "CORRECTED" and should be provided to them as soon as possible.

.06 Use the same name and TIN (SSN or EIN) for the filer on the Form 4804 transmittal form and all related "A" Records that follow.

.07 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.

.08 Use the correct tax year's revenue procedures to file information returns with IRS (i.e., do not substitute tax year 1987 returns using the 1986 format). 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 legislative and forms changes.

.09 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 if more than one return was filed for a particular payee. 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.

.10 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. 13 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, dividends, and royalty payments, 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. For mortgages in existence before 1985, you will not be subject to the penalty for failure to provide the TIN of the payer of record on Form 1098 if you followed the rules for requesting TINs contained in Temporary Regulations section 1.6050H-1T, and you properly and promptly processed the responses.

A penalty of $5 per failure applies to each failure by a payer to include his or her own TIN in any return, statement, or document and for each failure to include correct information on a return or statement.

.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 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. If IRS notifies the payer that the payee's TIN is incorrect, the payee has 30 days to provide a TIN to the payer in the manner required or backup withholding must be instituted.

.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 payer and payee names and taxpayer identification numbers should be consistent with the names and numbers used on other tax returns. The TIN 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 appearing on page 468, will help you determine the number to be furnished to IRS for recipients of reportable payments (payees).

SEC. 10. EFFECT ON PAPER RETURNS

.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 in person or in a "statement mailing" by first-class mail. For payments of royalties, a "statement mailing" is also required. These forms may not be combined or mailed with other information furnished to the recipient except Forms W-2, W-2P, W-8, W-9, other Forms 1098, 1099, 5498, a check, a letter explaining why no check is enclosed, a letter limited to an explanation of the tax consequences of the information shown on the payee statement and a statement of the person's account. The outside of the envelope and each check, letter, or account statement must contain the legend, "Important Tax Return Document Enclosed." No additional enclosures, such as advertising, promotional material, or a quarterly or annual report are permitted; however, if you follow the more stringent "separate mailing" requirements of prior law, the legend need not appear on the envelope. 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). The substitute payee statement must contain instructions substantially similar to those on the back of Copy B of the official form. The following messages must appear on the payee statements:

(a) Forms 5498 and 1099-R--"This information is being furnished to the Internal Revenue Service."

(b) Forms 1099-G and W-2G--"This is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction may be imposed on you if this income is taxable and IRS determines that it has not been reported."

(c) Forms 1099-B and 1099-MISC-- Same as item (b) above, except change "may" to "will" in the second sentence.

(d) Form 1099-A--"This is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction will be imposed on you if taxable income results from this transaction and the IRS determines that it has not been reported."

(e) Form 1098--"The amount in Box 1 is important tax information and is being furnished to the Internal Revenue Service. If you are required to file a return, a negligence penalty or other sanction will be imposed on you if IRS determines that an underpayment of tax results because you failed to properly show this amount on your return. The amount shown may not be fully deductible by you on your Federal income tax return. Limitations based on the cost and value of the secured property may apply. In addition, you may only deduct an amount of mortgage interest to the extent it was actually paid by you and not reimbursed by another person, and to the extent the interest is attributable to a loan for which you are liable for repayment."

            CHART 1. Guidelines for Social Security Numbers

SEC. 11. HOW TO CONTACT THE IRS NATIONAL COMPUTER CENTER

.01 Magnetic media processing for all service centers is centralized at the IRS National Computer Center. Please direct all requests for IRS magnetic media related publications, information, undue hardship waivers, extensions of time 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 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, that are filed on paper forms should be submitted to the appropriate service center, not the IRS National Computer Center. Organizations who file their information returns on magnetic media but who submit their corrected returns on Paper forms refer to the 1987 "Instructions for Forms 1099, 1098, 5498, 1096, and W-2G" for the service center addresses.

SEC. 12. 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 October 1 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. ATTACH A LETTER TO THE FORM 4804 SUBMITTED WITH THE "TEST" FILE WHICH INDICATES THAT YOU WISH TO PARTICIPATE IN THIS PROGRAM. 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. 11 for the address. See Part A, Sec. 3.04 for general guidelines on submission of "test" files. Each record, both in the "test" file and actual data 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 five 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 and returned to the address listed in Part A, Sec. 11. 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, code the records to go to the state(s) only 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 for this program 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 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. 8, 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 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 state abbreviations 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. 12.10.)

 State                                                            Code

 Province                                                         Code

 Foreign

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).

(c) At this time, IRS cannot accept cartridge tape.

.04 Payers who can substantially conform to these specifications, but who require some minor deviations, MUST contact the IRS 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 transmitter (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., 1987).

(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 in 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) All records must be a fixed length of 420 positions. Use "K" Records 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; however, the last block of the file may be filled with 9's or truncated. 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 not utilized, enter blanks to maintain a fixed record length of 420 positions. 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. 12.

(b) This field is also reserved for the filer's own personal use and may be used at the discretion of the filer to include information related to each individual return. IRS will not use the information supplied in this field. (The length of this field will vary depending on the type of return. For Forms 1098, 1099-DIV, 1099-G, 1099-INT, 1099-MISC, 1099-PATR, 1099-R, and 5498, there are 67 positions reserved for Special Data Entries. For Form 1099-A, there are 23 positions, for Form 1099-B, there are 18 positions and for Forms 1099-OID, there are 41 positions. For Form W-2G, there is no available space within the Payee "B" Record for Special Data Entries.

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. The payment amounts for one payer for one type of return must be consolidated under one "A" Record if submitted on the same file. Do not submit separate "A" Records for each payment amount being reported. For example, if you are filing Form 1099-DIV to report Amount Codes 1, 2, and 3, all three amount codes must be reported under one "A" Record, not three separate "A" Records. For Payee "B" Records which do not contain payment amounts for all three amount codes, enter zeros for those which have no payment to be reported. After the header label on the tape, the first record appearing in the file must be an "A" Record. All records must be a fixed length of 420 positions. 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. 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

[Editor's note: These record layouts are graphic representations of the file specifications described above. They have been omitted because they provide no additional information and are not suitable for clear on-screen presentation.]

SEC. 6 PAYEE "B" RECORD--GENERAL FIELD DESCRIPTIONS AND RECORD LAYOUTS

.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 remain constant and is a fixed length of 420 positions. The record layout for positions 1 through 321 is the same for all "B" Records. Positions 322 through 420 varies slightly for Forms 1099-A, 1099-B, 1099-OID and W-2G to accommodate variations within these forms. The individual field definitions can be found following the Payee Zip Code field in the "B" Record.

In the past, IRS has accepted variable length records; however, for tax year 1987 data, all records must be submitted with a fixed length of 420 positions. In the "A" Record, the Amount Indicator Codes that appear in tape positions 23 through 31 will be left-justified and blank filled. In the "B" Record, you will allow for all nine payment amount fields and for those not used, enter zeros. For example, if you are reporting on Form 1099-PATR, you will enter a "7" in tape position 22 of the "A" Record, Type of Return Indicator field. If you are reporting payments for Amount Codes 2, 4, and 7, then tape positions 23 through 31 of the "A" Record will be "247bbbbbb". In the Payee "B" Record, positions 51 through 60 for Payment Amount 1 will be zeros. Positions 61-70 will reflect the actual payment amount to be reported for "Nonpatronage distributions." Positions 71-80 for Payment Amount 3 will be zeros. Positions 81-90 will reflect the actual payment amount to be reported for "Federal income tax withheld." Positions 91-110 for Payment Amounts 5 and 6 will be zeros. Positions 111-120 will reflect the actual payment amount to be reported for "Energy investment credit." Positions 121-140 for Payment Amounts 8 and 9 will be zeros. The First Payee Name Line will always appear in positions 162-201.

.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; however, the last block of the file may be filled with 9's or truncated.

.03 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.

.04 If payers are unable to determine 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.

.05 A field is also provided in these specifications for Special Data Entries. This field may be used to record information required by state or local governments or for the filer's own personal use. IRS does not use the data provided in the Special Data Entries field.

.06 Those filers participating in the Combined Federal/State Filing Program must code their records appropriately for the state to receive the information. The state code now appears in tape positions 419 and 420 of the "B" Record. The file should also meet the money criteria described in Part A, Sec. 12.11. Do not code for the states unless prior approval to participate has been granted by IRS. See Part A, Sec. 12.10 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. 12 in order to participate in this program.

.07 All alpha characters entered in the "B" Record should be uppercase.

.08 Do not use decimal points (.) to indicate dollars and cents on magnetic media.

.09 IRS STRONGLY ENCOURAGES FILERS TO REVIEW THEIR DATA FOR ACCURACY BEFORE SUBMISSION TO PREVENT ERRONEOUS NOTICES BEING MAILED 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.

.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 "C" RECORD IS A FIXED RECORD LENGTH OF 420 POSITIONS. The Control Total fields are each 15 positions in length.

.02 The End of Payer "C" Record is a summary record for a type of return for a given payer.

.03 The "C" Record will contain the total number of payees and the totals of the payment amounts 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 Totals 1, 3 and 6 of the "C" Record. In this example, positions 26-40, 56-85, and 101-145 would be zero filled. Positions 146-420 would be blank filled.

.05 Payer/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 were updated in 1986.

                 RECORD NAME: END OF PAYER "C" RECORD

.01 THE "K" RECORD IS A FIXED RECORD LENGTH OF 420 POSITIONS. The Control Total fields are each 15 positions in length.

.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. ALL RECORDS ARE A FIXED LENGTH OF 420 POSITIONS.

.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. 12 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 FIXED RECORD LENGTH OF 420 POSITIONS. 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 or the block may be truncated).

              RECORD NAME: END OF TRANSMISSION "F" RECORD

File Form 4419 to request authorization to file any of the forms shown in Block 5 on magnetic media. Please be sure to complete all appropriate blocks. For further information, contact a magnetic media coordinator at the National Computer Center address given below under "Filing Your Application," or by telephone at (304) 263-8700.

Block 1

Enter the name and complete address of the person or organization that will prepare and submit the magnetic media.

Block 4

Show the tax year for which you are requesting authorization to file on magnetic media.

Block 5

Check the boxes next to all of the returns you will file with IRS on magnetic media.

Block 6

Note: The only type of magnetic media on which you can report Forms 1042-S, 6248, 8027 and W-4 is 1/2 inch magnetic tape.

Enter the information requested for the type of magnetic media you intend to submit. Check the appropriate boxes. Enter the name of the manufacturer and the model number or name under "Main Frame" and "Drive Unit." Under "Software," indicate whether the software was purchased or is self-programmed. If purchased, provide the name of the software company.

Block 7

If you will be preparing returns on magnetic media for filers other than yourself, attach to your application a list of names and employer identification numbers of the other filers. If you add or delete any names from your file, submit an updated list to IRS.

Block 8

The form must be signed and dated by an official of the company or organization requesting authorization to report on magnetic media.

Filing Your Application

1. Mail the completed application and any attached lists 90 days before the due date of the returns to:

    If by Postal Service,

3. After authorization is received, we encourage new filers to submit test data on magnetic media before the filing season. If you want to submit test data, contact the magnetic media coordinator.

4. Your authorization will be valid as long as the magnetic media submitted conforms to the specifications of the applicable revenue procedures. A new application is not required in following years unless magnetic media filing has been discontinued and you wish to resume it.

PAPERWORK REDUCTION ACT NOTICE

We ask for this information to carry out the Internal Revenue laws of the United States. We need it to ensure that the magnetic media you are using will be compatible with our processing equipment. The information is also used to more efficiently schedule and manage its processing at the National Computer Center. You are required to give us this information.

                    Department of the Treasury --

Please complete each block on this form, as appropriate. Failure to properly complete this form may cause delay in processing your request or result in a denial of your request.

Enter the tax year for which you are requesting a waiver in the space provided. Only one tax year can be entered because waivers are considered for only one year at a time. If you wish to request another waiver for the following year, you must wait and submit a separate request at the appropriate time.

Block 5: Check the box(es) beside the form(s) for which the waiver is being requested.

Block 5a: Enter an estimate of the number of forms for which you are requesting the waiver.

Block 5b: Enter the total number of information returns for each form checked that you plan to file for the tax year of the waiver requested (magnetic media and paper).

Block 5c: Provide an estimate of the total number of information returns checked you plan to file for the tax year following the tax year shown on this form.

Block 7: If this is the first time you have ever requested a waiver and you check "Yes," your request will be approved and you need not complete Blocks 8-8c. Please note, however, that no waiver can be granted for any subsequent year unless you establish that filing on magnetic media would cause an undue hardship. If you checked "No," you must complete Blocks 8a-8c. If Block 7 does not apply, complete Blocks 8a-8c.

Block 8a: Enter all costs necessary to convert to and produce IRS/SSA compatible magnetic media files.

Block 8b: Include all costs necessary to acquire equipment and produce magnetic media files. (See table above for acceptable media.)

Block 8c: Enter two cost estimates from service bureaus or other third parties to prepare your files magnetically.

(Note: Failure to attach two written estimates will result in an automatic denial of the request.)

Signature. The waiver request must be signed by you or a person who is duly authorized to sign a return, statement, or other document.