GUIDANCE PROVIDED FOR MAGNETIC TAPE FILING OF FUTA RETURNS.

Rev. Proc. 88-40

SECTION 1. PURPOSE

.01 The purpose of this revenue procedure is to set forth requirements and conditions under which reporting agents preparing Form 940, Employer's Federal Unemployment Tax Return, for groups of taxpayers can furnish the required information in the form of magnetic tape instead of paper documents.

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

.03 This revenue procedure supersedes Rev. Proc. 86-26 1986-1. C.B. 583. If a current reporting agent is unable to comply with the changes in specifications, he/she should contact the local Magnetic Tape Coordinator for Business Tax Returns for further instructions.

.04 The procedures for filing Form 940 on magnetic tape differ from the procedures for filing Forms 941 and 941E on magnetic tape, principally in the Tax Data Records. Whereas in reporting Form 941, there is one Tax Data "B" Record, in reporting Form 940 there are three types of Tax Data "B" Records, "B1," "B2" and "B3".

The need for three different records was established when the return was analyzed. Form 940 is complex with five different parts. Questions A, B and C at the top of the form determine which parts are required. In addition, in at least three places the return allows for multiple repeating lists: 1) state reporting numbers in Question B, 2) multiple reasons for exempt payments in Part 1, and 3) multiple entries of state codes, state reporting numbers and experience rates in Part 5.

To deal with the multiple list problem without paper attachments or tying up large pieces of record formats with seldom used fields, the specifications allow some record types ("B2" and "B3") to be repeated to take care of virtually all taxpayers.

Furthermore, because information as to the states to which credit reductions will apply is not available until November of each year, all states and applicable territories are treated as potential credit reduction states.

In addition, many intermediate fields (i.e. fields resulting from the addition, subtraction and multiplication of primary data fields) have been omitted from the "B" Record specification. The test of the final result field, "Total FUTA Tax," against the generated results of the primary fields (i.e., fields only available from taxpayer records) will be used to determine the accuracy of the calculation of the correct tax by the reporting agent.

If an agent chooses not to develop software for exceptional cases, he/she may choose to file those returns on paper.

SEC. 2. APPLICATION FOR TAPE REPORTING

.01 Agents who desire to file authorized federal tax returns on magnetic tape must first file a letter of application. Although this revenue procedure covers only Forms 940 filed on magnetic tape, the letter of application may cover Forms 941 and 941E as well. In addition, a separate but simultaneous letter may be submitted for permission to submit federal tax deposits on magnetic tape for Forms 940, 941 and 943. Separate revenue procedures cover the filing of Forms 941 and 941E and the submission of federal tax deposits (FTDs) on magnetic tape. Contact the Magnetic Tape Coordinator for Business Tax Returns for current copies of the other revenue procedures.

.02 The letter of application should be addressed to the Director, Internal Revenue Service Center, Attention: Magnetic Tape Coordinator for Business Tax Returns, of the Service Center that serves the primary business address of the reporting agent. Addresses of the service centers are shown in Section 9 of this revenue procedure.

.03 The letter of application must contain the following:

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

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

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

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

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

6. An agreement to fully pay the tax by FTDs.

This revenue procedure does not restrict a non-financial organization who performs a payroll or tax service from being a reporting agent. See Rev. Proc. 86-33, 1986-2 C.B. 760, concerning the requirements under which FTDs can be made by the reporting agent.

7. An agreement to fully pay contributions to state unemployment funds on time and to timely file related state unemployment tax returns (only if Form 940 filing is part of application request).

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

.04 The letter of application should include two types of attachments as follows:

1. A Reporting Agents List which identifies all taxpayers to be included in the Magnetic Tape Filing System.

2. RAAs for all taxpayers included on the Reporting Agents List. Details of these attachments are described in the current revenue procedure on RAAs.

.05 A reporting agent must submit a separate application to each service center to which he/she intends to file returns.

SEC. 3. REPORTING AGENT AUTHORIZATION

.01 A RAA must be submitted for each filer on the list attached to the letter of application. The RAA may be submitted on Form 8655, Reporting Agents Authorization, which is available on request; or any other instrument which meets the specifications identified in the current revenue procedure on RAAs. The RAA may cover the filing of both Forms 940 and 941 and the magnetic tape submission of FTDs on Forms 940, 941 and 943, if desired.

SEC. 4. APPROVAL OF AGENT'S APPLICATION

.01 The Service will return a validated Reporting Agent's List to the agent within 30 days. The validated List provides the reporting agent with the name control for each taxpayer. The name control is a required field when the return is submitted on magnetic tape. See Exhibit 9, positions 73-76.

.02 Having secured a name control for each taxpayer, the reporting agent must submit a test tape. The test tape submitted in support of an initial application must be submitted with paper returns that report the same tax information that is on the tape. The paper returns must be arranged in the same order that the returns are reported on the tape. Once the Magnetic Tape Coordinator for Business Tax Returns has approved the reporting agent's application, paper returns must no longer be submitted.

.03 Reporting agents are encouraged to submit the initial test tape well in advance (90 days is suggested) of the end of the tax period for which the first returns will be filed on magnetic tape. This will allow sufficient time to work out problems and eliminate the necessity of filing redundant paper returns for the first time filing.

.04 The Magnetic Tape Coordinator for Business Tax Returns will notify prospective and current reporting agents in writing on the decisions of approval, denial and revocation of magnetic tape filing privileges. Generally, failure to submit magnetic tapes which can be read on the Service's computers without a "job abort" and with error rate on the returns of 5% or less is required for approval of a reporting agent's application and continuation of filing privileges.

.05 Once authorization to file tax data on magnetic tape has been granted to a reporting agent, such approval will continue in effect in succeeding tax periods so long as the requirements of the most recent revenue procedure are met, and there are no equipment changes by the reporting agent.

.06 If a revenue procedure is revised significantly in terms of its computer specifications, current reporting agents will normally be required to submit test tapes prior to their first usage of the new specifications. If the changes are minor, the Magnetic Tape Coordinator may waive the requirement.

.07 Test tapes prepared because of agent equipment changes, or changes in magnetic tape specifications based on revenue procedure changes, must be submitted initially at least ninety days before the last month of the tax period for which the return is filed using the new format.

.08 If a reporting agent submits a bad test tape, the Magnetic tape Coordinator will notify the agent of that fact. The prospective reporting agent must supply a new test tape within thirty days of the coordinator's notification.

SEC. 5. EFFECT ON PAPER DOCUMENTS

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

.02 Paper and magnetic tape returns for the same tax period must never be filed by a reporting agent at the same time for a given taxpayer unless the returns are filed during the trial period for the reporting agent described in section 4.02.

SEC. 6. FILING TAPE RETURNS

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

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

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

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

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

It is imperative that this Name Control be retained in the agent's records and be used in each taxpayer's Tax Data "B1" Record (positions 73-76). It is used by the Service to ensure the correct recording of the taxpayer's return. Failure to use the correct Name Control can result in delays in processing the return and notices of delinquent filing being sent to the taxpayer.

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

1. A letter of transmittal containing the information described below. File the letter of transmittal in duplicate.

2. The letter of transmittal should include:

a. Name and address of reporting agent

b. Type of tax return filed on the magnetic tape

c. Tax period

d. Number of tax returns filed on accompanying tape

e. Total taxes reported

f. Total taxes deposited

g. Number of revenue procedure used as basis for magnetic tape preparation (e.g., 86-27)

h. signature of transmitter, title and date.

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

4. Only Form 940 data may be present on this magnetic tape. Any Form 941 or 941E data must be on separate tapes.

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

6. The reporting agent should notify the Magnetic Tape Coordinator for Business Tax Returns when the tape is received back from the Service. This may be done by telephone or by returning a receipted copy of the tape charge-out. We require this confirmation to ensure the confidentiality of taxpayer data.

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

.01 After a reporting agent has been notified by the service that his/her application has been approved, he/she will generally need to add and delete taxpayers from the Magnetic Tape Filing System.

.02 Specific instructions for adding and deleting taxpayers from the Magnetic Tape Filing System are contained in the current revenue procedure on RAAs. Contact the Magnetic Tape Coordinator for Business Tax Returns to secure the current version.

.03 Returns may not be filed for a taxpayer until a RAA has been submitted for him/her and his/her identifying information has been included on a Reporting Agents List which in turn has been subsequently validated by the Service. Until the reporting agent has received the validated list, he/she may not submit a valid tax return through the Magnetic Tape Filing System because there is no valid name control for the taxpayer and no valid RAA.

SEC. 8. DUE DATES

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

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

SEC. 9. ADDITIONAL INFORMATION

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

   1. North-Atlantic Region

.01 Conventions

(a) Reporting agents who submit Forms 940, 941 and 941E on magnetic tape must conform to Level 3 of the ANSI Standard X3.27-1978 (Magnetic Tape Labels and File Structure for Information Interchange). Specifically this calls for recognition of the following label types: VOL1, HDR1, HDR2, EOV1, EOV2, EOF1, and EOF2 (see Exhibits 1 through 7 for specific label specifications). No user labels or non-labeled tapes will be accepted for processing.

(b) Record Mark

No restrictions apply to record marks.

(c) Tape Mark

The tape marks will be automatically generated for an interchange tape (as defined above in paragraph .01(a). An example as to their positioning is given in Section 8.02.

.02 Definitions

 Element                 Description

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

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

          VOL1

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

1. Name of reporting agent,

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

3. Payment period in YYMM (year, year, month, month) format, for example 8112,

4. Density (1600, 6250),

5. Channel (9),

6. Parity (odd),

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

.05 Record Blocking Factor

The tape records prescribed in the specifications must be blocked at one record per block.

.06 Data

Only character data may be used. This means numeric fields cannot use overpunched signs and should be right justified with remaining unused positions zero filled. Special characters should be limited to dash (-), ampersand (&), percent (%), slash (/), pound-sign (#), period (.), comma (,) and apostrophe (') and can only be used in the name line fields and the street address fields of Agent "A" Record and Tax Data "B" Record. Otherwise, characters must be numeric or alphabetic. All money fields should include 2 decimal positions on right. All numeric data should be in unsigned ASCII characters (no binary data). Currently, this revenue procedure includes no fields that require signs.

.07 Agent "A" Record

The Agent "A" Record (see Exhibit 8) identifies the reporting agent who prepares and transmits the tape file. Only Form 940 data may be present on this magnetic tape. Any Form 941 or 941E data must be on separate tapes.

The Agent "A" Record must be reported on the first reel of the file and precede the first Tax Data "B" record.

.08 Form 940 Tax Data "B" Records

Tax Data "B" Records (see Exhibits 9, 10 and 11) contain tax information for each filer reported by the reporting agent. The number of Tax Data "B" Records of any type appearing on one tape reel will depend on the number of taxpayers represented (only one tax return for each EIN).

All records must be for the current tax period. All money amounts must contain dollars and cents, must be right justified with zero filling on the left and must be zero filled if non-significant. Fields identified as indicators must always carry a value.

The return must be filed on paper if (a) any "B" Record field is too small to accommodate the data, (b) the taxpayer reports more than four state identification numbers assigned by a particular state, (c) the taxpayer has more than four experience rates in a given year for a particular state code and reporting number or (d) the taxpayer has been assigned NO experience rate by a state. (This does not mean a ZERO percent experience rate. Taxpayers assigned zero percent experience rates may continue to file magnetic tape returns.)

1. Directions for the use of the three types of "B" Records:

A. General Directions

1). A "B1" Record is required for all taxpayers. There can be only one per taxpayer.

2). A "B2" Record is used only if the taxpayer has more than ten separate reasons for exempting payments to employees from FUTA. The various reasons for exempting payments are defined in Section 12 of this revenue procedure. Up to four "B2" Records may follow a "B1" Record.

3). If the taxpayer has employees in more than one state, a "B3" Record is required. Each "B3" Record will accommodate up to four additional states. Up to thirteen "B3" Records may be present. "B3" Records must follow "B2" Records (if any are present) of the taxpayer.

4). The Form 940 Filing Indicator (position 153 of "B1" Record) is a key to the use of the "B1" and "B3" Records. The Form 940 Filing Indicator has no bearing on "B2" Records.

(a) If the Form 940 Filing Indicator is equal to zero, then only a "B1" Record is required. The State Contributions field (positions 156-168) must contain a significant amount and positions 494-633 must be blank or zero filled as appropriate. (No "B3" Record may be filed for the taxpayer if Indicator zero is used.)

(b) If the Form 940 Filing Indicator is equal to one, then only a "B1" Record is required. The State Contributions field (positions 156-168) must be zero filled and positions 494-633 must be blank or zero filled as appropriate. (No "B3" Record may be filed for the taxpayer if Indicator one is used.)

(c) If the Form 940 Filing Indicator is equal to two, then at least one "B3" Record is needed in addition to the "B1" Record. The State Contributions field (positions 156-168 of the "B1" Record) must contain a significant amount. The amount must equal the total contributions paid to all state unemployment agencies (reported in the contributions Actually Paid to State fields in the "B1" Record and "B3" Records). Positions 184-228 of the "B1" Record (second, third and fourth State Reporting Number fields) must be blank filled. Tax information for the first state must be reported in "B1" Record fields: State Code Employees (positions 154-155), State Reporting Number (positions 169-183) and positions 494-633. The "B3" Record is used to report additional tax information for the states.

(d) If the Form 940 Filing Indicator is equal to three, then a "B1" Record is required. Positions 184-228 (second, third and fourth State Reporting Number fields of the "B1" Record) must be blank filled. Positions 494-633 require some significant data. The State Contributions field (positions 156-168) must contain the amount of contributions paid to the state unemployment fund, and the amount must equal the total reported for Contributions Actually Paid to State in the "B1" Record (and "B3" Records, if used). A "B3" Record is required if the taxpayer has been assigned more than one state reporting number by the state. See section 11.08D(6) for additional information and instructions.

B. Directions for use of "B1" Record

See Exhibit 9.

1). Positions 1-155 of the "B1" Record must contain significant data for all taxpayers.

2). Positions 156-168 (State Contributions) and 169-183 (State Reporting Number) of the "B1" Record must contain significant data if the employer is required to contribute to state unemployment funds. (See section 11.08A(4) for additional information on the use of the State Contributions field.)

If a taxpayer reports multiple state reporting numbers for a state, positions 169-183 (State Reporting Number) must contain significant data. The additional numbers (for a taxpayer who would complete Parts 1, 2 and 4 of Form 940) must be reported consecutively in positions 184-198 (second State Reporting Number), 199-213 (third State Reporting Number) and 214-228 (fourth State Reporting Number) of the "B1" Record. No more than four state reporting numbers may be reported for a state. If more than four state reporting numbers were assigned by the state, the taxpayer must file on a paper return.

Positions 184-228 (second, third and fourth State Reporting Numbers) must be blank filled for taxpayers who would complete Parts 1, 3, 4 and 5 of Form 940 See "Directions on use of "B3" Record," section 11.08D(6) for instructions on reporting additional state reporting numbers for these taxpayers.

3). Positions 229-241 (Total Payments including Exempt Payments to Employees) of the "B1" Record require data from all taxpayers.

4). Positions 242-254 (Payments in Excess of Maximum Taxable Wages) must be filled if any employee's wages exceeded the maximum for the year.

5). Positions 255-265 (Total FUTA Tax) of the "B1" Record must be filled by all taxpayers.

6). Positions 266-276 (Total FUTA Taxes Deposited plus Overpayment from Previous Year) of the "B1" Record must be filled by all taxpayers.

7). Positions 277-287 (Overpayment From Previous Year) may or may not contain significant data depending on whether the taxpayer requested transfer of the previous year's overpayment.

8). Positions 288-298 (Excess/Credit) contain significant data only if Total Taxes Deposited plus Overpayment from Previous Year (266-276) exceeds Total FUTA Tax (255-265).

9). Position 299 (Credit Elect Indicator) enables the taxpayer to make a decision as to whether overpayment will be refunded or transferred to the following year's account.

10). Positions 300-310 (Total Taxes Deposited for This Tax Year) must be filled.

11). Positions 311-350 (FUTA tax liabilities for first, second, third and fourth quarters) must be filled if Total FUTA Tax (255-265) exceeds $100.00.

12). Positions 351-480 (Exemption Codes and Amounts) contain ten combinations of a two position exemption code and an 11 position dollar and cents amount of wages exempted. The exemption codes and their meanings may be found in Section 12.

13). Positions 481-493 (Credit Reduction Wages for Unrepaid Advances to the States) should have significant data only if the state identified in positions 154-155 is a credit reduction state for the tax year reported.

14). Positions 494-633 are a series of repeating fields which only require entries if more than one state is being reported by the taxpayer or if any part of the taxpayer's total taxable wages is exempt from state unemployment taxes.

(a) There are four series of five fields. The five fields are:

1. Taxable Payroll (12 positions)

2. Date Experience Rate Took Effect (numeric month and day format - 4 positions)

3. Date Experience Rate was Changed (numeric month and day format - 4 positions)

4. State Experience Rate (five position decimal)

5. Contributions Paid to State (10 positions).

(b) Up to four different experience rates are allowed in a given year (i.e., initial rate and three changes). Blank or zero fill unused experience rate group fields as appropriate.

(c) The use of these fields is determined by the value of the Form 940 Filing Indicator. At least one series of the fields must contain significant information if a taxpayer reports more than one state (Form 940 Filing Indicator 2), or if any part of the taxpayer's total FUTA taxable wages is exempt from state unemployment taxes (Form 940 Filing Indicator 3). The other three series are used only if the employer's experience rate changed during the year. If the Form 940 Filing Indicator is zero or one, positions 494-633 must be blank or zero filled as appropriate.

(d) If the Form 940 Filing Indicator is two and the employer is not required to pay contributions to the state unemployment fund of the first state reported (in the "B1" Record) because that particular state has granted the employer a zero percent experience rate, only one experience rate group should contain significant data and it should be used in the following manner:

1. Taxable Payroll - must have significant data. Enter the amount of wages on which the employer would have paid state unemployment taxes had the state not granted the zero percent experience rate.

2. Date Experience Rate Took Effect - fill with 0101.

3. Date Experience Rate was Changed - fill with 1231.

4. State Experience Rate - fill with five zeroes.

5. Contributions Paid to State - fill with ten zeroes.

Blank or zero fill the remaining experience rate group fields as appropriate.

(e) If part or all of the taxpayer's wages subject to FUTA tax is exempt from state unemployment tax, the total amount entered for taxable state payroll must be less than the amount of total FUTA taxable wages.

NOTE: If an employer reports more than four state reporting numbers for a state or has more than four experience rates for a state in a given year, or if the employer has NO experience rate assigned by a state, the return must be filed on paper.

"No" experience rate does not mean a zero percent experience rate. Taxpayers granted a zero percent state experience rate may continue to file magnetic tape returns.

C. Directions on use of "B2" Record

See Exhibit 10.

1) Positions 1-13 and at least the first exemption code and amount group (positions 14-26) must have significant data if a "B2" Record is used.

2) Positions 14-143 are ten groups of two fields. The two fields are exemption code and exemption amount. The exemption codes and their meanings can be found in Section 12 of this revenue procedure.

3) Significant exemption amount fields must be right justified with remaining unused positions zero filled. All unneeded exemption code and amount fields must be blank or zero filled as appropriate.

D. Directions on use of "B3" Record

See Exhibit 11.

1) Positions 1-13 and at least positions 14-78 of the first state data group must have significant data if a "B3" Record is used.

2) Positions 14-693 contain four groups of fields. Each group is for a separate state code. Therefore each "B3" Record can accommodate reporting of an additional four states.

Positions 14-183 relate to the first state reported in the "B3" Record.

Positions 184-353 relate to the second state reported in the "B3" Record.

Positions 354-523 relate to the third state reported in the "B3" Record.

Positions 524-693 relate to the fourth state reported in the "B3" Record.

3) Each state group in the "B3" Record is 170 positions. The state group is composed of the following fields:

a) State Code (2 positions).

b) Credit Reduction Wages (13 positions).

NOTE: This field will contain a significant amount only if the state referenced in the associated state code is a credit reduction state for the year for which the return is filed.

c) State Reporting Number (15 positions).

d) Four groups of experience rate fields.

Each experience rate group is composed as follows:

1. Taxable payroll (12 positions).

2. Date experience rate took effect (numeric month and day format - 4 positions).

3. Date experience rate was changed (numeric month and day format - 4 positions).

4. State experience rate (5 positions - all considered decimal).

5. Contributions paid to state (10 positions).

4) The experience rate group fields allow up to four different experience rates in a given year (i.e., an initial rate and three changes). Blank or zero fill unused experience rate group fields as appropriate.

5) If the employer was granted a zero percent experience rate and not required to pay contributions to the state unemployment fund of a particular state, only one experience rate group must contain significant data. It must be used in the following manner:

a) Taxable payroll - must have significant data. Enter the amount of wages on which the employer would have paid state unemployment taxes had the state not granted the zero percent experience rate.

b) Date experience rate took effect - fill with 0101.

c) Date experience rate was changed - fill with 1231.

d) State experience rate - fill with five zeroes.

e) Contributions paid to state - fill with ten zeroes.

Blank or zero fill the remaining experience rate group fields as appropriate.

6) The "B3" Record must be used to report multiple state reporting numbers for taxpayers who complete Part 5 of Form 940 (Form 940 Filing Indicator 2 or 3). Up to four state reporting numbers are allowed for each state the taxpayer reports. If the taxpayer has been assigned more than four state reporting numbers by any state, a paper return must be filed.

Repeat the state code with each additional state reporting number. Do not repeat a state reporting number. Credit Reduction Wages, if significant, must be reported with the first occurrence of the state code. Report the state taxable payroll and actual contributions paid to the state under each given state reporting number. All groups of state data for a given state code must consecutively follow the first occurrence of that state code. Enter data as follows:

(a) Positions 1-13 must contain significant data.

(b) The state code must be repeated in the applicable State Code fields (positions 14-15, 184-185, 354-355 or 524-525) and must consecutively follow its first occurrence.

(c) Enter a significant amount in the first credit reduction wages field for a state only if the state is a credit reduction state for the tax year reported. Each occurrence of the credit reduction wages field that follows for that state (positions 16-28, 186-198, 356-368 or 526-538) must be zero filled.

(d) Additional state reporting numbers are reported in the applicable State Reporting Number fields (positions 29-43, 199-213, 369-383 or 539-553).

(e) Positions 44-183, 214-353, 384-523 or 554-693. The positions that relate to the INITIAL experience rate of a state (44-78, 214-248, 384-418 or 554-588, within each corresponding state data group) must be completed. The second, third or fourth experience rate groups must be completed only if the experience rate changes for a given state code and reporting number. No more than four experience rates may be reported for a given state code and reporting number. Enter the data as follows:

Taxable Payroll - (positions 44-55, 214-225, 384-395 or 554-565) enter the amount of state taxable wages for the state under the corresponding state reporting number.

Date an Experience Rate Took Effect - (positions 56-59, 226-229, 396-399 or 566-569) enter in numeric month and day format (4 positions).

Date an Experience Rate Changed - (positions 60-63, 230-233, 400-403 or 570-573) enter in numeric month and day format (4 positions).

State Experience Rate - (positions 64-68, 234-238, 404-408 or 574-578) enter the experience rate for the state under the corresponding state reporting number.

Contributions Paid to State - (positions 69-78, 239-248, 409-418 or 579-588) enter the amount of contributions paid to the state under the corresponding state reporting number.

NOTE: Regardless of the number of states reported for a taxpayer, no more than 13 "B3" Records are allowed.

.10 Checkpoint Totals "C" Record

A Checkpoint Totals "C" Record (see Exhibit 12) must be written after each 100 or fewer Tax Data "B1" Records. This record contains the sum of all FUTA tax reported in the preceding 100 (or fewer) "B1" Records and the sum of all "B1" Records, "B2" Records and "B3" Records accumulated per "C" Record checkpoint.

The "C" Record must be followed by a Tax Data "B1" Record, except if the "C" Record is at the end of the file. In which case, it is followed by an End of File "E" Record.

.11 End of File "E" Record

The End of File "E" Record (see Exhibit 13) contains the total of all "B1" Records, "B2" Records and "B3" Records reported on the tape file, and gives the sum of all FUTA tax reported on the tape file. The "E" Record must be the last record on the agent's tape file. It may be followed only by a tape mark.

SEC. 12. EXEMPTION CODES

The following exemption codes are used in the two position fields in the "B1" and "B2" Records.

The following exemption codes are group level exemption codes. If an asterisk is present before the exemption code then a lower level subclassification is present on a later page. If the filing agent cannot provide the subclassification, the higher level classification is sufficient.

 Exemption               Special classes of employment

This revenue procedure supersedes Rev. Proc. 86-26.

SEC. 14. EFFECTIVE DATE

This revenue procedure is effective January 1, 1988.

                               EXHIBIT 1

FORM 940 TAX DATA "B1" RECORD

General Information

A "B1" Record is required for each taxpayer. Only one "B1" Record is allowed for a taxpayer, and it must be the first Tax Data "B" Record reported for the taxpayer.

Money amount fields must be right justified with remaining unused positions zero filled.

 Tape

FORM 940 TAX DATA "B2" RECORD

General Information

The "B2" Record is a continuation of the taxpayer's explanation of exempt payments. This record should be used only if the taxpayer has reasons for exempting payments that are in addition to the ten reported in the "B1" Record.

Up to four (4) Agent "B2" Records may follow a "B1" Record. Each "B2" Record contains ten combinations of a two position exemption code and 11 position dollar and cents amount of wages exempted. The exemption codes to be used are described in Section 12. Significant exemption amount fields must be right justified with any remaining positions zero filled.

All remaining unused exemption code fields must be blank filled. All remaining unused exemption amount fields must be zero filled.

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FORM 940 TAX DATA "B3" RECORD

General Information

The "B3" Record is a continuation of state tax information. The first state must be reported in the "B1" Record.

Up to thirteen (13) Agent "B3" Records may follow a "B1" or "B2" Record.

Money amounts are dollars and cents. Significant money amounts must be right justified with any remaining positions zero filled.

Blank fill unused date fields. Zero fill unused money amount and state experience rate fields.

If more than four experience rate changes occurred in one year for a given state code and reporting number, or if NO experience rate was assigned by a state, or if a taxpayer was assigned more than four state reporting numbers for a state, a paper return must be filed for the taxpayer.

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FORM 940 AGENT "C" RECORD

General Information

A Checkpoint Totals "C" Record must be written after each 100 or fewer Tax Data "B1" Records. Each "C" Record must contain a count of each of the three types of Tax Data "B" Records and the sum of total taxes on all "B1" Records tallied per checkpoint. The money amount field will contain dollars and cents. All significant amount fields must be right justified with any remaining unused positions zero filled. Any unused amount field must be zero filled.

The Checkpoint Totals "C" Record must be followed by a Tax Data "B1" Record unless the "C" Record is at the end of the file. If the "C" Record is at the end of the file, it is followed by an End of File "E" Record.

All Checkpoint Totals "C" Records must be fixed length (35 positions).

The Checkpoint Totals "C" Records cannot be followed by a Tape Mark.

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FORM 940 AGENT "E" RECORD

General Information

The End of File "E" Record is written after the last Checkpoint Totals "C" Record. The "E" Record contains a count of all Tax Data "B" Records by type and the sum of total taxes reported on the tape file.

The money amount field will contain dollars and cents. All significant amount fields must be right justified with any remaining unused positions zero filled. All unused amount fields must be zero filled.

The End of File "E" Record must be fixed length (35 positions). This record type must be the last record on the agent's tape file. It can be followed only by a tape mark.

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