SERVICE ANNOUNCES PROCEDURES FOR MAGNETIC REPORTING OF U.S. SOURCE INCOME SUBJECT TO WITHHOLDING.

Rev. Proc. 87-63

PART A--GENERAL

SECTION 1. PURPOSE

The purpose of this Revenue Procedure is to update and supersede Rev. Proc. 86-40, 1986-2 C.B. 702, that sets forth the requirements and conditions under which withholding agents, as defined in Section 5.01 below, may file Form 1042S, Foreign Person's U.S. Source Income Subject to Withholding, on magnetic tape.

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

For tax year 1987, the following changes have been included in this revenue procedure:

(a) A section has been added called "Important Notes and Common Errors" to assist filers in submitting good data to IRS (Part A, Sec. 4).

(b) Additional information concerning application Form 4419 has been added to Part A, Sec. 5.03.

(c) Information has been included concerning waiver Form 8508 in Part A, Sec. 5.07.

(d) Information has been included concerning the disposition of paper documents to the Philadelphia Service Center. (Part A, Sec. 5.08).

(e) Information has been added concerning transmittal Form 4804 and the affidavit contained on the form which must be signed by the withholding agent or their appointed agent. (Part A, Sec. 6).

(f) Information has been included concerning the external media label, Form 5064, and the information required on it. (Part A, Sec. 6.05, and Part B, Sec. 1.05).

(g) Beginning in TY87, withholding agents with 250 or more Forms 1042S must file via magnetic tape. (Part A, Sec. 5.02).

(h) A note has been added in Part A, Sec. 6.06 to inform filers not to submit their files to IRS using "Collect on Delivery" or "Charged to IRS" shipping methods.

(i) Additional information has been added concerning extensions of time to file your magnetic tape. (Part A, Sec. 7).

(j) Additional information concerning corrected returns has been added to Part A, Sec. 9. Filers are now required to submit their corrected documents via magnetic tape if they file 250 or more corrected returns. A note has also been added that corrections should be filed by September 1.

(k) A note has been included in Part A, Sec. 11.02, to alert filers not to ship their tape files to IRS using special containers, since IRS cannot guarantee return of such containers.

(l) A warning has been added to Part A, Sec. 12.02 concerning the asterisk before the surname in the Recipient "Q" Record. The asterisk may be omitted ONLY when the surname is listed first. In such cases, it is INVALID if the asterisk is in the leftmost position.

(m) Beginning in TY87, it will be optional whether or not the filer codes an End of Reel "Z" Record in a multi-reel file. This has been addressed in Part B, Sec. 1.03.

(n) Information has been added in Part B, Sec. 1.04 to define a multi-reel file, and to clarify the sequence of records in a multi-reel file.

(o) In Part B, Sec. 2.02, a definition has been added for multi-reel file.

(p) For the record descriptions ("T", "Q", "W", "Z", and "Y") in Part B, Sections 4-8, the heading "Element" has been removed, and the heading "Length" has been added to indicate the field lengths.

(q) In Part B, Sec. 5, Recipient "Q" Record, Positions 137-138, the country code for Trust Territory of the Pacific Islands has changed from "NQ" to "PS".

(r) Peoples Republic of China has been added to the list of tax treaty countries; South Africa has been deleted from that listing.

(s) The following countries have been added to the country listing: Federated States of Micronesia (FM) and Marshall Islands (RM).

(t) In Part B, Sec. 5, Recipient "Q" Record, Positions 350-351, "Income Code List", three new income codes have been added. They are:

24--Real estate investment trust (REIT) distributions of capital gains.

25--Publicly traded partnership and trust distributions subject to IRC section 1445.

26--Unsevered growing crops and timber distributions by a publicly traded partnership or trust subject to IRC section 1445.

(u) In Part B, Sec. 5, Recipient "Q" Record, Positions 367-368, a new tax rate of 34 percent has been added. The tax rate of 34 percent is only valid with Income Codes 24 and 25.

(v) In Part B, Sec. 5, Recipient "Q" Record, the name and address fields have been revised to accept certain punctuation in those fields.

(w) Instructions have been revised with respect to the Province Name and Code (Part B, Sec. 5, Positions 304-318).

(x) Changes to list of country codes: Navassa Island has been removed; the parenthetical reference to the Canal Zone for Panama has been deleted; the name of the country of "Burkina" has been corrected to "Burkina Faso"; and since there are two Christmas Islands with different codes, both have been listed.

SEC. 3. BACKGROUND--PRIOR YEAR CHANGES (Tax Year 1986)

For Tax Year 1986 the following changes were included in Revenue Procedure 86-40:

.01 Part A, Section 2 was revised to address requirements to report on magnetic tape when 500 or more forms are to be filed, and address requests for waiver of the magnetic tape filing requirement as a result of undue hardship.

.02 Part A, Section 3.05 was inserted to address consolidation of withholding agent data.

.03 Part A, Section 5.03 was inserted to address procedures for correcting magnetic tape files.

.04 Part A, Section 7, a new paragraph .06 was inserted to clarify situations under which more than one record for a recipient is to be submitted.

.05 Part A, Section 8 was deleted since the information has now been incorporated into the revised Part A, Section 2.

.06 Part B, Section 4, State Code Table. State Code "TT" was added for the Mariana Islands. This new code value will apply to all state code references:

Part B, Section 4, positions 115-116 of the Transmitter "T" record;

Part B, Section 5, positions 101-102 of the Recipient "Q" record;

Part B, Section 5, positions 328-329 of the Recipient "Q" record;

Part B, Section 6, positions 103-104 of the Withholding Agent "W" record.

.07 Part B, Section 5, Country Code (positions 137-138 of the Recipient "Q" record).

One new country code was added:

         Country Country Code

.08 Part B, Section 5, Income Code (positions 350-351 of the Recipient "Q" record). Income Code 20 ("Other Income") was reassigned a new code number of "50", and a new income category was added as Income Code 20:

 Income Code             Meaning

The meaning of Income Code '14' was expanded to read "Pensions, annuities, alimony, and/or insurance premiums".

.09 Part B, Section 5, Recipient Type (position 352-353 of the Recipient "Q" record). A new recipient type code was added and two other codes were reassigned new numbers. "Other" recipient type had changed its code value from "09" to "19". "Unknown" recipient type has its code value changed from "10" to "20". Recipient Type '09' represents an "Artist or Athlete". Note that wherever appropriate, recipient type '09' should be used instead of recipient type '01' (Individual), '02' (Corporation), or '03' (Partnership).

.10 Part B, Section 5, Tax Rate (positions 367-368 of the Recipient "Q" record).

Tax Rate "08" was added as a valid rate.

The tax treaty rates have changed on certain types of income for Canada, United Kingdom, and Italy.

Additionally, Barbados and Cyprus now are tax treaty countries.

.11 Effective January 1, 1987, the National Computer Center (NCC) assumed the responsibility for processing Forms 1042S on magnetic tape. Forms 1042S on MAGNETIC TAPE should no longer be sent to Philadelphia Service Center. Forms 1042 and any PAPER document Forms 1042S should continue to be filed at the Philadelphia Service Center.

SEC. 4. IMPORTANT NOTES AND COMMON ERRORS

To prevent the data from being submitted incorrectly, and to expedite the processing of your data files, the following information is being provided to point out the more commonly made errors by the filers of Form 1042S information. FAILURE TO FORMAT YOUR RECORDS CORRECTLY WILL RESULT IN YOUR FILE BEING RETURNED TO YOU FOR CORRECTION. DEVIATIONS CANNOT AND WILL NOT BE PERMITTED IN ANY OF THE DATA FIELDS. THIS REVENUE PROCEDURE IS TO BE FOLLOWED EXACTLY AS WRITTEN, AND FAILURE TO COMPLY MAY RESULT IN PENALTIES BEING ASSESSED.

1. A Transmitter Control Code (TCC) is a 5-character alpha-numeric code assigned to magnetic tape filers of information returns to IRS. If you submit your Form 1042S data via magnetic tape, you MUST have a separate TCC assigned to you specifically for Form 1042S data. YOU CANNOT USE THE TCC ASSIGNED TO YOU FOR FORMS 1099, OR OTHER MAGNETIC MEDIA PROCESSING. A valid Form 1042S TCC will begin with the two digits 22. You must submit a Form 4419, Application for Magnetic Media Reporting of Information Returns to NCC at least 30 days prior to March 15 to be assigned a Form 1042S TCC. (See Part A, Sec. 5.03, .04).

2. The only acceptable medium to file Forms 1042S magnetically is via magnetic tape at this time. It is NOT acceptable to submit your data on 8" or 5 1/4" diskettes, cassettes, or mini-disks. (See Part A, Sec. 5.08).

3. The only paper documents that will accompany your magnetic tape file to the National Computer Center are the transmittal Forms 4804 and/or 4802. DO NOT SEND ANY PAPER FORMS 1042, 1042S, 1001, 4224, 8233 or W-8 TO THE IRS NATIONAL COMPUTER CENTER. They will go to the Philadelphia Service Center (see Part A, Sec. 5.08 for address). If you wish, you may send a "Photocopy" of the Form 1042 with your magnetic tape submission if you annotate it as a "Photocopy" and attach it to Form 4804.

4. Form 4804, Transmittal of Information Returns Reported on Magnetic Media, must accompany your magnetic tape shipment. NOTE: WE WILL NOT PROCESS YOUR FILE UNTIL WE HAVE RECEIVED A COMPLETED AND SIGNED FORM 4804 FROM YOUR ORGANIZATION. You MUST indicate two money totals on Form 4804, which are "Total Gross Income Paid" and "Total Amount of Tax Withheld". These money totals will reflect the totals of all of the Withholding "W" Records in your file. Failure to include the two money totals will delay the processing of your file. (See Part A, Sec. 6.01 through 6.05).

5. Recipient surnames are used to computer-generate sort names. Use an asterisk to indicate the beginning of the surname for this purpose. If the surname is the first name on the line, the asterisk MUST be omitted, since the asterisk cannot be the first, leftmost character of the name. If this is not the case, files omitting the asterisk WILL be automatically returned for replacement. (See Part A, Sec. 12.02, .03).

6. Transmitter "T" Record--The Transmitter "T" Record MUST be the first data record on a reel, and MUST appear on each reel in the file sent by the Transmitter. FAILURE TO CODE A "T" RECORD AS THE FIRST RECORD ON EACH REEL IN YOUR FILE WILL RESULT IN THE FILE BEING RETURNED FOR CORRECTION. (See Part B, Sec. 4).

7. EINs--If you do not have the Employer Identification Numbers (EIN) for the Transmitter, and/or Recipient, code the EIN fields with blanks, NOT all 9's or all zeros.

8. Name and address fields--ACCEPTABLE PUNCTUATION MARKS INCLUDE HYPHENS (-), AMPERSANDS (&), SLASHES (/), ASTERISKS (*), PERCENTS (%), PERIODS (.), COMMAS (,) AND APOSTROPHES ('). DO NOT CODE TWO OR MORE CONSECUTIVE BLANKS. The name and/or address will be considered invalid if you code other punctuation and/or two or more consecutive blanks in the name and address fields.

9. Beginning in TY86, Type of Recipient code "10" was changed to "20" to indicate "Unknown". Code 10 is no longer a valid recipient type code. YOUR FILE WILL BE RETURNED TO YOU FOR CORRECTION IF YOU USE CODE "10" IN POSITIONS 352-353 OF THE RECIPIENT "Q" RECORD.

10. Street Address--Recipient "Q" Record--Positions 244-278. Filers are not utilizing the 2nd and 3rd Name Line fields to code address information correctly, and are coding the City, State, Province and Postal Zone in the name lines, which is invalid. You are to use the 2nd and 3rd Name Lines for Street Address information ONLY, and only if your Street Address is too long for the 35 positions of the Street Address field. City, State, Province and Postal Zone information is invalid in the Name Line fields. Those items MUST be coded in the appropriate fields. DEVIATIONS WILL NOT BE PERMITTED IN THESE ADDRESS FIELDS. YOUR FILE WILL BE RETURNED TO YOU FOR CORRECTION IF THE CITY, STATE, PROVINCE AND POSTAL ZONE FIELDS ARE NOT FORMATTED CORRECTLY.

11. Province Name--Recipient "Q" Record--Positions 304-318. Filers are to use the two-digit Province Code for Canadian addresses, or the province name may be written out in full.

12. State Code--Recipient "Q" Record--Positions 328--329. Positions 328--329 in the Recipient "Q" Record are for the correct two-letter State Code for U.S. Addresses. Filers are erroneously coding the two-character COUNTRY code here, which is incorrect.

13. Payer's Name--Recipient "Q" Record--Positions 380-414. Valid characters are now alphabetic, numeric, ampersands (&), hyphens (-), periods (.), commas (,) and apostrophes (').

14. When submitting a multi-reel file (see definition in Part B, Sec. 1.04), it is important that the End of Transmission "Y" Record is not coded until the LAST record of the LAST reel in the file. Some filers are sending in "multi-reel" files where each and every tape in the file end with the "Y" Record, which is incorrect. Some filers apparently are confusing the End of Transmission "Y" Record with the End of Reel "Z" Record. The "Z" Record can be coded as the last record on a reel in a multi-reel file to "subtotal" a group of "Q" Records for a single withholding agent ("W" Record). Starting in TY87, the End of Reel "Z" Record will be optional, so the last record on the reels may be either a Recipient "Q" Record or a Withholding Agent "W" Record INSTEAD of the End of Reel "Z" Record. The End of Transmission "Y" Record indicates to our program that the end of data has been reached, and the file closes at that point, and no further data will be read from the file. For example, if you send in a three reel file, the first and second reels will end with either a "Q", "W", or "Z" Record, and the third and last reel will end with a "Y" Record.

15. Postal Zone Code--Recipient "Q" Record--Positions 319-327--Do not code two or more consecutive, IMBEDDED blanks in this field.

SEC. 5. APPLICATION FOR TAPE REPORTING AND REQUESTS FOR UNDUE HARDSHIP WAIVERS

.01 A withholding agent is defined as any person or entity, U.S. or foreign, required to withhold U.S. tax on payments of income subject to withholding from sources within the United States as provided for in Chapter 3 of the Internal Revenue Code. A withholding agent may be an individual, partnership, corporation, trust, estate, government agency (Federal, State or local), association, or a tax-exempt foundation or organization.

.02 Withholding agents must use magnetic tape to file 250 or more Forms 1042S with the Internal Revenue Service (IRS) for calendar year beginning on or after January 1, 1987 (Tax Year 1987 and subsequent years).

.03 Withholding agents or their agents are required to complete Form 4419, Application for Magnetic Media Reporting of Information Returns. Applications should be filed with the National Computer Center (NCC) at least 30 days before the due date of the return. NOTE: Do NOT submit your Form 1042S data using a 1099 Transmitter Control Code (TCC). Although the Form 1042S TCC is NOT coded in the actual tape record, a separate file is maintained at NCC for Form 1042S filers; therefore, a separate TCC is required. NCC will act on an application and notify the applicant in writing within 30 days of receipt of the application. Magnetic tape returns may not be filed with IRS until the application has been approved.

Once you have received a TCC for Form 1042S filing, it is not necessary to reapply each year. If you have any changes to Form 4419 (for example, if the name of your organization or the contact person changes) please notify IRS in writing so that your file can be updated. In ALL correspondence to NCC, refer to your current five-character numeric Transmitter Control Code to assist IRS in locating your files.

.04 Application Form 4419 should be filed with the IRS National Computer Center BEFORE "test" files are submitted.

.05 IRS will assist new filers with their initial magnetic tape submission by reviewing "test" files submitted in advance of the filing season. Approved withholding agents or their agents should submit "test" files to the Magnetic Media Specialist at the National Computer Center. As a guideline, IRS requires that all Form 1042S "test" files be submitted between January 1 and February 15. With all "test" data, include a transmittal Form 4804, 4802 or computer generated substitute marked as "TEST DATA" that identifies your five-character Transmitter Control Code (TCC) and total record and money amounts. Clearly mark the tape label Form 5064 as "TEST DATA", and indicate the total number of Recipient "Q" Records in the block marked "Number of Payees".

.06 If your magnetic tape 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 TCC by filing application Form 4419.

.07 Withholding agents required to file Form 1042S on magnetic tape may receive a waiver from such requirements if filing on magnetic tape would create an undue hardship. The withholding agent 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 you as an individual or organization are filing as transmitter for other withholding agents, a separate Form 8508 must be submitted for each withholding agent. ATTACHING A LIST OF WITHHOLDING AGENTS IS NOT ACCEPTABLE. Transmitters may file Form 8508 for persons required to file on magnetic media if all information requested on Form 8508 is provided for each withholding agent and if the transmitter or withholding agent signs the request attesting that all information is true, correct, and complete. The waiver request must be filed with the IRS National Computer Center at least 90 days before the Forms 1042S are due to IRS. 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 and other IRS offices.

.08 Magnetic tape is the only permissible magnetic medium for filing Forms 1042S and shall be filed in accordance with the applicable revenue procedures. Diskette and cassette reporting of Forms 1042S cannot be accepted at this time. Withholding agents should also be aware of current revenue procedures relating to magnetic tape and diskette reporting for wage and other information documents. Copies of these other revenue procedures (with the exception of wage document information, which is provided by the Social Security Administration) as well as requests for filing Forms 1042S on magnetic tape (Form 4419), applicable revenue procedures, waiver requests (pertaining to magnetic media filing only), and any other questions you may have regarding Forms 1042S should be directed to:

      Magnetic Media Reporting

The address for filing Forms 1042 (with a remittance attached, if applicable), 1001, 4224, 8233 or W-8, or for filing any PAPER document Forms 1042S will be:

      Internal Revenue Service

SEC. 6. FILING OF TAPE REPORTS

.01 Form 4804, Transmittal of Information Returns Reported on Magnetic Media, MUST accompany magnetic tape submissions. If you file for multiple withholding agents 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 substitute Form 4804 which includes all necessary information requested on the current form. Paper information returns must be transmitted to the Philadelphia Service Center. Do NOT send Forms 1042S filed on paper forms to the IRS National Computer Center.

.02 The affidavit for Form 4804 should be signed by the withholding agent; however, the transmitter, service bureau, paying agent, or disbursing agent (all hereafter referred to as agent), may sign the affidavit on behalf of the withholding agent 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 withholding agent included in a single magnetic tape 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 withholding agent)."

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

.04 DO NOT REPORT THE SAME INFORMATION ON PAPER FORMS THAT YOU REPORT ON MAGNETIC TAPE. If you report part of your returns on paper and part on magnetic tape, 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 you are aware that a correction is necessary.

.05 Before submitting your magnetic tape file, include the following:

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

(b) A Form 4802 if you transmit for multiple withholding agents and have the authority to sign the affidavit on Form 4804.

(c) The magnetic tape with an external identifying label (Form 5064). Be sure to include your Form 1042S Transmitter Control Code (TCC), number of Recipient "Q" Records, reel sequence number, and type of documents (Forms 1042S).

(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 from IRS with the magnetic tape shipment.

.06 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.

.07 Files may be returned to you due to coding or format errors. These are to be corrected and returned to IRS within 15 days of your receipt or the withholding agent may be subject to a failure to file penalty. If you are unable to return the file within 15 days, request an extension of time in writing.

.08 The withholding agent's Form 1042 tax return is used to verify the number of Forms 1042S filed on paper and/or magnetic tape. For transmitters, or service bureaus filing Form 1042S information on magnetic tape for several withholding agents, separate Forms 1042 MUST be filed by each withholding agent included in the transmittal. Since the required Form 1042 is a tax return (with or without a remittance attached), it MUST be filed separately from the shipment of magnetic tape. Form 1042, with attached remittance (if applicable) will be sent to the Philadelphia Service Center (see Part A, Sec. 5.08 for address), NOT the National Computer Center. Any additional paper documents required to be submitted (for example, Forms W-8, 1001, 4224, etc.), should accompany Form 1042. (See instructions for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons).

.09 Magnetic tape reporting to IRS for Forms 1042S must be on a calendar year basis. The dates prescribed for filing paper documents with IRS will also apply to magnetic tape filing. Files must be submitted to the National Computer Center by March 15. Copies of Form 1042S information must be furnished to the income recipient also by March 15.

.10 Forms 1042S (Recipient "Q" Records) from different branches of the withholding agent's business activity should be consolidated under one withholding agent's "W" Record, especially when one common name and Employer Identification Number (EIN) would be used for each of the branches. For example, Bank X has branch offices in two different states. It would be acceptable for Branch Y of Bank X to report Recipient "Q" Records and associated "W" Record as "Bank X, Branch Y" when Branch Y has its own EIN, and for Branch Z of Bank X to report separately its Recipient "Q" Records and associated "W" Record as "Bank X, Branch Z" using its own EIN. Branches should not report separately when those branches are using a common EIN (and name). Branches filing separately should not use a common address (for example the address of the parent bank) when that common address is not normally used for filing other types of returns with IRS. It is assumed that for each "W" Record (which represents a unique withholding agent), there will be a corresponding Form 1042 submitted which will reflect the accumulation of the associated Recipient "Q" Records.

.11 Standard mail shipments should be addressed to:

      Magnetic Media Reporting

SEC. 7. EXTENSIONS OF TIME TO FILE

.01 If a withholding agent is required to submit Forms 1042S on magnetic tape to IRS, and is unable to submit these tape files by the date prescribed in Sec. 6.09, they can submit a letter requesting an extension of time for a maximum of 60 days as soon as they 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 may be subject to a late filing penalty. The letter should be sent to the attention of the Magnetic Media Reporting Program at the IRS National Computer Center. See Part A, Sec. 5.08 for the address. The request should include:

(a) The withholding agent's (or transmitter's, if filing for multiple withholding agents) 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., 1000 Forms 1042S).

(f) The five-character Transmitter Control Code (TCC) assigned to the organization or individual requesting the extension. (Please be sure that the TCC provided is your assigned TCC for Forms 1042S processing ONLY).

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

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

An approved extension of time for magnetic media filing does not provide additional time for supplying a copy to the recipient. If additional time is needed in providing the recipient's copy, 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.

.03 Since the Form 1042 is not considered timely filed until the Forms 1042S are received by IRS, an extension of time to file Forms 1042S that the filer receives from the National Computer Center will AUTOMATICALLY provide an extension for filing Form 1042 with the Philadelphia Service Center. NOTE: CONTINUE TO SEND REQUESTS FOR EXTENSIONS TO FILE ONLY THE FORM 1042 TO THE DIRECTOR, PHILADELPHIA SERVICE CENTER. If an extension of time to file the paper Form 1042 with the Philadelphia Service Center (see Part A, Sec. 5.08 for address) is granted by the IRS National Computer Center, a copy of the letter granting the extension MUST be included with the paper Form 1042.

SEC. 8. PROCESSING OF TAPE STATEMENTS

.01 Normally, tapes will be returned to the transmitters by November 15 of the year in which submitted. However, if the tapes submitted are unprocessable, and must be returned for correction prior to processing, they will be returned within six months of the receipt of acceptable tapes. We suggest that the withholding agent retain the original tape until the expiration of the statute of limitations for assessment. It is also recommended that the transmitter or filer of the magnetic tape file retain a copy of the tape file submitted to IRS for their own records.

.02 IRS will prepare the appropriate statements for transmittal to treaty countries.

SEC. 9. CORRECTED STATEMENTS

.01 Corrected files must be filed with the National Computer Center within 15 days from receipt of the returned file.

.02 Forms 1042S are required to be filed on magnetic tape in 1988 (for tax year 1987) if you file 250 or more returns. THIS REQUIREMENT APPLIES SEPARATELY TO BOTH ORIGINAL AND CORRECTED RETURNS.

.03 If you file Forms 1042S on magnetic tape, and later determine that corrections are necessary to some of the Recipient "Q" Records, you may file the corrections on paper if you have less than 250 corrected returns. However, if you have 250 or more corrections, they MUST be submitted to IRS on magnetic tape. NOTE: CORRECTED RECORDS CANNOT BE SUBMITTED ON THE SAME TAPE FILE AS ORIGINAL RETURNS. These requirements shall not apply if you establish that it will cause you undue hardship (refer to Part A, Sec. 5.07).

.04 Since corrected statements supersede information previously supplied, all required data fields must be completed. If you submit corrections on magnetic tape, code an "A" in Position 366 of the Recipient "Q" Record. If you submit corrections on paper documents, annotate each form "Corrected" at the top. Corrected documents should be bundled separately from other paper documents and sent to the Philadelphia Service Center (see address in Part A, Sec. 5.08). WHEN CORRECTED PAPER DOCUMENTS ARE SHIPPED SEPARATELY, AN AMENDED FORM 1042 MUST BE FILED, ALSO SUITABLY ANNOTATED.

.05 When magnetic tape files are returned to the transmitter for data correction, a listing of the type of errors and frequency of such errors will be provided. The transmitter should correct the problems and submit a replacement tape file to the magnetic tape coordinator. Certain problems noted may not require any corrective action. For example, certain recipient "Q" records should have had their tax withheld at a particular tax rate, but the withholding agent, for whatever reason, withheld at a different tax rate. The transmitter (in conjunction with the withholding agent if necessary) should first verify that the tax rates in question are in fact the rates at which tax was withheld. Once verified, a letter should accompany the tape file stipulating that the tax rates are accurate as submitted.

.06 Corrections should be aggregated and filed as soon as possible, but not later than September 1 of each year.

SEC. 10. EFFECT ON PAPER DOCUMENTS

.01 Magnetic tape reporting to IRS eliminates the need for submission of paper Forms 1042S. However, withholding agents must continue to provide recipients with requisite information, although this need not be on a copy of the official IRS Form 1042S.

.02 If only a portion of the statements are reported on magnetic tape and the remainder are reported on paper forms to IRS, those paper statements must be filed on the prescribed forms.

SEC. 11. 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 15 days of your receipt.

.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. PLEASE BE SURE THAT YOUR FORMAT AND CODING COMPLY WITH THIS REVENUE PROCEDURE.

SEC. 12. DATA ENTRIES

.01 Since Taxpayer Identification Numbers are not required on all Forms 1042S (see specific Instructions for Withholding Agents, Copy D of the official Form 1042S), the specifications in PART "B" of this revenue procedure permit omission of such identifying numbers. Although identifying numbers are not always required for nonresident alien income recipients, IRS appreciates their being furnished when available.

.02 Recipient surnames are used to computer-generate Sort Names. Use an asterisk to indicate the beginning of the surname for this purpose. If the surname is the first name on the line, as may be the case for nationals of Asian countries, the asterisk is to be omitted. In the case of a partnership or joint ownership, or some other case where more than one individual is listed, asterisk only the first surname. A blank will always precede the asterisk when it is used, but no asterisk may be followed by a blank. Do not use an asterisk with corporate or any other business entity or governmental organization name, except partnerships or sole proprietorships. NEVER HAVE MORE THAN ONE BLANK SEPARATING PORTIONS OF A NAME LINE OR AN ADDRESS FIELD. NOTE: IT IS VERY IMPORTANT THAT THE ASTERISK IS PLACED BEFORE THE SURNAME (unless the above-mentioned exceptions apply). FILES OMITTING THE ASTERISK WILL BE AUTOMATICALLY RETURNED FOR REPLACEMENT. DEVIATIONS FROM THIS FORMAT ARE NOT ACCEPTABLE.

.03 In case of multiple recipients, the name of the person whose identifying number has been provided should be placed before all other names.

.04 Sometimes the recipient identification recorded on the withholding agent's records is lengthy, and exceeds the 105 characters allotted in the Recipient Name Line and Supplement Name Lines on the magnetic tape records. This is most common in the case of trusts or other types of fiduciary accounts. The first 105 characters of the recipient identification normally provide sufficient descriptive data for IRS's purposes. IRS encourages all agents to truncate or abbreviate lengthy recipient descriptions. Never have more than one blank separating portions of a name line or an address field.

.05 All monetary amount fields must show dollars and cents (omit the decimal point). For example, $135.72 must be shown as 13572, and $100 must be shown as 10000. All money amount fields are positive and must not be signed in any fashion. All money amounts must be right-justified and zero filled. Do not truncate any money amount fields. If the amount is more than the allowed space, prepare a second "Q" record to show the difference.

.06 There are several circumstances where more than one "Q" Record is expected for a recipient. These situations include:

1) Different sources of income. For example, Recipient X derived income from Capital Gains (Income Code 09) and Industrial Royalties (Income Code 10). One "Q" Record must be provided listing Income Code "09", and the Gross Income Paid and Tax Withheld pertaining solely to that type of income. A separate "Q" Record must document the Income Code "10" information.

2) Change in Country Code during the year. For example, on July 1, the withholding agent received notification via Form 1001 that the recipient changed his official country for which tax treaty benefits apply from country X to country Y. One "Q" Record must be provided reflecting Gross Income Paid, Tax Rate, and Tax Withheld for country X (reflecting income and withholding from January 1 through June 30). A second "Q" Record must be provided reflecting Income, Tax Rate, and Tax Withheld for country Y (covering income and withholding from July 1 through December 31).

3) Change in a country's tax treaty rate during the year. For example, effective April 1, country X changed its tax treaty rate for a particular type of income from 10% to 20%. One "Q" Record must be provided reflecting Gross Income Paid and Tax Withheld at the 10% rate (covering January 1 through March 31). A second "Q" Record must also be provided reflecting Gross Income Paid and Tax Withheld at the 20% rate (covering April 1 through December 31).

Note that these three situations are NOT mutually exclusive. Therefore, if a recipient has two sources of income, each of which is derived from a country whose corresponding tax treaty rates changed during the year, and the recipient submitted a Form 1001 to the Withholding Agent changing his country code for tax purposes, as many as six (6) separate "Q" Records must be provided.

PART "B"--MAGNETIC TAPE SPECIFICATIONS

SECTION 1. GENERAL

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

Type of Tape--1/2 inch Mylar base, oxide coated

(a) When the Recording Mode is 9-track EBCDIC (Extended Binary Coded Decimal Interchange Code) with

(1) Odd Parity.

(2) Recording Density--800, 1600, or 6250 BPI

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

(b) When the Recording Mode is 9-track ASCII (American Standard Coded Information Interchange) with

(1) Odd Parity.

(2) Recording Density--800, 1600, or 6250 BPI

(c) When the Recording Mode is 7-track BCD (Binary Coded Decimal) with

(1) Odd or Even Parity.

(2) Recording Density--556 or 800 BPI

NOTE: IRS will accept and process 7-track tapes; however, 9-track is preferred.

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

Type of tape--0.5 inch (12.7mm) wide, computer grade magnetic tape on reels of up to 2400 feet (731.52m) 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.

.03 An acceptable tape file for each withholding agent will contain data records as follows:

(a) Single reel:

(1) a Transmitter "T" Record; then

(2) one or more Recipient "Q" Records followed by a specific Withholding Agent "W" Record; then

(3) additional "Q" and "W" Record sequences for other withholding agents as needed; then

(4) an End of Transmission "Y" Record.

(b) Multiple Reels:

(1) a Transmitter "T" Record at the beginning of each reel; then

(2) sequences of Recipient "Q" Records followed with corresponding Withholding Agent "W" Records; then

(3) (Optional) and End of Reel "Z" Record on every reel except the last; and

(4) an End of Transmission "Y" Record ending the last reel.

OR

(1) A Transmitter "T" Record at the beginning of each reel; then

(2) sequences of Recipient "Q" Records followed with corresponding Withholding Agent "W" Records; then

(3) an End of Transmission "Y" Record ending the last reel.

(c) Notes:

(1) a sequence of Recipient "Q" Records may be continued from one reel to the next if they apply to the same withholding agent, without the necessity of repeating the "W" Record. The sequence might be, for example, QQQQZ (end of one reel); TQQQQW (beginning of next reel), or QQQQ (end of one reel); TQQQQW (beginning of next reel).

(2) the End of Reel "Z" Record is identical to the Withholding Agent "W" Record, except that it indicates the end of the reel, but not necessarily the end of a withholding agent's "Q" Records. For example, when end of reel will be reached before the end of an agent's "Q" Records, the end of reel "Z" Record will be used in lieu of a withholding agent "W" Record. The next tape reel will begin with a transmitting agent "T" Record, followed by the remaining "Q" Records for the withholding agent. The End of Reel "Z" Record will be optional beginning in TY87. If your program is currently set up for coding an End of Reel "Z" Record, you may continue to submit your file in that manner. If you are a new filer, or you wish to change your existing program, you may submit your files without the End of Reel "Z" Record. (See also Part B, Sec. 7).

.04 A multi-reel file is a group of tape reels submitted under one Transmitter Control Code (TCC) and each of the reels will end with a "Z", "Q" or "W" Record EXCEPT for the last reel of the file, which ends with an End of Transmission "Y" Record. The external labels for a multi-reel file should indicate a continuous file (e.g., 1 of 3, 2 of 3, etc.). However, if you submit several reels under one TCC, but end each reel with an End of Transmission "Y" Record, for the purposes of IRS processing, this is not a multi-reel file, so annotate the labels on these reels as 1/1. IRS encourages the submission of multi-reel files; please be sure that you do NOT code an End of Transmission "Y" Record until the LAST reel in the multi-reel file.

.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-digit Transmitter Control Code (TCC) assigned to you specifically for Forms 1042S processing. DO NOT ENTER YOUR FORMS 1099 TCC HERE. YOU MUST HAVE A SEPARATE TCC FOR FORMS 1042S PROCESSING. (See Part A, Sec. 5.03).

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

(d) Tape density (556, 800, 1600, or 6250 BPI)

(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 type (e.g., 1042S).

(j) The total number of Recipient "Q" Records on that reel.

(k) A number assigned by the transmitter to the tape. (Optional: if your organization uses a numbering system for your tape reels, indicate your in-house reel number).

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

.06 All records, including Header and Trailer Labels (if used) must be transmitted at the same density.

SEC. 2. CONVENTIONS AND DEFINITIONS

.01 Header Labels, Trailer Labels, Record Marks and Tape Marks are all optional. They may be used as required by the transmitter's equipment or programming. If used, they must conform to the following standards:

(a) Header Labels must begin VOL1, VOL2, HDR1, HDR2, or 1HDR. If used, they must be the first record(s) on the reel immediately before the Transmitter "T" Record. Header Labels may not exceed 80 characters in length.

(b) Trailer Labels must begin 1EOR, 1EOF, EOF1, or EOR1. If used, they must be the last record(s) on the reel, after the "Z" or "Y" Record and Tape Mark (if a Tape Mark is used). Trailer Labels may not exceed 80 characters in length.

(c) Record Marks, if used, may only follow the data portion of a record or block. All records are of uniform length, and Record Marks are not needed.

(d) Tape Marks, if used, must be IBM 001111 (Octal 17) in even parity. They always appear immediately after the "Z" or "Y" Record. If Header and Trailer Labels are also used, the Tape Mark must follow the Header Label and must precede and/or follow the Trailer Label(s).

.02 Definitions:

           Element                        Description

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

(a) All data records must be a fixed length of 450 positions.

(b) All records may be blocked, except header and trailer labels.

(c) A block may not exceed 15,000 characters, although shorter blocks may be written as desired. If records are being blocked, but sufficient records are not available to fill a complete block, the block may either be "padded" with 9's to fill all unused positions or truncated after the last data record to create a "short block". Do NOT pad the block with blanks, or create blank records (for example, Q followed by 449 blanks, etc.).

(d) Records may not span blocks.

(e) Two forms of blocking are acceptable:

(1) Only "Q" Records are blocked; all other records are unblocked.

(2) All records, except header and trailer labels, if used, are blocked. In this case, a "T" Record may only be the first record in the first block on the reel; a "W" Record must follow all associated "Q" Records; "Z" Record may be last record in the last block on the reel(s) in a multi-reel file (if coded); and the "Y" Record is the LAST record in the final block on the LAST reel in a multi-reel file, or the last record in the last block of a single reel (only block padding (all 9's) could follow).

.02 The first position of each record indicates the record type:

 Transmitter                                                        T

SEC. 4. THE TRANSMITTER "T" RECORD

This record identifies the entity who prepares and transmits the magnetic tape file. The Transmitter and one of the withholding agents may be the same, but they need not be. The Transmitter "T" Record MUST be the first data record on a reel (preceded only by header labels, if any), and MUST appear on each reel in the file sent by the Transmitter. On multiple reel files the reel number must be incremented by 1 (one) for each tape reel after the first reel. Each "T" Record has a fixed length of 450 positions. NOTE: ALL MAGNETIC TAPES SUBMITTED TO IRS WITHOUT THE TRANSMITTER "T" RECORD AS THE FIRST RECORD WILL BE RETURNED TO THE FILER FOR CORRECTION. The record layout of the "T" Record is as follows:

 Positions  Field Title        Length   Description and Remarks

This Record contains complete name and address data for both Withholding Agent and Recipient of Income, together with all the particulars of the income paid and tax withheld. Complete Withholding Agent data is required because each Recipient "Q" record is treated as if it were a separate Form 1042S, and is processed independently of other records. Since the "Q" Record is restricted to one type of income only, it may be necessary to write more than one "Q" Record for any given individual income recipient, who may have received income of more than one type (see Part A, Section 12.06). All recipient "Q" Records for a particular Withholding Agent must be written before the corresponding Withholding Agent "W" Record, and before "Q" Records for another Withholding Agent may begin. Any order of "Q" Records within those belonging to a given Withholding Agent may be used (for example, they may be sorted alphabetically by surname, or by country code, or by country of the mailing address, etc.) at the convenience of the Transmitter or Withholding Agent, since the "Q" Records are fully independent. All "Q" Records have a fixed length of 450 positions. All fields are required unless otherwise stated.

 Positions  Field Title        Length   Description and Remarks

Enter a "W" Record after the last "Q" Record submitted for a particular Withholding Agent. The "W" Record serves as a summary of the preceding "Q" Record data, and enables IRS to double-check the correctness of information received. Several "W" Records for different withholding agents may appear on the same Transmitter's file. Also, the "W" Record may refer to "Q" Records on more than one reel, provided all of the preceding "Q" Records are for the same withholding agent. A "W" Record may only be followed by new Recipient "Q" Records for the next Withholding Agent, if any, or by a tape mark and/or trailer label when more reels follow this reel, or by an End of Transmission "Y" Record, when this is the last reel of the file. The "W" Record cannot be the last record on the FILE. Each "W" Record has a fixed length of 450 positions. All fields in the "W" Record are required as follows:

 Positions  Field Title        Length   Description and Remarks

.01 The End of Reel "Z" Record's purpose is to "subtotal" a group of "Q" Records for a single withholding agent in the event that your tape reaches the end of reel before it has completed writing that group of "Q" Records. You will then provide the totals for that withholding agent in the next "W" Record. You will only use the End of Reel "Z" Record if you have submitted a multi-reel file (see Part B, Sect. 1.04), and wish to subtotal a group of "Q" Records under one withholding agent. If you choose to code the "Z" Record, then end every reel of a multi-reel file, EXCEPT THE LAST REEL, with an End of Reel "Z" Record.

If the last record of that reel would otherwise be a "W" Record, then do not use the "Z" Record, but use the "W" Record instead.

If records are blocked, the "Z" Record must be the last data record in the last block on the reel, but you may pad the rest of the block with all 9's to prevent a "short block".

In the past, it was required to code the End of Reel "Z" Record. Beginning in TY87, it is OPTIONAL whether or not you use the "Z" Record at the end of the reels in your multi-reel files. If your program is currently set up to produce an End of Reel "Z" Record, you may continue to submit your data in this manner. If you are a new filer, or a current filer who wishes to change their program, the use of the "Z" Record will be your option.

The "Z" Record may only be preceded immediately by a "Q" Record, and may only be followed by trailer labels, if used, or a tape mark.

The record layout for the "Z" Record is as follows:

 Positions  Field Title        Length   Description and Remarks

.01 End the LAST reel ONLY on a file with an End of Transmission "Y" Record. The "Y" Record may only be preceded by a "W" Record. It may only be followed by a Tape Mark, or a Tape Mark and a Trailer Label (if Trailer Labels are used), or a Trailer Label. The "Y" Record will count the total number of withholding agents in the transmission, and the total number of tape reels in the file. The "Y" Record has a fixed length of 450 positions, and all positions listed are required. PLEASE NOTE THAT IF SUBMITTING A MULTI-REEL FILE, THERE WILL ONLY BE ONE END OF TRANSMISSION "Y" RECORD. THE END OF TRANSMISSION "Y" RECORD WILL BE THE LAST RECORD IN THE FINAL BLOCK ON THE LAST REEL IN YOUR FILE.

 Positions  Field Title        Length   Description and Remarks

Revenue Procedure 86-40 is superseded.