Rev. Proc. 86-45

                              CONTENTS

SECTION 1. PURPOSE

.01 The purpose of this revenue procedure is to provide the requirements and conditions for submitting Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, on magnetic tape instead of filing paper returns. Form 8027 information is filed on paper and magnetic tape and sent annually to the Internal Revenue Service ( IRS). The due date for submission of Form 8027 on magnetic tape to IRS is the last day of February.

.02 Section 301.6011-2 of the Regulations on Procedure and Administration requires that any person, including corporations, partnerships, individuals, estates and trusts, required to file 500 or more Forms 8027 in 1987 (for tax year 1986), must file such returns on magnetic media. For Forms 8027 filed in 1988 (for tax year 1987) and subsequent years, the requirement will drop to 250 or more returns (original or corrected). Please note that this requirement applies to both original and corrected returns. If you are required to file Forms 8027 on magnetic media and fail to do so, and you have not received a waiver from these filing requirements, you may be subject to a penalty of $50 per document for each document not submitted on magnetic tape, with a maximum penalty of $50,000.

.03 This procedure supersedes the following revenue procedure: Rev. Proc. 84-69, Publication 1239 (10-84), Requirements and Conditions for Submitting Form 8027, Employer's Annual Information Return of Tip Income and Allocated Tips, on magnetic tape.

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

.01 The following changes were made to Part B, Section 2:

(a) Record length is 372 tape positions.

(b) Block length is 10,044 tape positions.

.02 The following changes were made to Part B, Section 3:

(a) Header labels UHL1 and bLAB were added as standard labels that IRS programs can process.

(b) Trailer labels EOV1 and EOV2 were added as standard labels that IRS programs can process.

.03 The following changes were made to the record layout of the 8027 Magnetic Tape Record:

(a) The 15 position field, "Establishment Identification Number" was dropped.

(b) The 1 position field, "Establishment Type" was added.

(c) The 5 position field, "Establishment Serial Number" was added.

(d) The fields, "Establishment City" and "Employer City" no longer allow the use of hyphens as valid characters.

(e) Due to the fact that money amounts are no longer reported separately for the first quarter and last three quarters of the year, the following fields were consolidated for annual reporting:

(1) Charged Receipts.

(2) Charged Tips.

(3) Service Charges Less than 10 Percent.

(4) Indirect Tips.

(5) Direct Tips.

(6) Total Tips.

(7) Gross Receipts.

(f) The special character fields, "BLANK," "HYPHEN," "SLASH," and "AMPERSAND" were dropped.

(g) The 1 position field, "Amended 8027 Indicator" was added.

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

.01 Numerous editorial changes have been made to the publication. Information concerning extensions and waivers has been added as well as applications for magnetic media. There have been no changes to the magnetic tape program or format.

SEC. 4. APPLICATION FOR MAGNETIC MEDIA REPORTING

.01 For the purposes of this revenue procedure, the EMPLOYER is the organization supplying the information and the TRANSMITTER is the organization preparing the magnetic media file. The employer and transmitter may be the same organization. Employers or their transmitters are required to complete Form 4419, Application for Magnetic Media Reporting of Information Returns. Requests for copies of this form or for additional information on magnetic media reporting should be addressed to the attention of the Magnetic Media Specialist at the National Computer Center. (See Part A, Sec. 12 of this revenue procedure.)

.02 Applications should be filed with the National Computer Center 90 days before the due date of the return. IRS will act on an application and notify the applicant, in writing, of authorization to file. A five-character Transmitter Control Code (TCC) will be assigned and included in an acknowledgement letter within 30 days of receipt of the application. Magnetic tape returns may not be filed with IRS until the application has been approved. Include your TCC in any correspondence with the Magnetic Media Specialist.

.03 Once authorization to file on magnetic tape has been granted to an employer or transmitter, it will remain in effect in succeeding years provided that all of the requirements of this revenue procedure are met and there are no equipment changes by the filer. Contact the Magnetic Media Specialist at the National Computer Center if you have questions concerning your application.

.04 IRS will assist new filers with their initial magnetic tape submission by encouraging the submission of test files for review in advance of the filing season. Approved employers or transmitters who wish to submit a test file should contact the Magnetic Media Specialist at the National Computer Center. The address is listed in Part A, Sec. 12 of this revenue procedure. IRS prefers that all "TEST" files be submitted between August 15 and December 15 of the year before the returns are due. Do not submit "TEST" tapes after January 1. If you are unable to submit your "TEST" file by the end of December, send a sample hardcopy printout or tape dump to the National Computer Center. Clearly mark the hardcopy printout or tape dump as "TEST DATA" and include identification 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.

.05 Only employers or transmitters using equipment compatible with IRS' equipment will have their applications approved. Compatible tape characteristics are shown in Part B, Sec. 1.

.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 an application, Form 4419, as described above.

.07 If you as an individual or organization are an approved filer on magnetic tape and you change your name or the name of your organization, please notify the National Computer Center's Magnetic Media Specialist so that your file may be updated to reflect the proper name.

SEC. 5. FILING OF MAGNETIC MEDIA REPORTS

.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.

.02 Packaging, shipping, and mailing instructions will be provided by IRS within 45 days of the granting of approval. A magnetic tape reporting package, which includes all necessary transmittals, labels, and shipping instructions, will be mailed out between October and December of each year to all approved filers.

.03 With the IRS' concurrence, employers can submit a portion of their returns on magnetic media and the remainder on paper Forms 8027, provided there is NO DUPLICATE FILING. A Form 8027 T, Transmittal of Employer's Annual Report of Allocated Tips, must accompany paper submissions and a Form 4804, Transmittal of Information Returns Reported on Magnetic Media, must accompany magnetic media submissions. Indicate on Form 4804, in the blank captioned "Number of Payee Records," the total number of establishments being reported in this shipment. This figure should match the total number of tape records in your file. If you report on paper Forms 8027, send them to:

     Internal Revenue Service

.04 The affidavit which appears on Forms 8027 T and 4804 should be signed by the employer. A transmitter, service bureau, paying agent, or disbursing agent may sign the affidavit on behalf of the employer (or other person required to file) if the conditions in Items 1, 2(i) or 2(ii), and 3 below are met.

(1) It has the authority to sign the form under an agency agreement (oral, written, or implied) that is valid under state law.

(2)(i) It has the responsibility (oral, written, or implied) conferred on it by the employer (or other person required to file), to request the TINS of recipients (or others for whom information is being reported).

(ii) If the return of more than one employer is included in a single magnetic media submission, covered by a single Form 4804, each employer (or other person required to file) has attested by affidavit to the transmitter, service bureau, paying agent, or disbursing agent that the employer (or other person required to file) has complied with the law in attempting to secure correct TINS.

(3) It signs the form and adds the caption "For: (Name of employer (or other person required to file))."

.05 Although a duly authorized agent signs the affidavit, the employer is held responsible for the accuracy of the Form 8027 and will be liable for penalties for failure to comply with filing requirements.

.06 If a portion of the returns are submitted on paper documents, include a statement on the Form 8027 T that the remaining returns are being filed on magnetic media. Please note that Form 8027 T normally applies to the filing of information returns on paper; however, filers of magnetic media must review the Form 8027 T and file Form 8027 T if appropriate. 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.

.07 If an allocation of tips is based on a good faith agreement, a copy of the agreement must accompany the submission.

.08 If an allocation rate of less than 8%has been granted by the District Director, a copy of the determination letter must accompany the submission. Employers with more than one establishment can receive approval from one district in each Internal Revenue Service region where establishments are located (see Sec. 31.6053-3(h)(4) of the Employment Tax Regulations).

.09 If an amended return is being filed, it must be a complete return replacing the original return.

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

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

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

(c) A hardcopy printout or tape dump of the first five blocks and last two of your file.

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

(e) On the outside of the shipping container, include a Form 4801 or a substitute for the form which reads "Deliver Unopened to Tape Library-Magnetic Media Reporting-Box ____ of ____ If there is only one container, mark the outside as Box 1 of 1. For multiple containers, include the sequence (i.e., Box 1 of 33, 2 of 33, etc.).

(f) If you were granted an extension and are filing late, include a copy of the approved extension letter with the magnetic tape.

.11 IRS will not pay or accept "Collect on Delivery" or "Charge to IRS" shipments of reportable tax information that an individual or organization is legally required to submit. The current policy is to return magnetic materials or requested information at U.S. Government expense.

SEC. 6. FILING DATES

.01 Magnetic tape reporting to IRS for Form 8027 must be on a calendar year basis. Generally, the due date of either paper or tape Forms 8027 is the last day of February, unless such day falls on a Saturday, Sunday, or holiday. For tax year 1986, the due date for filing Forms 8027 will be March 2, 1987.

SEC. 7. EXTENSIONS OF TIME TO FILE

.01 If an employer or transmitter of Forms 8027 on magnetic tape is unable to submit their magnetic media file by the filing date, submit a letter requesting an extension of up to 30 days to file, as soon as you are aware that an extension will be necessary. In order to be considered, the request MUST be filed before the due date of the returns; otherwise, you will be subject to the late filing penalty. The letter should be sent to the attention of the Magnetic Media Reporting Program at the IRS National Computer Center. See Part A, Sec. 12 for the address. The request should include:

(a) The filer's 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 (e.g., tax year 1986).

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

(e) The type of returns and expected volume (e.g., 1000 Forms 8027).

(f) The five-character TCC 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 employers, the request must include a list of all employers and their Taxpayer Identification Numbers (EIN or SSN).

An approved extension for magnetic tape filing does not provide an extension to file the paper Forms 8027 with the Andover Service Center. Requests for an extension to file paper Forms 8027 should be submitted to the Andover Service Center. (See Part A, Sec. 5.03 for address.)

.02 If an extension of time to file on magnetic tape is granted by the National Computer Center, a copy of the letter granting the extension MUST be attached to the transmittal Form 4804 or computer-generated substitute when the file is submitted. CAUTION: AN EXTENSION TO FILE IS NOT AN EXTENSION TO ISSUE INFORMATION RETURN COPY TO EMPLOYEE.

SEC. 8. WAIVERS

.01 Any individual or organization required to file original or corrected Forms 8027 on magnetic tape 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 tape would be an undue hardship. File the waiver request at least 90 days before the Forms 8027 are due to be filed with IRS. IF APPROVED, THE WAIVER WILL PROVIDE EXEMPTION FROM MAGNETIC TAPE FILING FOR ONE TAX YEAR ONLY. Filers may not apply for a waiver for more than one tax year at a time. Copies of Form 8508 may be obtained from the IRS National Computer Center. See Part A, Sec. 12 for the address.

.02 ALL OF THE INFORMATION REQUESTED ON FORM 8508 MUST BE PROVIDED AS REQUESTED; OTHERWISE, THE WAIVER REQUEST WILL BE RETURNED TO YOU DUE TO INSUFFICIENT INFORMATION.

.03 If you request a waiver from filing on magnetic tape and it is approved, do NOT send a copy of the approved waiver to the Andover Service Center with your paper returns. Keep the waiver for your records.

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

.05 If you are required to file your Forms 8027 on magnetic tape 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.

.06 An approved waiver from filing Forms 8027 on magnetic tape does not provide exemption from filing; you MUST still file those returns on paper forms with the Andover Service Center.

SEC. 9. PROCESSING OF MAGNETIC MEDIA RETURNS

.01 The National Computer Center will process tax information from magnetic media files. All magnetic media files that are received timely by the National Computer Center will be returned to the filers by August 15 of the year in which submitted. After January 1, 1986, all magnetic media processing, including the Allocated Tips processing, was centralized at the National Computer Center. Due to the volume of input received and the cost to return special containers, special shipping containers should not be used for transmitting data to the National Computer Center since IRS cannot guarantee return of such containers.

.02 All files submitted must conform totally to this revenue procedure. 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. Files must be corrected and returned to the National Computer Center within 30 days of receipt by the filer. The corrected files will be returned to the filer by the National Computer Center within 6 months of receipt. Please be sure that your format and coding comply with this revenue procedure.

SEC. 10. EFFECT ON PAPER RETURNS

.01 If a portion of the returns is reported on magnetic media and the remainder is reported on paper forms, those returns not submitted on magnetic media must be filed on Form 8027 with the Andover Service Center. (See Part A, Sec. 5 for address.)

SEC. 11. CORRECTED RETURNS, SUBSTITUTE FORMS AND COMPUTERGENERATED FORMS

.01 If returns must be corrected or amended, approved magnetic media filers should make every attempt to provide such corrections on tape. The filer must contact the IRS for format and shipping instructions. A Form 4804 must accompany the shipment and the blank space next to the box marked "CORRECTION" should be checked.

.02 If corrections are not submitted on tape, employers must submit them on official Forms 8027. Substitute forms that have been previously approved by IRS, or computer-generated forms that are exact facsimiles of the official form (except for minor page size or print style deviations), may be submitted without re-obtaining IRS approval before using the form. In all other cases, IRS approval must be obtained before a substitute or computer-generated form can be used. Publication 1167, "Substitute Printed, Computer-Prepared, Computer-Generated Tax Forms and Schedules," which contain specifications for substitute paper returns, is available from most IRS offices.

.03 Requests for approval of computer-generated or substitute forms should be sent to the following address with a copy of the proposed form:

     Internal Revenue Service

     Internal Revenue Service

SEC. 12. MAGNETIC MEDIA SPECIALIST CONTACT

Requests for additional copies of this revenue procedure or for additional information on magnetic media reporting of Forms 8027 should be addressed to the attention of the Magnetic Media Specialist at the following address:

     Internal Revenue Service

 Element             Description

.01 Rev. Proc. 84-69, Publication 1239, (10-84) is superseded.

SEC. 15. TO CONTACT THE IRS NATIONAL COMPUTER CENTER

.01 Effective January 1, 1986, the magnetic media processing for Forms 8027 was relocated at the IRS National Computer Center. Please direct all requests for IRS magnetic media related publications, information, forms, transmittals, undue hardship waivers, or extensions to the following addresses:

If by U.S. Postal Service, send to:

     Magnetic Media Reporting

     Magnetic Media Reporting

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

PART B.-MAGNETIC TAPE SPECIFICATIONS

SECTION 1. GENERAL

.01 The magnetic tape specifications contained in this part of the procedure define the required format and contents of the records to be included in the file. THESE SPECIFICATIONS MUST BE ADHERED TO UNLESS DEVIATIONS HAVE BEEN SPECIFICALLY GRANTED BY IRS IN WRITING.

.02 IRS will be able to process any compatible tape files. Compatible tape files must meet any one set of the following:

(a) 7 track BCD (Binary Coded Decimal) with:

(1) Either Even or Odd Parity and

(2) A density of 556 or 800 BPI.

(b) 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.

(c) 9 track ASCII (American Standard Coded Information Interchange) with:

(1) Odd Parity and

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

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

(a) Type of Tape- 1/2 inch mylar base, oxide coated; computer grade magnetic tape on reels of up to 2400 feet (731.52m) within the following specifications:

(1) Tape thickness: 1.0 or 1.5 mils.

(2) Reel Diameter: 10.5 inch (26.67 cm), 8.5 inch (21.59 cm), or 7 inch (17.78 cm).

(b) Interrecord Gap

(1) .75 inch for 556 or 800 BPI density (7 track).

(2) .6 inch for 800 or 1600 BPI density (9 track).

(3) .3 inch for 6250 BPI density (9 track).

.04 IRS programs are capable of accommodating some minor deviations. Filers who can substantially conform to these specifications, but do require some minor deviations, MUST contact the Magnetic Media Specialist at the Internal Revenue Service, National Computer Center in Martinsburg, WV. Under no circumstances may tapes deviating from the specifications in this revenue procedure be submitted without prior written approval from IRS.

.05 An external identification 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 TCC.

(c) The two-character state code (e.g., NY).

(d) Tape density.

(e) Indicate whether tape is labeled or unlabeled.

(f) Track (e.g., 7 or 9).

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

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

(i) Document type (e.g., 8027).

(j) Number of payees (indicate total number of establishments being reported).

(k) A reel number assigned by the transmitter (if applicable).

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

This information will assist IRS in processing or locating a specific file. 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 record defined in this procedure may be blocked or unblocked, subject to the following:

(a) A FIXED RECORD OF 372 POSITIONS IS REQUIRED.

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

(c) If records are blocked, the block MUST be 10,044 tape positions.

(d) If the use of blocked records would result in a short block, all remaining positions of the block MUST be filled with 9's. DO NOT PAD A BLOCK WITH BLANKS.

SEC. 3. OPTIONS FOR FILING

For the purposes of this procedure the following conventions must be used:

Header Label:

1. Employers may use standard headers provided they begin with 1HDR, HDR1, VOL1, VOL2, UHL1, or bLAB.

2. Consists of a maximum of 80 positions.

3. Header and Trailer Labels are optional unless more than one reel is being submitted. If more than one reel is being submitted, Header and Trailer Labels are REQUIRED.

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 COMPUTERGENERATED 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.

3. Header and Trailer Labels are optional unless more than one reel is being submitted. If more than one reel is being submitted, Header and Trailer Labels are REQUIRED.

Record Mark:

1. Special character used to separate blocked records on tape.

2. Can be written only at the end of a record or block.

3. For odd parity tapes, use BCD bit configuration 011010 ("A82").

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.

                RECORD NAME: 8027 MAGNETIC TAPE RECORD