Bulletin No. 1997–50

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Internal Revenue

bulletin

Bulletin No. 1997–50

December 15, 1997

HIGHLIGHTS

OF THIS ISSUE

These synopses are intended only as aids to the reader in

identifying the subject matter covered. They may not be

relied upon as authoritative interpretations.

INCOME TAX

Rev. Rul. 97–52, page 4.

LIFO; price indexes; department stores. The October

1997 Bureau of Labor Statistics price indexes are accepted

for use by department stores employing the retail inventory

and last-in, first-out inventory methods for valuing inventories

for tax years ended on, or with reference to, October 31,

1997.

Notice 97–72, page 7.

Leased property; substantial modification. Taxpayers

are informed of certain conditions under which changes in

rental payment terms resulting from a lessor’s refinancing

of its indebtedness will not be a substantial modification of

the rental agreement for purposes of section 467 of the

Code.

Announcement 97–120, page 61.

Uniform capitalization; farming exception; nursery

growers. The Service confirms that recently issued proposed regulations specifically permit nursery growers to

qualify for the “farming exception” to the uniform capitalization rules under section 263A of the Code.

must be filed by disqualified persons and organization managers liable for Code section 4958 excise taxes.

Announcement 97–121, page 62.

This announcement sets forth administrative programs established by the Service that, if applicable, may be utilized

by a sponsor of a qualified plan or a tax-sheltered annuity

(collectively “the plan”) in order for a plan to maintain its taxfavored status.

Announcement 97–122, page 63.

This announcement describes interim guidance with respect

to model and prototype Roth IRAs within the meaning of section 408A of the Code as added by section 302 of the Taxpayer Relief Act of 1997.

EXEMPT ORGANIZATIONS

Announcement 97–119, page 61.

A list is provided of organizations now classified as private

foundations.

ADMINISTRATIVE

Rev. Proc. 97–54, page 8.

EMPLOYEE PLANS

T.D. 8736, page 5.

Final and temporary regulations under section 6071 of the

Code relate to the filing date by which Form 4720 returns

Finding Lists begin on page 66.

Department of the Treasury

Internal Revenue Service

Substitute printed, computer-prepared, and computergenerated tax forms and schedules for 1997. Requirements are set forth for privately designed and printed

federal tax return forms and conditions under which the

Service will accept computer-prepared and computer-generated tax forms and schedules. Rev. Proc. 96–48 superseded.

Mission of the Service

ucts and services; and perform in a manner warranting

the highest degree of public confidence in our integrity, efficiency, and fairness.

The purpose of the Internal Revenue Service is to collect

the proper amount of tax revenue at the least cost; serve

the public by continually improving the quality of our prod-

Statement of Principles

of Internal Revenue

Tax Administration

The Service also has the responsibility of applying and

administering the law in a reasonable, practical manner.

Issues should only be raised by examining officers when

they have merit, never arbitrarily or for trading purposes.

At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that

care be exercised not to raise an issue or to ask a court to

adopt a position inconsistent with an established Service

position.

The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue

is determined by Congress.

With this in mind, it is the duty of the Service to carry out that

policy by correctly applying the laws enacted by Congress;

to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;

and to perform this work in a fair and impartial manner, with

neither a government nor a taxpayer point of view.

Administration should be both reasonable and vigorous. It

should be conducted with as little delay as possible and

with great courtesy and considerateness. It should never

try to overreach, and should be reasonable within the

bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it

should be relentless in its attack on unreal tax devices and

fraud.

At the heart of administration is interpretation of the Code. It

is the responsibility of each person in the Service, charged

with the duty of interpreting the law, to try to find the true

meaning of the statutory provision and not to adopt a

strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only

when we ascertain and apply the true meaning of the statute.

Introduction

The Internal Revenue Bulletin is the authoritative instrument

of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service

and for publishing Treasury Decisions, Executive Orders, Tax

Conventions, legislation, court decisions, and other items of

general interest. It is published weekly and may be obtained

from the Superintendent of Documents on a subscription

basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold

on a single-copy basis.

dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances

are substantially the same.

The Bulletin is divided into four parts as follows:

Part I.—1986 Code.

This part includes rulings and decisions based on provisions

of the Internal Revenue Code of 1986.

It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application

of the tax laws, including all rulings that supersede, revoke,

modify, or amend any of those previously published in the

Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements

of internal practices and procedures that affect the rights

and duties of taxpayers are published.

Part II.—Treaties and Tax Legislation.

This part is divided into two subparts as follows: Subpart A,

Tax Conventions, and Subpart B, Legislation and Related

Committee Reports.

Part III.—Administrative, Procedural, and Miscellaneous.

To the extent practicable, pertinent cross references to

these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings

are issued by the Department of the Treasury’s Office of the

Assistant Secretary (Enforcement).

Revenue rulings represent the conclusions of the Service on

the application of the law to the pivotal facts stated in the

revenue ruling. In those based on positions taken in rulings

to taxpayers or technical advice to Service field offices,

identifying details and information of a confidential nature

are deleted to prevent unwarranted invasions of privacy and

to comply with statutory requirements.

Part IV.—Items of General Interest.

With the exception of the Notice of Proposed Rulemaking

and the disbarment and suspension list included in this part,

none of these announcements are consolidated in the Cumulative Bulletins.

Rulings and procedures reported in the Bulletin do not have

the force and effect of Treasury Department Regulations,

but they may be used as precedents. Unpublished rulings

will not be relied on, used, or cited as precedents by Service

personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-

The first Bulletin for each month includes a cumulative index

for the matters published during the preceding months.

These monthly indexes are cumulated on a quarterly and

semiannual basis, and are published in the first Bulletin of the

succeeding quarterly and semiannual period, respectively.

The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.

For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.

Part I. Rulings and Decisions Under the Internal Revenue Code of 1986

Section 472.—Last-in, First-out

Inventories

26 CFR 1.472–1: Last-in, first-out inventories.

LIFO; price indexes; department

stores. The October 1997 Bureau of

Labor Statistics price indexes are accepted for use by department stores employing the retail inventory and last-in,

first-out inventory methods for valuing

inventories for tax years ended on, or

within reference to, October 31, 1997.

Rev. Rul. 97–52

years ended on, or with reference to, October 31, 1997.

The following Department Store Inventory Price Indexes for October 1997

were issued by the Bureau of Labor Statistics on November 18, 1997. The indexes are accepted by the Internal Revenue Service, under § 1.472–1(k) of the

Income Tax Regulations and Rev. Proc.

86–46, 1986–2 C.B. 739, for appropriate

application to inventories of department

stores employing the retail inventory and

last-in, first-out inventory methods for tax

The Department Store Inventory Price

Indexes are prepared on a national basis

and include (a) 23 major groups of departments, (b) three special combinations of

the major groups - soft goods, durable

goods, and miscellaneous goods, and (c) a

store total, which covers all departments,

including some not listed separately, except for the following: candy, foods,

liquor, tobacco, and contract departments.

BUREAU OF LABOR STATISTICS, DEPARTMENT STORE

INVENTORY PRICE INDEXES BY DEPARTMENT GROUPS

(January 1941 = 100, unless otherwise noted)

Groups

1. Piece Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

2. Domestics and Draperies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

3. Women’s and Children’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4. Men’s Shoes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

5. Infants’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

6. Women’s Underwear . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

7. Women’s Hosiery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

8. Women’s and Girls’ Accessories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

9. Women’s Outerwear and Girls’ Wear . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

10. Men’s Clothing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

11. Men’s Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

12. Boys’ Clothing and Furnishings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

13. Jewelry . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

14. Notions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

15. Toilet Articles and Drugs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

16. Furniture and Bedding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

17. Floor Coverings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

18. Housewares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

19. Major Appliances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20. Radio and Television . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

21. Recreation and Education2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

22. Home Improvements2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

23. Auto Accessories2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Groups 1 – 15: Soft Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Groups 16 – 20: Durable Goods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Groups 21 – 23: Misc. Goods2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Store Total3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Oct.

1996

561.0

641.0

661.8

920.1

626.4

536.8

285.7

557.5

417.5

621.9

581.7

490.7

1043.6

797.3

901.4

667.5

585.2

808.1

246.2

77.8

111.8

125.6

107.4

603.4

467.7

112.9

556.1

Oct.

1997

534.5

638.4

672.2

910.2

615.5

560.1

301.6

541.7

431.3

625.3

601.0

505.9

995.5

844.4

916.4

666.2

578.2

812.1

243.3

74.5

108.6

132.7

107.9

610.1

463.9

111.6

558.5

Percent Change

from Oct. 1996

to Oct. 19971

–4.7

–0.4

1.6

–1.1

–1.7

4.3

5.6

–2.8

3.3

0.5

3.3

3.1

–4.6

5.9

1.7

–0.2

–1.2

0.5

–1.2

–4.2

–2.9

5.7

0.5

1.1

–0.8

–1.2

0.4

1Absence of a minus sign before percentage change in this column signifies price increase.

2Indexes on a January 1986=100 base.

3The store total index covers all departments, including some not listed separately, except for the following: candy, foods, liquor, to-

bacco, and contract departments.

December 15, 1997

1997–50 I.R.B.

DRAFTING INFORMATION

The principal author of this revenue

ruling is Stan Michaels of the Office of

Assistant Chief Counsel (Income Tax and

Accounting). For further information regarding this revenue ruling, contact Mr.

Michaels on (202) 622-4970 (not a tollfree call).

Section 6071.—Time for Filing

Returns and Other Documents

26 CFR 53.6071–1: Time for filing returns.

T.D. 8736

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 53

Time for Filing Form 4720

Return

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final and temporary regulations.

SUMMARY: This document contains a

regulation that specifies the filing date by

which Form 4720 returns must be filed by

disqualified persons and organization

managers liable for Internal Revenue

Code section 4958 excise taxes. These

excise taxes are imposed on excess benefit transactions between disqualified persons and section 501(c)(3) organizations

(except for private foundations) or section

501(c)(4) organizations.

DATES: This regulation is effective October 7, 1997.

For dates of applicability, see

§ 53.6071–1(f).

FOR FURTHER INFORMATION CONTACT: Phyllis Haney, (202) 622-4290

(not a toll-free number).

SUPPLEMENTARY INFORMATION:

Background

This document contains amendments to

the Foundation and Similar Excise Taxes

regulations (26 CFR part 53) under Internal Revenue Code (Code) section 6071.

1997–50 I.R.B.

Those amendments provide guidance on

the time for filing the return that is required

to accompany payment of section 4958 excise taxes. This rule was first published in

Notice 96–46 (1996–39 I.R.B. 7) (September 23, 1996). A notice of proposed rulemaking (NPRM) of that rule was published

at 62 Fed. Reg. 84, by cross reference to a

temporary regulation, (T.D. 8705, 62 FR

25), on January 2, 1997. The deadline for

comments on the NPRM was April 2,

1997; no comments were received.

Taxpayer Bill of Rights 2, Public Law

104-168, 110 Stat. 1452 (TBOR2), enacted July 30, 1996, added section 4958

to the Code, which imposes excise taxes

on excess benefit transactions. Section

4958 taxes apply retroactively to excess

benefit transactions occurring on or after

September 14, 1995. The taxes do not,

however, apply to any benefit arising

from a transaction pursuant to any written

contract which was binding on September

13, 1995, and at all times thereafter before

such transaction occurred.

An “excess benefit transaction” subject

to tax under section 4958 is any transaction in which an economic benefit is provided by an organization described in

Code section 501(c)(3) (except for a private foundation) or 501(c)(4) directly or

indirectly to, or for the use of, any disqualified person if the value of the economic benefit provided exceeds the value

of the consideration (including the performance of services) received for providing

the benefit. A “disqualified person” is

any person who was, at any time during

the 5-year period ending on the date of the

excess benefit transaction, in a position to

exercise substantial influence over the affairs of the organization. Disqualified

persons also include family members and

certain entities in which at least 35 percent of the control or beneficial interest

are held by persons described in the preceding sentence.

Code section 4958 imposes three taxes.

The first tax is equal to 25 percent of the

excess benefit amount, and is to be paid

by any disqualified person who engages

in an excess benefit transaction. The second tax is equal to 200 percent of the excess benefit amount, and is to be paid by

any disqualified person if the excess benefit transaction is not corrected within the

taxable period. The third tax is equal to

10 percent of the excess benefit amount,

and is to be paid generally by any organization manager who knowingly participates in an excess benefit transaction.

The maximum amount of this third tax

with respect to any one excess benefit

transaction may not exceed $10,000. An

“organization manager” is any officer, director, trustee, or any individual having

powers or responsibilities similar to those

of any officer, director, or trustee. Final

regulations under Code section 6011 were

published on January 2, 1997, at T.D.

8705 (62 FR 25), prescribing Form 4720

for calculating and paying the first and

third taxes described above.

TBOR2 also amended Code section

6033(b) to require section 501(c)(3) organizations to report the amounts of the

taxes paid under section 4958 with respect to excess benefit transactions involving the organization, as well as any

other information the Secretary may require concerning those transactions. Section 6033(f) also was amended to impose

the same reporting requirements on section 501(c)(4) organizations. Those

amendments to section 6033 only apply to

organizations’ returns for taxable years

beginning after July 30, 1996. These and

other TBOR2 amendments to the reporting requirements for section 501(c)(3)

and section 501(c)(4) organizations are

reflected on IRS Forms 990 and 990-EZ

beginning with the 1996 versions.

Explanation of Provisions

This regulation provides the general rule

that Form 4720 returns will be due on or

before the 15th day of the fifth month following the close of the taxable year of any

disqualified person or organization manager who is liable for section 4958 excise

taxes on excess benefit transactions. The

regulations also provide that returns on

Form 4720 for taxable years ending after

September 13, 1995, and on or before July

30, 1996, will be due on or before December 15, 1996. See also Notice 96–46

(1996–39 I.R.B. 7) (September 23, 1996),

and 62 FR 25, 84 (January 2, 1997).

Special Analyses

It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866.

December 15, 1997

Therefore, a regulatory assessment is not

required. It also has been determined that

section 553(b) of the Administrative Procedure Act (5 U.S.C. chapter 5) does not

apply to these regulations, and because

the regulation does not impose a collection of information on small entities, the

Regulatory Flexibility Act (5 U.S.C.

chapter 6) does not apply. Pursuant to

section 7805(f) of the Internal Revenue

Code, these regulations will be submitted

to the Chief Counsel for Advocacy of the

Small Business Administration for comment on their impact on small business.

Organizations). However, other personnel

from the IRS and Treasury Department

participated in their development.

List of Subjects in 26 CFR Part 53

Excise taxes, Foundations, Investments, Lobbying, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR part 53 is amended

as follows:

Drafting Information

PART 53—FOUNDATION AND

SIMILAR EXCISE TAXES

The principal author of these regulations

is Phyllis Haney, Office of Associate Chief

Counsel (Employee Benefits and Exempt

Paragraph 1. The authority citation for

part 53 continues to read as follows:

Authority: 26 U.S.C. 7805.

December 15, 1997

§53.6071–1T [Amended]

§53.6071–1 [Amended]

Par 2. In §53.6071–1T, paragraph (f) is

redesignated as paragraph (f) of

§53.6071–1.

§53.6071-1T [Removed]

Par 3. §53.6071–1T is removed.

Michael P. Dolan,

Acting Commissioner of

Internal Revenue.

Donald C. Lubick,

Acting Assistant Secretary of

the Treasury.

(Filed by the Office of the Federal Register on October 6, 1997, 8:45 a.m., and published in the issue of

the Federal Register for October 7, 1997, 62 F.R.

52256)

1997–50 I.R.B.

Part III. Administrative, Procedural, and Miscellaneous

Substantial Modification of

Rental Agreements

Notice 97–72

PURPOSE

This notice informs taxpayers of certain conditions under which changes in

rental payment terms resulting from a refinancing of indebtedness incurred by a

lessor to acquire property that is the subject of a rental agreement will not be a

substantial modification of the rental

agreement for purposes of § 467 of the Internal Revenue Code. The Treasury Department intends to issue final regulations

under § 467 that will incorporate these

conditions.

BACKGROUND

On June 3, 1996, the Internal Revenue

Service and Treasury issued proposed Income Tax Regulations under § 467, published in a Notice of Proposed Rulemaking (61 Fed. Reg. 27834). The regulations

provide that, if a rental agreement is a

§ 467 rental agreement, the lessor and

lessee must take into account for a taxable

year the § 467 rent and the § 467 interest

for that year. The proposed regulations

provide that a rental agreement is a § 467

rental agreement if it has increasing or decreasing rent, or deferred or prepaid rent,

and the aggregate rental payments and

other consideration to be received for the

use of the property exceed $250,000.

Under § 1.467–3 of the proposed regulations, if a § 467 rental agreement is a

leaseback or long-term agreement that

provides for increases or decreases in rent

that have a principal purpose of Federal

income tax avoidance (a disqualified

leaseback or long-term agreement), the

Commissioner may require the lessor and

lessee to use constant rental accrual. Section 467(e)(1) provides that the “constant

rental amount” is an amount that, if paid

at the close of each lease period under the

agreement, would result in an aggregate

present value equal to the present value of

1997–50 I.R.B.

the aggregate payments required under

the agreement. Section 467(b)(5) and the

§ 467 proposed regulations provide certain safe harbor exceptions to the application of constant rental accrual.

The regulations are proposed to be effective for (1) disqualified leasebacks and

long-term agreements entered into after

June 3, 1996, and (2) all other rental

agreements entered into after the date on

which final § 467 regulations are published.

Under § 1.467–1(f) of the proposed

regulations, if, after the lease term begins,

the lessor and lessee agree to a substantial

modification of the terms of the lease, the

remaining portion of the rental agreement, as modified, is treated as a new

rental agreement for purposes of § 467

and the regulations thereunder, including

the effective date provisions. Thus, for

example, such a rental agreement must be

retested to determine whether increases or

decreases in rent were motivated by Federal income tax avoidance, or whether a

safe harbor exception to constant rental

accrual applies.

The proposed regulations provide no

guidance regarding whether a substantial

modification has occurred. Consequently, commentators have expressed

concern that a refinancing of indebtedness incurred to acquire property that is

the subject of a rental agreement entered

into prior to the effective date of the §

467 regulations will result in a substantial

modification of the rental agreement.

This treatment may occur because, even

though the lessee is not directly obligated

to pay the principal of, or interest on,

such indebtedness, in many leases, the

rent paid by the lessee is affected by the

lessor’s debt service costs. Thus, the

concern of the commentators is that a refinancing of the lessor’s indebtedness

after June 3, 1996, will cause a change in

rental payments that will constitute a substantial modification of the rental agreement and may cause the remaining portion of the rental agreement to be treated

as a disqualified leaseback or long-term

agreement under the § 467 regulations

(and therefore subject to constant rental

accrual).

EFFECT OF REFINANCING

In response to the concerns of commentators, the final regulations under

§ 467 will provide that the refinancing of

any indebtedness incurred by the lessor to

acquire the property subject to a rental

agreement and secured by the property,

together with any corresponding changes

in the rights or obligations of the lessee

under the rental agreement, will not be

treated as a substantial modification of the

rental agreement if all of the following

conditions are met:

(a) Neither the amount, nor the time

for payment, of the principal amount of

the new indebtedness differs from the

amount and time for payment of the principal amount of the refinanced indebtedness, except for de minimis changes;

(b) For each of the remaining rental

periods, the rent allocation schedule, the

payments of rent and interest, and the

amount accrued under § 467 are changed

only as necessary to take into account the

change in financing costs, and such

changes are made pursuant to the terms of

the rental agreement;

1(h)(7) of the proposed regulations) to

each other or to any lender to the lessor

with respect to the property (whether

under the refinanced indebtedness or the

new indebtedness); and

(d) The lessor has a unilateral option

(within the meaning of § 1.1001–3(c)(3)),

with or without the consent of the lessee,

to repay the refinanced indebtedness.

DRAFTING INFORMATION

The principal author of this notice is

Stephen J. Toomey of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Mr. Toomey

at (202) 622-4960 (not a toll-free call).

December 15, 1997

Rev. Proc. 97–54

TABLE OF CONTENTS

CHAPTER ONE—INTRODUCTION TO SUBSTITUTE FORMS

Overview of Revenue Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

IRS Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Nature of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER TWO—GENERAL GUIDELINES FOR SUBMISSIONS AND APPROVALS

General Specificiations for Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Highlights of Permitted Changes and Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Restrictions on Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Guidelines for Obtaining IRS Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Office of Management and Budget (OMB) Requirements

for All Substitute Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER THREE—PHYSICAL ASPECTS AND REQUIREMENTS

General Guidelines for Substitute Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Examples of Approved Formats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Miscellaneous Information for Substitute Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER FOUR—ADDITIONAL RESOURCES

Guidance From Other Revenue Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Ordering Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Electronic Tax Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Federal Tax Forms on CD-ROM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER FIVE—REQUIREMENTS FOR SPECIFIC TAX RETURNS

Tax Returns (Form 1040, 1040A, 1120, Etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes Permitted to Graphics (Forms 1040A and 1040) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes Permitted to Form 1040A Graphics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Changes Permitted to Form 1040 Graphics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER SIX—FORMAT AND CONTENT OF SUBSTITUTE RETURNS

Acceptable Formats for Computer-Generated Forms and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Additional Instructions for All Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER SEVEN—OCR FORMS

Special Form 1040EZ Optical Character Recognition/Image

Character Recognition (OCR/ICR) Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Computer-Generated Alternative Returns,

Form 1040PC Format Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Form 941 Requirements—OCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Specifications for OCR Scannable Application Forms for Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

December 15, 1997

1997–50 I.R.B.

CHAPTER EIGHT—MISCELLANEOUS FORMS AND PROGRAMS

Paper Substitutes for Form 1042–S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Specifications for Filing Substitute Schedules K–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Procedures for Printing Internal Revenue Service Envelopes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Procedures for Substitute Form 5471 and Form 5472 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER NINE—ALTERNATIVE METHODS OF FILING

Forms for Electronically Filed Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

FTD Magnetic Tape Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Effect on Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

EXHIBITS

Exhibit A–1. Schedule A (Preferred)

Exhibit A–2. Schedule A (Acceptable)

Exhibit B–1. Schedule B (Preferred)

Exhibit B–2. Schedule B (Acceptable)

Exhibit CG–A. Schedule A (Computer Generated)

Exhibit CG–B. Schedule B (Computer Generated)

Exhibit C. Sample Checklist

Exhibit L–1. List of Forms Referred to in Revenue Procedure

1997–50 I.R.B.

December 15, 1997

Chapter 1

Introduction to Substitute Forms

Overview of Revenue Procedure 97–54

Purpose

This revenue procedure provides the general requirements and conditions for the development, printing, and

approval of all substitute tax forms to be acceptable for filing in lieu of official IRS forms.

Unique Forms

Certain unique, specialized forms require the use of other additional revenue procedures to supplement this

publication. See Chapter 4.

Scope

The Internal Revenue Service accepts quality substitute tax forms that are consistent with the official forms,

and that do not have an adverse impact on our processing. The IRS Substitute Forms Program administers

the formal acceptance and processing of these forms nationwide. While this program deals primarily with

paper documents, it also interfaces with other processing and filing media such as:

• magnetic tape,

• optical character recognition, and

• electronic filing, etc.

Only those substitute forms that comply fully with the requirements set forth herein are acceptable. Exhibit

L–1 lists the form numbers mentioned in this document and their titles. This revenue procedure is updated as

required to reflect pertinent tax year form changes and to meet processing and/or legislative requirements.

Forms Covered by

This Revenue

Procedure

The following types of forms are covered by this revenue procedure:

• IRS tax returns and their related forms and schedules.

• Applications for permission to file returns electronically and forms submitted as required documentation

for electronically filed returns.

• Powers of Attorney.

• Estimated tax payment vouchers.

• Forms and schedules relating to partnerships, exempt organizations, and employee plans.

Forms NOT Covered The following types of forms are not covered:

by This Revenue

Procedure

• W–2, W–3, 1096, 1098, 1099 series, 5498, and W–2G (see following table).

• Federal Tax Deposit (FTD) coupons, which may not be reproduced.

• Requests for information or documentation initiated by the Service.

• Forms used internally by the Service.

• State tax forms.

• Forms developed outside IRS (except for

Form TD F 90–22.1, Report of Foreign Bank and Financial Accounts).

December 15, 1997

1997–50 I.R.B.

IRS Contacts

Where To Send

Substitute Forms

Send your substitute forms to the following offices:

Form

Office and Address

W–2, W–3

Internal Revenue Service

Attn: Substitute Form W–2

Coordinator

CP:CO:SC:A

5000 Ellin Road

Lanham, MD 20706

1096, 1098, 1099 Series, 5498, and W–2G

Internal Revenue Service

Attn: IRP Coordinator

T:S:P:S

5000 Ellin Road

Lanham, MD 20706

4461, 4461–A, 4461–B, 5300, 5323, 5327, 5310,

5310–A, and 6406

Internal Revenue Service

Attn: EP OCR Forms Coordinator

E:EP:FC

1111 Constitution Avenue, NW

Room 2232 IR

Washington, DC 20224

All others

Internal Revenue Service

Attn: Substitute Forms Program

T:FP:S

1111 Constitution Avenue, NW

Room 2708 IR

Washington, DC 20224

In addition, the Substitute Forms Program can be contacted via email at steves@publish.no.irs.gov. DO NOT

attach graphic files for approval with email.

1997–50 I.R.B.

December 15, 1997

Nature of Changes

Changes to

the Revenue

Procedure

• Information on IRS Contact offices has been consolidated.

• Payment vouchers size requirements have been revised and specifications moved from exhibits to text.

• Graphics changes revised for Form 1040, Page 2.

• A sample exhibit of a checklist of forms for use in submitting substitute forms has been included.

• Instructions for machine reading (scanning) Form 941 OCR or Schedule B (Form 941) have been deleted.

• Previous instructions labeled “Special Form 941 Requirements” have been removed from this revenue

procedure.

• The office phone number and address for 1040PC Project Office has been updated.

• A paragraph has been added on Tax Fax and CD-ROM ordering instructions have been updated.

• Various editorial changes have been made.

December 15, 1997

1997–50 I.R.B.

Definitions

Substitute Form

A tax form (or related schedule) that differs in any way from the official version and is intended to replace

the entire form that is printed and distributed by the Service. This term also covers those approved substitute forms exhibited in this revenue procedure.

Printed

(or Preprinted)

Form

A form produced using conventional printing processes. Also, a printed form which has been reproduced

by photocopying or similar processes.

Preprinted PinFed Form

A printed form that has marginal perforations for use with automated and high-speed printing equipment.

Computer-Prepared A preprinted form in which the taxpayer’s tax entry information has been inserted by a computer, computerSubstitute Form

printer, or other computer type equipment, such as word-processing equipment.

Computer-Generated A tax return or form that is entirely designed and printed by the use of a computer printer, such as a laser

Substitute Tax

printer, etc., on plain white paper. This return or form must conform to the physical layout of the correReturn or Form

sponding Service form although the typeface may differ. The text should match the text on the officially

printed form as closely as possible; condensed text and abbreviations will be considered on a case-by-case

basis. Exception: All jurats (perjury statements) must be reproduced verbatim.

Manually-Prepared

Form

A preprinted reproduced form in which the taxpayer’s tax entry information is entered by an individual

using a pen, pencil, typewriter, or other non-automated equipment.

ComputerGenerated Answer

Sheet Format

Tax Return

A tax return that contains only the taxpayer’s significant line entries, and is formatted three columns per

page with tax form headings, a summary, and jurat. This return is printed on plain white paper using a

computer printer.

Graphics

Those parts of a printed tax form that are not tax amount entries nor called-for information. Generally, these

are line numbers, captions, shadings, instructions, special indicators, borders, rules, and strokes created by

typesetting, photographics, photocomposition, etc.

Acceptable

Reproduced Form

A legible photocopy of an original form.

Supporting

Statement

(Supplemental

Schedule)

A document providing detailed information to support an entry for a line(s) on an official or approved substitute

form and filed with (attached to) a tax return. (A supporting statement is not a tax form and does not take the

place of an official form, unless specifically permitted elsewhere in this procedure.)

Specific Forms

Terms

The following terms are used throughout this revenue procedure in reference to all substitute forms, with the

exception of the 1040PC “answer sheet format” tax return.

Format

The overall physical arrangement and general layout of a substitute form.

Sequence

The same numeric and logical placement order of data, as reflected on the official form version. Sequence is

an integral part of the total format requirement.

Line Reference

(Code)

The line numbers, letters or alphanumerics used to identify each captioned line on the official forms, and

printed to the immediate left of each caption or data entry field.

Item Caption

The textual portion of each line on the form identifying the specific data elements required.

Data Entry Field

All areas designated on a form for the insertion of data, such as dollar amounts, quantities, responses, checkboxes, etc.

1997–50 I.R.B.

December 15, 1997

Agreement

Important

Stipulation of

This Revenue

Procedure

Any person or company who uses substitute forms and makes all or part of the changes specified in this

revenue procedure agrees to the following stipulations:

• The Internal Revenue Service presumes the changes are made in accordance with these procedures and, as

such, will be noninterruptive to the processing of the tax return.

• Should any of the changes prove to be not exactly as described, and as a result become disruptive to the Internal Revenue Service during processing of the tax return, the person or company agrees to accept the determination of the IRS as to whether or not the form may continue to be used during the filing season.

• Also agrees to work with the IRS in correcting noted deficiencies. Notification of deficiencies may be

made by any combination of fax, letter, email, or phone contact and may include the return of unacceptable forms for resubmission of acceptable forms.

December 15, 1997

1997–50 I.R.B.

Chapter 2

General Guidelines for Submissions and Approvals

General Specifications for Approval

Overview

If you produce any tax returns and forms using IRS guidelines on permitted changes, you can generate your

own substitutes without further approval. If your changes are more extensive, you must get official approval

before using substitute forms. These changes include the use of typefaces and sizes other than those found

on the official form and the condensing of line item descriptions to save space.

Schedules

Schedules are considered to be an integral part of a complete tax return when assigned consecutive page numbers and printed contiguously with page 1 of the return.

Example of

Schedules That

Must Be Submitted

With the Return

Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is an example of this

situation, where Schedules A through S have pages numbered as part of the basic return. For a Form 706

to be approved, the entire form including Schedules A through S must be submitted.

Examples of

Schedules That

Can Be Submitted

Separately

However, Schedules 1, 2, and 3 of Form 1040A are examples of schedules that can be separately computergenerated. Although IRS printed as a continuation of Form 1040A, none of these schedules have page numbers that require them to be filed with Form 1040A, and may, therefore, be separated from Form 1040A and

submitted as computer-generated substitute schedules.

Use and Distribution The Internal Revenue Service is continuing a program to identify and contact tax return preparers, forms

of Unapproved

developers, and software publishers who use or distribute unapproved forms that do not conform to this

Forms

revenue procedure. The use of unapproved forms impedes processing of the returns.

1997–50 I.R.B.

December 15, 1997

Highlights of Permitted Changes and Requirements

Methods of

Reproducing

Internal Revenue

Service Forms

Official versions are supplied by the Internal Revenue Service, such as those in the taxpayer’s tax package,

those printed in revenue procedures, and over-the-counter forms available at IRS and other governmental

public offices or buildings. Forms are also available on CD-ROM, and on-line via Fedworld and the

Internet.

There are methods of reproducing Internal Revenue Service printed tax forms suitable for use as substitute

tax forms without prior approval.

• You can photocopy most tax forms and use them instead of the official ones. The entire substitute form,

including entries, must be legible.

• You can reproduce any current tax form as cut sheets, snapsets, and marginally punched, pin-fed forms so

long as you use an official IRS version as the master copy.

• You can reproduce a “signature form” as a valid substitute form. Many tax forms (including returns) have

a taxpayer signature requirement as part of the form layout. The jurat/perjury statement/signature line

areas must be retained and worded exactly as on the official form. The requirement for a signature by itself

does not prohibit a tax form from being properly computer-generated.

• You can computer-generate Answer Sheet Format Tax Returns on plain bond paper using IRS-accepted

software for the 1040PC format for return types 1040EZ, 1040, 1040A, and attachments, forms, and

schedules.

December 15, 1997

1997–50 I.R.B.

Vouchers

Overview

All payment vouchers (Forms 940–V, 940–EZ(V), 941–V, 943–V, 945–V, 1040–V, and 2290–V) must be

reproduced. Substitute vouchers must be the same size as the officially printed vouchers. Vouchers that are

prepared for printing on a laser printer may include a scanline.

Scanline Fields

NNNNNNNNN AA AAAA NN N NNNN NNN

D E

A - Social Security Number/Employer Identification Number (SSN/EIN) has 9 numeric spaces.

B - Check Digit has 2 alpha spaces.

C - Name Control has 4 alphanumeric spaces.

D - Master File Tax (MFT) Code has 2 numeric spaces (see below).

E - Taxpayer Identification Number (TIN) Type has 1 numeric space (see below)

F - Tax period has four numeric spaces in year/month format (YYMM).

G - Transaction Code has 3 numeric spaces.

MFT Code

Code Number for:

• Form 1040 family - 30;

• Form 940/940-EZ - 10;

• Form 941 - 01;

• Form 943 - 11;

• Form 945 - 16; and

• Form 2290 - 60.

TIN Type

Type Number for:

• Form 1040 family - 0; and

• Forms 940, 940–EZ, 941, 943, 945, and 2290–2.

Voucher Size

The voucher size must be exactly 8.00 3 3.250. The document scanline must be vertically positioned 1.625

inches from the bottom of the scanline to the bottom of the voucher. The right most character of the scanline must be placed 3.5 inches from the right leading edge of the document. The maximum vertical displacement is .06 inches. The minimum required horizontal clear space between characters is .014 inches.

The line to be scanned must have a clear band 0.25 inches in height from top to bottom of the scanline, and

from border to border of the document. “Clear band” means no printing except for dropout ink.

Print and Paper

Weight

Vouchers must be printed in black ink using OCR A or OCR B, size 1 font. The paper must be 20 to 24

pound OCR bond paper weight.

1997–50 I.R.B.

December 15, 1997

Restrictions on Changes

Things You

CANNOT Do

to IRS Forms

Suitable for

Substitute Tax

Forms

You cannot, without prior IRS approval, change any Internal Revenue Service tax form or use your own

(non-approved) versions (preprinted labels), including graphics, unless specifically permitted by this revenue procedure.

You cannot adjust any of the graphics on Forms 1040, 1040A, and 1040EZ (except in those areas specified

in Chapter 5 of this revenue procedure) without prior approval from the IRS Substitute Forms Program.

You cannot use your own preprinted label on tax returns filed with IRS, unless you fully comply with the

exception criteria specified in the section on use of preaddressed IRS labels in this revenue procedure.

December 15, 1997

1997–50 I.R.B.

Guidelines for Obtaining IRS Approval

Basic

Requirements

Preparers who desire to file substitute privately designed and printed tax forms and/or computer-generated

and computer-prepared tax forms must develop such substitutes using the guidelines for substitute forms

established in this chapter. These substitutes, unless excepted by revenue procedure, must be approved by the

IRS before being filed.

1040PC Format

Return

A software developer who wants to market, distribute, or use for its own clientele, a tax preparation package featuring the 1040PC tax return format, must first file an application to participate in the program. Only

after successfully fulfilling test requirements will a developer’s software package be accepted by the IRS to

produce 1040PC tax returns.

Conditional

Approval Based

on Advanced

Proofs

The Internal Revenue Service cannot grant final approval of your substitute form until the official form has

been published. However, the IRS usually releases advance proof copies of selected major tax forms that

are subject to further changes and OMB approval before their release in final format for printing and distribution to the public.

We encourage submission of proposed substitutes of these advance proof forms, and will grant conditional

approval based solely on these early proofs. These advance proofs are subject to significant change before

forms are finalized. If these advance proofs are used as the basis for your substitute forms, you will be

responsible for subsequently updating your final forms to agree with the final official version before use.

These revisions need not be submitted for further approval.

NOTE: Conditional approval will not be granted after the final version of an official form is published.

Any alteration of forms must be within the limits acceptable to the Service. It is possible that, from one filing period to another, a change in law or a change in internal need (processing, audit, compliance, etc.) may

change the allowable limits for the alteration of the official form.

When specific approval of any substitute form (other than those specified in Chapter 2, IRS Contacts) is

desired, a sample of the proposed substitute should be forwarded for consideration by letter to the Substitute

Forms Program Coordinator at the address shown in Chapter 2.

To expedite multiple forms approval, we prefer that your proposed forms be submitted in separate sets by

return. For example, Forms 1040 and their normally related schedules or attachments should be submitted

separately from Forms 1120, 1065, 5500 Series, etc., if at all possible. Schedules and forms (e.g., Forms

3468, 4136, etc.) that can be used with more than one type of return (e.g., 1040, 1041, 1120, etc.) should be

submitted only once for approval, regardless of the number of different tax returns with which they may be

ultimately associated. In addition, all pages of a multipage form or return should be submitted in the same

package.

Approving Offices

As no IRS office except the ones specified in this procedure are authorized to approve substitute forms,

unnecessary delay may result if forms are sent elsewhere for approval. All forms submitted to any other

office must be forwarded to the appropriate office for formal control and review. The Substitute Forms

Program Coordinator may then coordinate the response with the program analyst responsible for the processing of that form. Such coordination may include allowing the analyst to officially approve the form. No

IRS office is authorized to allow deviations from this revenue procedure.

Service’s Review

of Software

Programs, etc.

The IRS does not review or approve the logic of specific software programs, nor confirm the calculations

entered on forms output from these programs that are submitted for approval. The accuracy of the program

itself remains the responsibility of the software package developer, distributor, or user. The Substitute Forms

Program is primarily concerned with the prefiling quality review of the final forms output, produced by whatever means, that are expected to be processed by IRS field offices. For the above reasons, it is suggested that

you submit forms without including any “taxpayer” information such as names, addresses, monetary

amounts, etc.

When to Send

Proposed

Substitutes

Proposed substitutes, which are required to be submitted per this revenue procedure, should be sent as

much in advance of the filing period as possible. This is to allow adequate time for analysis and response.

1997–50 I.R.B.

December 15, 1997

Guidelines for Obtaining IRS Approval, Continued

Accompanying

Statement

When the sample substitute is submitted, there should be an accompanying statement that lists the form

number of each substitute requested and detail those items that deviate from the official form in position,

arrangement, appearance, line numbers, additions, deletions, etc. Included with each of the items should be

a detailed reason or justification for the change and an approximation of the number of forms expected to be

filed.

When requesting approval for multiple forms, the statement should be presented as a checksheet.

Checksheets are not mandatory, but do facilitate the approval process. The checksheet may look like the

example (Exhibit C) displayed in the back of this procedure or may be one of your own design. Please

include your fax number on the checksheet.

Approval/NonApproval Notice

The Substitute Forms Coordinator will fax the checksheet or an approval letter back to the originator if a

fax number has been provided, unless:

• the requester has asked for a formal letter, or;

• significant corrections are required to the submitted forms.

Notice of approval may contain qualifications for use of the substitutes. Notices of non-approval letters may

specify the changes required for approval, and may also require resubmission of the form(s) in question.

Telephone contact is used when possible.

Duration of

Approval

Most signature tax returns and many of their schedules and related forms have the tax (liability) year printed

in the upper right corner. Approvals for these forms are usually good for one calendar year (January through

December of the year of filing). Quarterly tax forms in the 94X series, and Form 720, require approval for

any quarter in which the form has been revised.

• If the preprinted year is the only change made to a form, the form for the upcoming year is not subject to

review.

• Otherwise, each new filing season requires a new approval.

Limited Continued

Use of Approved

Change

Limited continued use of a change approved for one tax year may be allowed for the same form in the following tax year. Examples of such limitations and requirements are the use of abbreviated words, revised

form spacing, compressed text lines, shortened captions, etc., which do not change the consistency of lines

or text on the official forms.

If substantial changes are made to the form, new substitutes must be submitted for approval. If only minor

editorial changes are made to the form, it is not subject to review.

If you received written approval of a previous tax year substitute form governed by this revenue procedure

and continue to use the approved change on your current tax year substitute form, you may revise your form

to include this change and, without additional written approval, use it as a current tax year substitute form,

provided you comply with the requirements in this revenue procedure.

When Approval

Is Not Required

If you received written approval for a specific change on a specific form last year, such as deleting the

vertical lines used to separate dollars and cents on some forms and schedules, e.g., Schedules A & B of Form

1040, you may again make the same change on the same form this year if the item changed is present on this

year’s official form.

• The new substitute does not have to be sent to the IRS and written approval is not required.

• However, the new substitute must conform to the official current year IRS form in other respects: date,

Office of Management and Budget (OMB) approval number, attachment sequence number, Paperwork

Reduction Act Notice statement, arrangement, item caption, line number, line reference, data sequence, etc.

• It must also comply with this revenue procedure—which may have eliminated, added to, or otherwise

changed the guideline(s) which affected the change approved last year.

Exception: Those written approvals which state that the approved change or form would not be allowed in

any other tax year, or for a temporary, limited, or interim approval pending resolution of a failure to meet one

or more IRS-prescribed requirements.

• This authorization for continued use of an approved change is limited to the continuation of design logic

from an immediately prior tax year substitute form to a current tax year substitute form.

December 15, 1997

1997–50 I.R.B.

Guidelines for Obtaining IRS Approval, Continued

Continuous

Use Forms

Forms without preprinted tax years are called “continuous use” forms. Many of these forms had expiration

dates, but these are being phased out. Continuous use forms are revised when a legislative change affects the

form or a change will facilitate processing.

Internet Program

Chart

A chart of print dates (for annual and quarterly forms) and most current revision dates (for continuous use

forms) will be maintained on the Internet. For further details, see the section on Internet access in Chapter

4 of this revenue procedure.

Required Copies

Generally, you must send us one copy of each form being submitted for approval. However, if you are producing forms for different computer systems (e.g., IBM (or compatible) vs. MacIntosh) or different types of

printers (laser vs. dot matrix), and these forms differ significantly in appearance, submit one copy for each

type of system or printer.

Requestor’s

Following the receipt of initial approval for a substitute forms package, or of a software output program to

Responsibility After print substitute forms, it is the responsibility of the originator (designer or distributor) to provide each subReceipt of Approval sequent client firm or individual with the pertinent Service forms requirements that must be met for continuing acceptability.

Examples of this responsibility include:

• The use of prescribed print paper, font size, legibility, state tax data deletion,

• The legal requirements of the Paperwork Reduction Act Notice for informing all users of substitute forms

of the official use and collection requirements stated in the instructions for the official IRS forms, completion of documents, etc.

Source Code

The Substitute Forms Program Coordinator Office, T:FP:S, will assign a unique source code to each firm

that submits substitute paper forms for approval. This will be a permanent control number that should be

used on every form created by a particular firm.

• This source code should be printed at the bottom left margin area on the first page of every approved substitute paper form.

• The source code for paper returns consists of three alpha characters.

• This source code should not be used on optically scanned (OCR) forms, except for certain specified Forms

1040–ES.

1997–50 I.R.B.

December 15, 1997

Office of Management and Budget (OMB) Requirements for All Substitute Forms

OMB

Requirements

for All Substitute

Forms

Legal Requirements of the Paperwork Reduction Act of 1995 (“Act”). Public Law 104-13 requires that:

• OMB approve all IRS tax forms that are subject to the Act,

• Each IRS form contains (in the upper right corner) the OMB number, if any, and

• Each IRS form (or its instructions) states why IRS needs the information, how it will be used, and whether

or not the information is required to be furnished.

This information must be provided to every user of official or substitute tax forms.

Application of Act

On forms to which OMB numbers have been assigned:

to Substitute Forms

• All substitute forms must contain in the upper right corner the OMB number that is on the official form.

• Format Required - OMB No. XXXX-XXXX (Preferred) or OMB # XXXX-XXXX.

Required

Explanation to

Users

You must also inform the users of your substitute forms of the IRS use and collection requirements stated

in the instructions for the official Internal Revenue Service form.

• If you provide your users or customers with the official IRS instructions, page 1 of each form must retain

either the Paperwork Reduction Act Notice, or a reference to it as the IRS does on the official forms (usually in the lower left corner of the forms).

• If the IRS instructions are not provided to users of your forms, the exact text of the Paperwork Reduction

Act Notice must be furnished on the form or separately.

• This notice reads, in part, “We ask for this information to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to insure that you are complying with these

laws and to allow us to figure and collect the right amount of tax...”

• You must also include a copy of the alternative statement provided to users of your forms with the forms

you submit for approval.

Obtaining OMB

The OMB number and Paperwork Reduction Act Notice may be obtained from the official form (or its

Number and Notice instructions), any format produced by the IRS (e.g., Compact Disc (CD), Internet download, or Bulletin

Board System (BBS) download).

December 15, 1997

1997–50 I.R.B.

Chapter 3

Physical Aspects and Requirements

General Guidelines for Substitute Forms

General

Information

The Official Form is the Standard. Because a substitute form is a variation from the official form, you

should know the requirements of the official form for the year of use before you modify it to meet your needs.

The Internal Revenue Service provides several means of obtaining the most frequently used tax forms. These

include the Internet, fax-on-demand, CD-ROM and an electronic forms bulletin board (see chapter 4).

Design

Each form must follow the design of the official form as to format arrangement, item caption, line numbers,

line references, and sequence.

State Tax

Information

Prohibited

State tax information must not appear (be visible) on the federal tax return or associated form or schedule

which is filed with the Internal Revenue Service, except where amounts are claimed on or required by the

federal return, e.g., state and local income taxes, Schedule A (Form 1040).

Vertical Alignment

of Amount Fields

Attachment

Sequence Number

Then

a form is to be manually prepared

• the federal column must have a vertical line or some type

of indicator in the amount field to separate dollars from

cents if the official form has a vertical line.

• the cents column must be at least 2/10” wide.

a form is to be computer-generated

• vertically align the amount entry fields where possible.

• use one of the following amount formats:

• 0,000,000.

• 0,000,000.00

a form is to be computer-prepared

• you may remove the vertical line in the amount field that

separates dollars from cents.

• use one of the following amount formats:

• 0,000,000.

• 0,000,000.00

• Most individual income tax forms have a required “attachment sequence number” located just below

the year designation in the upper right corner of the form. The Internal Revenue Service uses this number

to indicate the order in which forms are to be attached to the tax return so they may be processed in that

order. Some of the attachment sequence numbers may change each year.

On Computer-prepared forms:

• It must be printed in no less than 12-point boldface type and centered below the form’s year designation.

• The sequence number must be placed following the year designation for the tax form and separate with an

asterisk.

• It is not necessary to duplicate the “Attachment Sequence Number” wording, except for the actual number.

Paid Preparer’s

Information and

Signature Area

On Forms 1040EZ, 1040A, 1040, and 1120, etc., the “Paid Preparer’s Use Only” area may not be rearranged or relocated. You may, however, add three extra lines to the paid preparer’s address area without

prior approval. This applies to other tax forms as well. Please note that the preparer’s area on Form 1040EZ

is on the bottom of page 2. Substitute Forms 1040EZ with the preparer area in any location other than the

bottom of page 2 will not be accepted.

Assembly of Forms

If developing software or forms for use by others, please inform your customers/clients that the order in

which the forms are arranged may affect the processing of the package. A return must be arranged in this

order:

1997–50 I.R.B.

December 15, 1997

General Guidelines for Substitute Forms Continued

Assembly of Forms

Continued

If the Form Is

Then Sequence Is

1040

Any other (Form 1120, 1120S, 1065, 1041, etc.)

• Form 1040, schedules

• Schedules and forms in sequence number

order

• the tax return

• lettered schedules (Schedule D, etc.) in

alphabetical order

• numbered forms in numerical order

• Supporting statements must be in the same sequence as the forms they support, and

• Additional information required or voluntarily submitted.

In this way, they are received in the order in which they must be processed. If you do not send them to us in

this order, the Internal Revenue Service has to delay the return package to disassemble them and place them

in order before processing is continued.

December 15, 1997

1997–50 I.R.B.

Paper

Paper Content

The paper must be:

• Chemical wood writing paper that is equal to or better than the quality used for the official form

• At least 18 pound (170 3 220, 500 sheets), or

• At least 50 pound offset book (250 3 380, 500 sheets).

Paper with

Chemical

Transfer

Properties

There are several kinds of paper prohibited for substitute forms. These are:

• Carbon-bonded paper

• Chemical transfer paper except when the following specifications are met:

• Each ply within the chemical transfer set of forms must be labeled.

• Only the top ply (ply one and white in color), the one that contains chemical on the back only (coated

back), may be filed with the Service.

Example

A set containing three plies would be constructed as follows: one ply (coated back), “Federal Return, File

with IRS”; ply two (coated front and back), “Taxpayer’s copy”, and ply three (coated front),

“Preparer’s copy.”

• The file designation, “Federal Return, File with IRS,” for ply one must be printed in the bottom right margin (just below the last line of the form) in 12-point, bold-face type.

• It is not mandatory, but recommended, that the file designation ”Federal Return, File with IRS,” be printed in a contrasting ink for visual emphasis.

Carbon Paper

Do not attach any carbon paper to any return you file with the Internal Revenue Service.

Paper and Ink

Color

We prefer that the color and opacity of paper substantially duplicates that of the original form. This means

that your substitute must be printed in black ink and may be on white or on the colored paper the IRS form

is printed on. Forms 1040A and 1040 substitute reproductions may be in black ink without the colored shading. The only exception to this rule is Form 1041–ES, which should always be printed with a very light gray

shading in the color screened area. This is necessary to assist us in expeditiously separating this form from

the very similar Form 1040–ES.

Page Size

Substitute or reproduced forms and computer prepared/generated substitutes may be the same size as the official form (80 3 110 in most cases) or they may be the standard commercial size (81⁄20 3 110) exclusive of pinfeed holes. The thickness of the stock cannot be less than .003 inch.

1997–50 I.R.B.

December 15, 1997

Printing

Printing Medium

The private printing of all substitute tax forms must be by conventional printing processes, photocopying,

computer-graphics, or similar reproduction processes.

Legibility

All forms must have a high standard of legibility, both as to printing and reproduction and as to fill-in matter. Entries of taxpayer data may be no smaller than eight points. The Internal Revenue Service reserves the

right to reject those with poor legibility. The ink and printing method used must ensure that no part of a form

(including text, graphics, data entries, etc.) develops “smears” or similar quality deterioration. This includes

any subsequent copies or reproductions made from an approved master substitute form, either during preparation or during IRS processing.

Type Font

Many federal tax forms are printed using “Helvetica” as the basic type font. We request that you use this

type font when composing substitute forms.

Print Spacing

Substitute forms should be printed using a 6 lines/inch vertical print option. They should also be printed horizontally in 10 pitch pica (i.e., 10 print characters per inch) or 12 pitch elite (i.e., 12 print positions per inch).

Image Size

The image size of printed substitute form should be as close as possible to that of the official form. You may

omit any text on both computer-prepared and computer-generated forms that is solely instructional.

Title Area Changes

To allow a large top margin for marginal printing and more lines per page, the title line(s) for all substitute

forms (not including the form’s year designation and sequence number, when present), may be photographically reduced by 40 percent or reset as one line of type. When reset as one line, the type size may be no

smaller than 14-point. You may omit “Department of the Treasury, Internal Revenue Service” and all reference to instructions in the form’s title area.

Remove

Government

Printing Office

Symbol and IRS

Catalog Number

When privately printing substitute tax forms, the Government Printing Office symbol and/or jacket number

must be removed. In the same place, using the same type size, print the Employer Identification Number

(EIN), the Social Security Number (SSN) of the printer or designer, or the IRS assigned source code. (We

prefer this last number be printed in the lower left area of the first page of each form.) Also remove the IRS

Catalog Number, if one is present in the bottom center margin, and the Recycle Symbol, if the substitute is

not produced on recycled paper.

Printing On One

Side of Paper

While it is preferred that both sides of the paper be used for substitute and reproduced forms, resulting in the

same page arrangement as that of the official form or schedule, the IRS will not reject your forms if only one

side of the paper is used.

Photocopy

Equipment

The Internal Revenue Service does not undertake to approve or disapprove the specific equipment or process

used in reproducing official forms. Photocopies of forms must be entirely legible and satisfy the conditions

stated in this and other revenue procedures.

Reproductions

Reproductions of official forms and substitute forms that do not meet the requirements of this revenue procedure may not be filed instead of the official forms. Illegible photocopies are subject to being returned to

the filer for resubmission of legible copies.

Removal of

Instructions

You may remove all references to instructions. No prior approval is needed. One exception is that the statement, “For Paperwork Reduction Act Notice, See Instructions”, must be retained or a similar statement provided on each form.

December 15, 1997

1997–50 I.R.B.

Margins

Margin Size

The format of a reproduced tax return when printed on the page must have margins on all sides at least as

large as the margins on the official form. This allows room for IRS employees to make the necessary entries

on the form during processing.

• A 1/20 to 1/40 inch margin must be maintained across the top, bottom, and both sides (exclusive of any pinfed holes) of all computer-generated substitutes.

• The marginal, perforated strips containing the pin-fed holes must be removed from all forms prior to filing with the Internal Revenue Service.

Marginal Printing

Non-tax material allowed in limited areas.

• Printing is never allowed in the top right margin of the tax return form (i.e., Forms 1040, 1040A, 1040EZ,

1120, 940, 941, 5500 Series, etc.). The Service uses this area to imprint a Document Locator Number for

each return.

• With the exception of the actual tax return forms (i.e., Forms 1040, 1040A, 1040EZ, 1120, 940, 941, etc.),

you may print in the left vertical margin and in the left half of the bottom margin.

Prior approval is not required for the marginal printing allowed when printed on an official form or on a photocopy of an official form.

The marginal printing allowance is also the guide for the preparation of acceptable substitute forms. There

is no exception to the requirement that no printing is allowed in the top right margin of the tax return form.

1997–50 I.R.B.

December 15, 1997

Examples of Approved Formats

Examples of

Approved Formats

From the Exhibits

Two sets of exhibits (Exhibits A–1, A–2, B–1, and B–2) are at the end of this revenue procedure. These are

examples of how the guidelines in this revenue procedure may be used in some specific cases. Vertical spacing is six (6) lines to the inch. These examples are from a prior year and are not to be used as substitute

forms.

Examples of

Acceptable

computer-generated

formats

Examples of acceptable computer-generated formats are also shown in the Exhibits section of this revenue

procedure. Exhibits CG-A and CG-B show computer-generated Schedules A and B. Vertical spacing is six

(6) lines to the inch. You may also refer to them as examples of how the guidelines in this revenue procedure may be used in specific cases. A combination of upper and lower case print fonts is acceptable in producing the computer-generated forms included in this procedure. This same logic for computer-generated

forms can be applied to any IRS form that is normally reproducible as a substitute form, with the exception

of tax return forms as discussed elsewhere.

December 15, 1997

1997–50 I.R.B.

Miscellaneous Information for Substitute Forms

Filing Substitute

Forms

To be acceptable for filing, a substitute return or form must print out in a format that will allow the party submitting the return to follow the same instructions as for filing official forms. These instructions are in the

taxpayer’s tax package or in the related form instructions. The form must be on the appropriate size paper,

be legible, and include a jurat where one appears on the published form.

Caution to Software The IRS has received returns produced by software packages with approved output where either the form

Publishers

heading was altered or the lines were spaced irregularly. This produces an illegible or unrecognizable return

or a return with the wrong number of pages. We realize that many of these problems are caused by individual printer differences but they may delay input of return data and, in some cases, generate correspondence

to the taxpayer. Therefore, in the instructions to the purchasers of your product, both individual and professional, please stress that their returns will be processed more efficiently if they are properly formatted. This

includes:

• Having the correct form numbers and titles at the top of the return, and

• Submitting the same number of pages as if the form were an official IRS form, with the line items on the

proper pages.

Use Preaddressed

IRS Label

If you are a practitioner filling out a return for a client or a software publisher who prints instruction manuals, stress the use of the preaddressed label provided in the tax package the IRS sent to the taxpayer, when

available. The use of this label (or its precisely duplicated label information) is extremely important for the

efficient, accurate, and economical processing of a taxpayer’s return. Labeled returns indicate that a taxpayer

is an established filer and permits us to automatically accelerate processing of those returns. This results in

quicker refunds, more accurate names/addresses and postal deliveries, and less manual review by IRS functions.

Caution to

Producers of

Software Packages

If you are producing a software package that generates name and address data onto the tax return, do not

under any circumstances program either the Service preprinted check digits or a practitioner-derived Name

Control to appear on any return prepared and filed with the Internal Revenue Service.

Programming to

Print Forms

Whenever applicable:

• Use only the following label information format for single filers:

000-00-0000

JOHN Q. PUBLIC

310 OAK DRIVE

HOMETOWN, STATE 94000

• Use only the following information for joint filers:

000-00-0000

JOHN Q. PUBLIC

MARY I. PUBLIC

310 OAK DRIVE

HOMETOWN, STATE 94000

1997–50 I.R.B.

December 15, 1997

Chapter 4

Additional Resources

Guidance from Other Revenue Procedures

General

Guidance for the substitute tax forms not covered in this revenue procedure and the revenue procedures that

govern their use are as follows:

• Revenue Procedure 94–79, IRS Publication 1355, Requirements and Conditions for the Reproduction,

Private Design, and Printing of Substitute Forms 1040–ES.

• Revenue Procedures 96–24 and 96–24a, IRS Publication 1141, General Rules and Specifications for

Private Printing of Substitute Forms W–2 and W–3.

• Revenue Procedure 97–32* and 97–32A, IRS Publication 1179, Specifications for Paper Document

Reporting and Paper Substitutes for Forms 1096, 1098, 1099 Series, 5498, and W–2G.

*Due to a numbering error, some copies of Revenue Procedure 97–32 may display 97–43 instead. Please

refer to the publication number and title to be sure that you have the correct publication.

• Revenue Procedure 96–11, IRS Publication 1187, Specifications for Filing Form 1042–S, Foreign Person’s

U.S. Source Income Subject to Withholding, on Magnetic Tape.

• Revenue Procedure 96–36, IRS Publication 1220, Specifications for Filing Forms 1098, 1099, 5498, and

W–2G Magnetically or Electronically.

• Revenue Procedure 95–18, IRS Publication 1223, Specifications for Private Printing of Substitute Forms

W–2c and W–3c.

December 15, 1997

1997–50 I.R.B.

Ordering Publications

Sources of

Publications

The publications listed below may be ordered by calling 1-800-TAX-FORM (1-800-829-3676). Identify the

requested document by IRS publication number:

• Pub. 1141, the revenue procedure on specifications for private printing for Forms W–2 and W–3.

• Pub. 1167, the revenue procedure on substitute printed, computer- prepared, and computer-generated tax

forms and schedules. This publication is available from the IRS Internet website.

• Pub. 1179, the revenue procedure on paper substitute information returns (Forms 1096, 1098, 1099 series,

5498, and W–2G).

• Pub. 1192, Catalog of Reproducible Forms and Instructions.

• Pub. 1220, the revenue procedure on electronic or magnetic tape and magnetic diskette reporting for information returns (Forms 1098, 1099 series, 5498, and W–2G).

• Pub. 1223, the revenue procedure on substitute Forms W–2c and W–3c.

• Pub. 1239, Specifications for Filing Form 8027, Employer’s Annual Information Return of Tip Income and

Allocated Tips, on Magnetic Tape.

• Pub. 1245, Magnetic Tape Reporting for Forms W–4.

• Pub. 1345, Handbook for Electronic Filers of Individual Income Tax Returns (Tax Year 1997). (This is an

annual publication; tax year is subject to change). This publication is available from the IRS Internet website.

• Pub. 1345–A, Handbook for Electronic Filers of Individual Income Tax Returns (Tax Year 1997)

(Supplement). This publication, printed in the late fall, supplements Publication 1345.

• Pub. 1355, the revenue procedure on the requirements for substitute Form 1040–ES.

Where To Order

If you are mailing your order, the address to use is determined by your location.

If you are located in:

• Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana, Nevada, New Mexico,

Oklahoma, Oregon, Utah, Washington, Wyoming, Guam, Northern Marianas, or American Samoa

• mail your request to:

Western Area Distribution Center

Rancho Cordova, CA 95743-0001

• Alabama, Arkansas, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi,

Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Texas, or Wisconsin

• mail your request to:

Central Area Distribution Center

P.O. Box 8903

Bloomington, IL 61702-8903

• Connecticut, Delaware, District of Columbia, Florida, Georgia, Maine, Maryland, Massachusetts, New

Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont,

Virginia, West Virginia, as well as all foreign countries and Puerto Rico

• mail your request to:

Eastern Area Distribution Center

P.O. Box 85074

Richmond, VA 23261-5074

• Taxpayers in the Virgin Islands should mail their requests to:

V.I. Bureau of Internal Revenue

9601 Estate Thomas

Charlotte Amalie, St. Thomas, VI 00802

1997–50 I.R.B.

December 15, 1997

Electronic Tax Products

The Internet

Copies of tax forms with instructions, publications, and other tax related materials may be obtained via the

Internet. Forms can be downloaded in several file formats (PDF-Portable Document Format, PS - PostScript,

and PCL - Printer Control Language). Those choosing to use PDF files for viewing on personal computer

can also download a free copy of the Adobe Acrobat Reader.

• World Wide Web - http://www.irs.ustreas.gov

• FTP—ftp.irs.ustreas.gov

• Telnet—iris.irs.ustreas.gov

This service is free but time on the Internet is subject to the fees charged by your Internet provider.

Fedworld (BBS)

The Internal Revenue Information Systems (IRIS) Bulletin Board can be reached via FedWorld, an aggregation of federal BBS maintained by the Department of Commerce. IRIS can be reached directly by modem

at (703) 321-8020; FedWorld’s main number is (703) 321-3339. These are toll calls.

Tax Fax

The most frequently requested tax forms, instrucitons, and other information are available through IRS Tax

Fax. Prior to 12/1/97 dial (703) 487-4160. The new number starting 12/1/97 will be (703) 368-9694.

Call from your fax machine and follow the voice prompts. Your request will be transmitted directly back to

you. Each call is limited to requesting three items; users pay the telephone line charges.

Report of Print

Dates

The Service makes available a text file that shows print dates for returns processing forms. It is in three parts:

• Schedule of anticipated print dates of annual returns,

• Schedule of anticipated print dates of quarterly returns, and

• Schedule of last revision dates for continuous use only forms.

The file name is 0prtdate.txt and is located in the File Transfer Protocol (FTP) library of the Internet at

ftp://ftp.fedworld.gov/pub/irs-utl and in the IRS/UTL library on the IRIS Bulletin Board. The file will be

updated weekly during peak printing periods and as necessary at other times. NOTE: All dates in the FTP

area are reloaded daily and do not reflect the most recent posting of the report. IRIS Bulletin Board shows

the most recent posting by date.

December 15, 1997

1997–50 I.R.B.

Federal Tax Forms on CD-ROM

Information About

Federal Tax Forms

CD-ROM

The IRS also offers access to current and prior year tax forms and instructions through its Federal Tax Forms

CD-ROM, Publication 1796. The CD will contain over 600 current year tax forms, instructions, and

Taxpayer Information Publications (TIPs). Also included are prior year forms and instructions from 1991

and some prior year. All necessary software to view the files must be installed from the CD-ROM. Software

for Microsoft Windows 3.x and Macintosh System 7.5 and later is included on the disk. The software will

also run under Windows 95. All products are presented in Adobe’s Portable Document Format (PDF). A

copy of the Adobe Acrobat Reader is on the CD. In addition, the TIPs will be provided in the Standard

Generalized Markup Language (SGML). The cost of the CD is $20 and it will be released in February 1998.

Please reference stock number 648-097-00003-4. Those who order before December 2, 1997 will also

receive the January early release CD containing tax products issued to that point.

System

Requirements and

How To Order the

Federal Tax Forms

CD-ROM

For system requirements and to order the 1996 Federal Tax Forms CD-ROM, Publication 1796 (stock

number 648-097-00003-4), contact the Government Printing Office’s (GPO) Superintendent of Documents:

• by telephone—(202) 512-1800; select option 1;

• by fax—(202) 512-2250;

• through GPO’s Federal Bulletin Board—(202) 512-1387; after sign on type “/go irs”;

• through GPO’s World Wide Web site at http://www.gpo.gov/su_docs;

• by mail using the order form contained in IRS Publication 1045 (Information for Tax Practitioners); or

• by mail to:

Superintendent of Documents

P.O. Box 371954

Pittsburgh, PA 15250-7954.

1997–50 I.R.B.

December 15, 1997

Chapter 5

Requirements for Specific Tax Returns

Tax Returns (Form 1040, 1040A, 1120, Etc.)

Acceptable Forms

There are acceptable computer-generated versions of a tax return form (e.g., Form 1040, 1040A, 1120, etc.,

which requires a signature and that establishes tax liability) that are permitted under the following conditions:

• These substitute returns must be printed on plain white paper.

• Substitute returns and forms must conform to the physical layout of the corresponding Service form

although the typeface may differ. The text should match the text on the officially published form as closely as possible; condensed text and abbreviations will be considered on a case-by-case basis.

Exception: All jurats (perjury statements) must be reproduced verbatim. No text can be added, deleted, or

changed in meaning. It must be readily identifiable as a valid tax return.

• Various computer-graphic print media such as laser printing, dot matrix addressable printing, etc., may be

used to produce the substitute forms.

• The substitute return must be the same exact number of pages, and contain the same line text as the official return.

• All computer-generated tax returns MUST be submitted for approval prior to their original use. Should

you receive an approval letter for a return and the following year’s return has no changes except the

preprinted year, the latter return is not subject to approval. Exception: If the approval letter specifies a

one-time exception for your return, the next year’s return must be approved.

ComputerGenerated

Condensed Format

Versions

The accepted condensed print format version for individual returns is the 1040PC “answer sheet format” tax

return. The approval process for Form 1040PC differs from that of traditional forms. See Chapter 7 for additional information.

Prohibited Forms

The following are prohibited:

• Tax returns (e.g., Forms 1040, etc.) computer-generated on lined or color-barred paper.

• Tax returns that differ from the official IRS forms in a manner that makes them not standard or processable.

Changes Permitted

to Forms 1040

and 1040A

Certain changes (listed below) are permitted to the graphics of the form without prior approval, but these

changes apply only to acceptable preprinted forms. Changes not requiring prior approval are good only for

the annual filing period, which is the current Tax Year. Such changes are valid in subsequent years only if

the official form does not change.

Other Changes

Not Listed

All changes not listed here require prior approval from the Service BEFORE the form may be filed.

December 15, 1997

1997–50 I.R.B.

Changes Permitted to Graphics (Forms 1040A and 1040)

Adjustments

You may make minor vertical and horizontal spacing adjustments to allow for computer or word-processing

printing. This includes widening the amount columns or tax entry areas so long as the adjustments do not

exceed other provisions stated in revenue procedures. No prior approval is needed for these changes.

Name and Address

Area

The horizontal rules and instructions within the name and address area may be removed and the entire area

left blank; no line or instruction can remain in the area. However, the statement regarding use of the IRS

mail label should be retained. The heavy ruled border (when present) that outlines the name and address area

must not be removed, relocated, expanded, or contracted.

Required Format

When the name and address area is left blank, the following format must be used when printing the taxpayer’s name and address. Otherwise, unless the taxpayer’s preprinted label is affixed over the information

entered in this area, the lines must be filled in as shown:

• 1st name line (35 characters maximum)

• 2nd name line (35 characters maximum)

• In-care-of name line (35 characters maximum)

• City, State (24 char. max.), one blank char., & ZIP (five char.)

Conventional

Name and Address

Data

When there is no in-care-of name line, the name and address will consist of only three lines (single filer) or

four lines (joint filer).

Name and address (joint filer) with no in-care-of name line:

JOHN Z. JONES

MARY I. JONES

1234 ANYWHERE ST., APT 111

ANYTOWN, STATE 12321

Example of InName and address (single filer) with in-care-of name line:

Care-Of Name Line

JOHN Z. JONES

C/O THOMAS A. JONES

4311 SOMEWHERE AVE.

SAMETOWN, STATE 54345

Social Security

Number (SSN) and

Employer

Identification

Number (EIN)

Area

The vertical lines separating the format arrangement of the SSN/EIN may be removed. When the vertical

lines are removed, the SSN and EIN formats must be 000-00-0000 or 00-0000000, respectively.

Cents Column

• You may remove the vertical rule that separates the dollars from the cents.

• All entries in the amount column should have a decimal point following the whole dollar amounts whether

or not the vertical line that separates the dollars from the cents is present.

• You may omit printing the cents, but all amounts entered on the form must follow a consistent format. You

are strongly urged to round off the figures to whole dollar amounts, following the official return instructions.

• Where several amounts are summed together, the total should be rounded off subsequent to the addition

(i.e, individual amounts should not be rounded off for computation purposes).

• When printing money amounts, you must use one of the following ten-character formats: (a) 0,000,000.

(b) 000,000.00

• When there is no entry for a line, leave the line blank.

“Paid Preparer’s

Use Only” Area

On all forms, the paid preparer’s information area may not be rearranged or relocated. You may add three

lines and remove the horizontal rules in the preparer’s address area.

1997–50 I.R.B.

December 15, 1997

Changes Permitted to Form 1040A Graphics

General

No prior approval is needed for the following changes (for use with computer-prepared forms only).

Line 4 of Form

1040A

This line may be compressed horizontally (to allow for same line entry for the name of the qualifying child)

by using the following caption: “Head of household; child’s name” (name field).

Other Lines

Any line whose caption takes up two or more vertical lines may be compressed to one line by using contractions, etc., and by removing instructional references.

Page 2 of Form

1040A

All lines must be present and numbered in the order shown on the official form. These lines may also be

compressed.

Color Screening

It is not necessary to duplicate the colorscreening used on the official form. A substitute Form 1040A may

be printed in black and white only, with no color screening.

Other Changes

Prohibited

No other changes to the Form 1040A graphics are allowed without prior approval, except for the removal of

instructions and references to instructions.

December 15, 1997

1997–50 I.R.B.

Changes Permitted to Form 1040 Graphics

General

No prior approval is needed for the following changes (for use with computer-prepared forms only).

Line 4 of Form

1040

This line may be compressed horizontally (to allow for a larger entry area for the name of the qualifying

child) by using the following caption: “Head of household; child’s name” (name field).

Line 6c of Form

1040

The vertical lines separating columns (1) through (4) may be removed. The captions may be shortened to

allow a one-line caption for each column.

Other Lines

Any other line whose caption takes up two or more vertical lines may be compressed to one line by using

contractions, etc., and by removing instructional references.

Line 21 - Other

Income

The fill-in portion of this line may be expanded vertically to three lines.

The amount entry box must remain a single entry.

Line 39 of Form

1040 - Tax

You may change the line caption to read “Tax” and computer print the words “Total includes tax from” and

either “Form(s) 8814”, or “Form 4972”.

Line 44 of Form

1040

You may change the caption to read: “Other credits from Form” and computer-print only the form(s) that

apply.

Color Screening

It is not necessary to duplicate the color screening used on the official form. A substitute Form 1040 may be

printed in black and white only, with no color screening.

Other Changes

Prohibited

No other changes to the Form 1040 graphics are permitted without prior approval except for the removal of

instructions and references to instructions.

1997–50 I.R.B.

December 15, 1997

Chapter 6

Format and Content of Substitute Returns

Acceptable Formats for Computer-Generated Forms and Schedules

Exhibits and Use

of Acceptable

ComputerGenerated

Formats

Exhibits of acceptable computer-generated formats for the schedules usually attached to the Form 1040 are

shown in the Exhibits section of this revenue procedure.

• If your computer-generated forms appear exactly like the exhibits, no prior authorization is needed.

• Those who want to computer-generate forms not shown here may do so, but they must design such forms

themselves by following the manner and style of those in the Exhibits section of this revenue procedure,

and by taking care to observe other requirements and conditions stated here. The Service encourages the

submission of all proposed forms covered by this revenue procedure.

Instructions

The format of each substitute schedule or form must follow the format of the official schedule or form as to

item captions, line references, line numbers, sequence, form arrangement and format, etc. Basically, try to

make the form look like the official one, with readability and consistency being primary factors. You may

use periods and/or other similar special characters to separate the various parts and sections of the form. DO

NOT use alpha or numeric characters for these purposes. With the exceptions in the paragraph below, all line

numbers and items must be printed even though an amount is not entered on the line.

Line Numbers

When a line on an official form is designated by a number or a letter, that designation (reference code) must

be used on a substitute form. The reference code must be printed to the left of the corresponding captioned

line and also immediately preceding the data entry field even if there is no reference code immediately preceding the data entry field on the official form. If an entry field contains multiple lines but shows the line

references only one time on the left and right side of the form, do not use more than the same number of line

references on the substitute return.

In addition, the reference code that is immediately before the data field must either be followed by a period

or enclosed in parentheses. There also must be at least two blank spaces between the period or the right

parenthesis and the first digit of the data field. (See example below.)

Decimal Points

A decimal point (i.e., a period) should be used for each money amount regardless of whether the amount is

reported in dollars and cents or in whole dollars, or whether or not the vertical line that separates the dollars

from the cents is present. The decimal points must be vertically aligned when possible.

Example:

5 STATE & LOCAL INC.

TAX....................5 495.00

6 REAL ESTATE

TAXES................6

7 PERSONAL PROPERTY

TAXES................7 198.00

5 STATE & LOCAL INC.

TAX...................(5) 495.00

6 REAL ESTATE

TAXES................(6)

7 PERSONAL PROPERTY

TAXES................(7) 198.00

Multiple Page

Forms

When submitting multiple page forms, send all pages of the form in the same package. If you are not

producing certain pages, please note that in your cover letter.

December 15, 1997

1997–50 I.R.B.

Additional Instructions for All Forms

Use of Your Own

Internal Control

Numbers and

Identifying

Symbols

Internal control numbers and identifying symbols of the computer preparer may be shown on the substitute,

if the use of such numbers or symbols is acceptable to the taxpayer and the taxpayer’s representative. If

shown, such information must not be printed in the top 1⁄2-inch clear area of any form or schedule requiring

a signature. With the exception of the actual tax return form (i.e., Forms 1040, 1120, 940, 941, 5500 Series,

etc.), you may print in the left vertical and bottom left margins. The bottom left margin you may use extends

31⁄2 inches from the left edge of the form.

Descriptions for

Captions, Lines,

etc.

Descriptions for captions, lines, etc., appearing on the substitute forms may be limited to one print line by

using abbreviations and contractions, and by omitting articles, prepositions, etc. However, sufficient key

words must be retained to permit ready identification of the caption, line, or item.

Derivation of

Final Totals

Explanatory detail and/or intermediate calculations for derivation of final line totals may be included on the

substitute. We prefer that such calculations be submitted in the form of a supporting statement. If intermediate calculations are included on the substitute, the line on which they appear may not be numbered or lettered. Intermediate calculations may not be printed in the right column. This column is reserved for official

numbered and lettered lines that correspond to the ones on the official form. If a supporting statement is submitted, intermediate calculations or subtotals may be formatted at the preparer’s option.

Instructional Text

Prescribed for the

Official Form

Text prescribed for the official form, which is solely instructional in nature, e.g., “Attach this schedule to

Form 1040,” “See instructions,” etc., may be omitted from the substitute form.

Mixing of Forms

on the Same Page

Prohibited

Information for more than one schedule or form may not be shown on the same printout page. Both sides of

the paper may be printed for multiple page official forms; but it is unacceptable to intermix single page

schedules of forms, except for Schedules A and B (Form 1040), which are printed back to back by the Service.

Schedule E can be printed on both sides of the paper, because the official form is multiple page, with page 2

continued on the back. However, do not print Schedule E on the front page and Schedule SE on the back, or

Schedule A on the front and Form 8615 on the back, etc. Both pages of a substitute form must match the

official form version it represents, except that the back page may be blank if the Service form only contains

the instructions thereon.

Identifying

ComputerPrepared

Substitutes

Identify all computer-prepared substitutes clearly; print the form designation 1⁄20 from the top margin and 11⁄20

from the left margin; print the title centered on the first line of print; and print the taxable year and, where

applicable, the sequence number on the same line 1⁄2 to 10 from right margin. Include the taxpayer’s name

and SSN on all forms and attachments. Also, print the OMB number as reflected on the official form.

Negative Amounts

Negative (or loss) monetary amount entries should be enclosed in brackets, or signed minus, to assist in the

accurate computation and input of form data. On many official forms the Service preprints brackets in selected negative data fields, and these designations should be retained or inserted on affected substitute forms.

1997–50 I.R.B.

December 15, 1997

Chapter 7

OCR Forms

Special Form 1040EZ Optical Character Recognition/Image Character

Recognition (OCR/ICR) Requirements

Form 1040EZ

Designed in

OCR/ICR Format

The Form 1040EZ is designed in OCR/ICR format. The IRS has the capability to machine read this form by

optical character recognition/image character recognition (OCR/ICR) equipment. Form 1040EZ data may

also be filed electronically or on a 1040PC format return.

An acceptable substitute OCR/ICR Form 1040EZ must generally be an exact replica of the official OCR/ICR

reproduction proof with respect to layout, content, and required OCR/ICR characteristics.

Paper

The special paper requirements which must be met for the development of a substitute (privately printed)

Requirements

OCR/ICR Form 1040EZ include the following:

for OCR/ICR Form

1040EZ

Property

Specific Ink

Requirements

Color and quality of paper

Paper must be white, OCR/ICR grade bond, with no fluorescent

additives or water marks, and with zero rag content.

Reflectivity of paper

Must be 80% or greater.

Opacity

The paper opacity ratio must be 80% or more.

Paper Weight

Specified paper weight is 20 lb. OCR/ICR bond (.0035”).

Dirt

Must not exceed 10 parts per million.

Finish (smoothness)

Must be between 90 and 160 units (Sheffield).

Porosity

Paper should have a Gurley reading between 15 and 95.

Gloss

Paper with shiny or lustrous appearance (glossy) should be

avoided.

Size

Form trim size must be 80 3 110.

The specific ink requirements which must be met for this form include the following:

Property

December 15, 1997

Requirements

Print Color

The face of the form prints in black and green, the back prints in

black only (70 % screen).

Ink

Green ink used must be highly reflective OCR/ICR type, such as

Flint J-27975, or an exact match. Black ink used must be nonreflective.

Face Registration

Black to green must be .020 (plus or minus) both horizontally

and vertically.

1997–50 I.R.B.

Special Form 1040EZ Optical Character Recognition/Image Character

Recognition (OCR/ICR) Requirements, Continued

Specific Ink

Requirements

Continued

Property

Requirements

Face Screen

Forms contain a green-screened background equal to a 15% tone

of 110-line screen. Follow registration marks on repro-proof for

screen positioning. Handprinted boxes are included on Page 1 of

the reproduction proof and should be printed as a 50% value of

the recommended OCR/ICR green ink. Inks used for handprinted boxes must reflect at least 90% of the background on

which it is printed as measured in the visible range.

Face Margins

Approximately 2/60 head from top trimmed edge to screen (1⁄20 to

black image). 1/60 outside from trimmed edges to screen.

Back Margins

Back Screen

Back copy should be screened for 70% tone value.

⁄20 head, 5/160 foot, and 5/160 sides.

Typography

Type must be substantially identical in both size and shape with corresponding type on the official form

reproduction proof.

Proper Alignment

and Position of

Handprinted

Characters

To assure proper alignment and position of handprinted characters representing return lines 1 through 10 tax

data, they must be handprinted (entered) into the preprinted amount field boxes on the form. A #2 lead

wooden pencil, or blue, and/or black ink pen (ball point, fountain, or felt-tipped) is recommended as the

writing tool that will consistently provide the required stroke width and print contrast on entered characters.

Reading of

Handprinted

Character

Techniques

Reading of handprinted characters requires adherence to the following techniques:

Note:

All the general and detailed provisions of this revenue procedure apply (in addition to this specific OCR/ICR

Section) to the development of substitute OCR/ICR Forms 1040EZ.

• Enter numeric amount digits carefully and clearly. Fill at least 2/3 of the individual character box

height, keeping the character within the box with no overlapping or touching characters. Specific required

digit constraints are shown below.

• When entering “fours”, keep the top open.

• When entering “ones”, do not use serifs.

• When entering “twos”, do not add extra loops.

• All character lines must be connected with no gaps.

Computer Generated Alternative Returns, 1040PC Format Return

Introduction

The Internal Revenue Service offers an electronic approach for filing individual income tax returns. The

1040PC Format Return is an alternative to the conventional preprinted tax return. The 1040PC is an answer

sheet return, generated on a personal computer in a three-column format, that prints only tax data that is input

into the software. Tax returns are filed by tax preparers and taxpayers using commercially available tax

preparation software packages that include the 1040PC Format Return print option.

1040PC Format

Returns

1040PC Format Returns are computer-prepared, printed on plain white paper, signed and mailed to the

designated processing center, and processed like any other conventionally filed return.

1997–50 I.R.B.

December 15, 1997

Computer Generated Alternative Returns, 1040PC Format Return, Continued

Software Packages

Must Be Purchased

Preparers, or taxpayers, must purchase IRS-accepted tax preparation software packages that include the

1040PC print option. All that is necessary to participate in 1040PC is a personal computer, accepted software, a printer, and plain white paper. The 1040PC is attractive to tax preparers and taxpayers who might

not be interested or capable of electronic filing.

Options Available

to Taxpayers

The Direct Deposit option is available to taxpayers filing 1040PC returns. Balance due returns may also

be filed using 1040PC. The payment may be forwarded to the Service Center with a separate payment

voucher (Form 1040–V).

Use of the 1040PC

Program

All software used to generate the 1040PC Format Return must be tested and accepted by the Internal

Revenue Service. Testing will validate 1040PC returns generated by the software and that the software program is in compliance with validity and consistency checks in the IRS 1040PC project specifications.

Software developers who wish to participate in the 1040PC program must submit Form 9356, Application

for Software Developers to Participate in the 1040PC Answer Sheet for Individual Income Tax Returns, to

the 1040PC Filing Section.

Acceptance Code

Upon successful completion of software acceptance testing, the software developer will be issued a software

acceptance code that will be embedded into the software and print on every 1040PC return generated. This

is not the same as the Source Code issued by the Substitute Forms Program or the approval number which is

generated for OCR Scannable Application Forms for Employee Plans.

References/

Information on the

1040PC Format

Return

The Internal Revenue Service believes that 1040PC will prove beneficial to taxpayers, tax preparers, and

the Service. For specific information about the alternative computer-generated 1040PC Format Return,

refer to Publication 1678, Project 1040PC, Handbook for 1040PC Format Preparers and Publication 1630,

Project 1040PC, Specifications for Software Developers. You may also call (202) 283-0823 or write:

Internal Revenue Service

1040PC Filing Office, T:S:P:S

5000 Ellin Rd

Lanham, MD 20706

Form 941 Requirements—OCR

Form 941 Not

Machine Read

The Service is not currently machine reading (scanning) Form 941 or Schedule B (Form 941). Previous

instructions labeled “Special Form 941 Requirements” have been removed from this revenue procedure.

December 15, 1997

1997–50 I.R.B.

OCR Scannable Application Forms for Employee Plans

OCR Scannable

Documents

Forms 4461, 4461–A, 4461–B, 5300, 5303, 5307, 5310–A, and 6406 are OCR scannable documents submitted to key district offices for employee plans matters. They may be submitted as computer-generated substitute forms if the requirements of this section are satisfied.

OCR Data Sheet

Requirements

An OCR data sheet must be generated according to the following requirements:

• Set at least 1” margin at top, bottom, and both sides.

• A data element consists of a less than sign (delimiter), information or at least 5 blank spaces, and a greater

than sign (delimiter). All data elements from page one of the application forms listed above must be printed on the OCR data sheet, even if no information is entered between the delimiters.

• Each data element must start at the left margin.

• One line for each data field, except for employer and plan name fields which may be two lines. However,

only one set of delimiters may bracket the field, even if the field is on two lines.

• Each data element must appear on the OCR data sheet in the same sequence as printed on the preprinted

form, reading top to bottom and from left to right.

• Each data field must be sequentially numbered at left commencing with 1. See Notice 90-38 for examples

of the acceptable format.

• The data sheet must be printed on 81⁄2” 3 11” white nonrecycled paper suitable for use with printing equipment and duplicating machines. A photocopy is not acceptable. Heavyweight bond paper and onion skin

paper are not acceptable.

• Use 10 pitch type in a standard business font (e.g., courier, elite, pica).

• Add at least two spaces before and after each less than and greater than sign (delimiters).

• Do not fold or staple the OCR data sheet. It may remain loose, or be paper or spring clipped to the application.

• At the top of the OCR data sheet add the heading “OCR Data Sheet, File With Application Form (Enter

Form Number), Approval Number” (leave nine spaces for approval number).

Where To Send

OCR Data Sheet

for Approval

The OCR data sheet must be submitted for approval to EP OCR Forms Coordinator, E:EP:FC, Room 2232,

1111 Constitution Ave., NW, Washington, DC 20024.

Submission

Requirements

The OCR data sheet must be submitted with a complete word-for-word identical copy of the application form

except as described below. This copy may be a photocopy or a computer-generated substitute form.

Computer-generated substitute forms may be submitted for approval to the address above. However, except

for the OCR data sheet, such approval is not required if the requirements of this revenue procedure are satisfied. If approval is requested, leave nine spaces for the approval number above the OMB approval number.

Procedures for

Filing the OCR

Data Sheet

The OCR data sheet replaces the first copy of page 1 of the application which must otherwise be submitted

in duplicate. To avoid confusion when generating the OCR data sheet, the following wording should be

deleted from page 1 of the application: “File page 1 of the form in duplicate” and “Both copies of this page

must be signed”. If the Procedural Requirements Checklist is being generated, the following line item statements should be modified as indicated. The question “Has page one been submitted in duplicate” should be

modified to read, “Have you submitted the OCR data sheet?”, and the question “Have you signed both copies

of page 1 of the application?” should be modified to read “Have you signed the application?”

Nonscannable

EP Application

Forms

Nonscannable EP application forms, e.g., Form(s) 5305 and 5306, may be computer generated. They need

not be submitted for approval if the requirements of this revenue procedure are satisfied. If approval is

desired, these forms may be submitted to the Substitute Forms Coordinator.

1997–50 I.R.B.

December 15, 1997

Chapter 8

Miscellaneous Forms and Programs

Paper Substitutes for Form 1042–S

Paper Substitutes

Paper substitutes for Form 1042–S, Foreign Person’s U.S. Source Income Subject to Withholding, that totally conform to the specifications contained in this procedure may be privately printed without prior approval

from the Internal Revenue Service. Proposed substitutes not conforming to these specifications must be submitted for consideration.

Timeframe for

Submission of

Form 1042–S

The request should be submitted by November 15 of the year prior to the year the form is to be used. This

is to allow the Service adequate time to respond and the submitter adequate time to make any corrections.

These requests should contain a copy of the proposed form, the need for the specific deviation(s), and the

number of information returns to be printed.

Revisions

Form 1042–S is subject to annual review and possible change. Withholding agents and form suppliers are

cautioned against overstocking supplies of the privately printed substitutes.

Obtaining Copies

Copies of the official form for the reporting year may be obtained from most Service offices. The Service

provides only cut sheets (no carbon interleaves) of these forms. Continuous fan-fold/pin-fed forms are not

provided.

Instructions For

Instructions for withholding agents:

Withholding Agents

• Only original copies may be filed with the Service. Carbon copies and reproductions are not acceptable.

• The term “Recipient’s U.S. taxpayer identification number” for an individual means the social security

number (SSN) or individual taxpayer identification number (ITIN), consisting of nine digits separated by

hyphens as follows: 000-00-0000. For all other recipients, the term means employer identification number (EIN). The EIN consists of nine digits separated by hyphen as follows: 00-0000000. The taxpayer

identification number (TIN) must be in one of these formats.

• Withholding agents are requested to type or machine print whenever possible, provide quality data entries

on the forms (that is, use black ribbon and insert data in the middle of blocks well separated from other

printing and guidelines), and take other measures to guarantee a clear, sharp image. Withholding agents

are not required, however, to acquire special equipment solely for the purpose of preparing these forms.

• On corrected returns, the words CORRECTED RETURN must be typed in all capital letters in the top 1/4”,

right of center margin. All required information must be completed on a corrected return since it replaces

and supersedes the information return previously filed.

• Substitute forms prepared in continuous or strip form must be burst and stripped to conform to the size

specified for a single form before they are filed with the Service. The dimensions are found below.

Computer cards are acceptable provided they meet all requirements regarding layout, content, and size.

Substitute Forms

Format

Requirements

December 15, 1997

Property

Substitute Forms Format Requirements

Printing

Privately printed substitute Forms 1042–S must be exact replicas of

the official forms with respect to layout and contents. Only the

dimensions of the substitute form may differ and the printing of the

Government Printing Office symbol must be deleted. The exact

dimensions are found below.

Line Entries

Line 1 must be present, line 2 may be omitted if it is not needed. If

line 2 is omitted, also omit line 3.

Boxes

None of the boxes can be omitted. Each box (a through h) must be

present and in the exact order. The box for each payment amount

must contain the appropriate caption.

1997–50 I.R.B.

Paper Substitutes for Form 1042–S, Continued

Substitute Forms

Format

Requirements

Continued

1997–50 I.R.B.

Property

Substitute Forms Format Requirements

Color Quality of Paper

• Paper For Copy A must be white chemical wood bond, or equivalent, 20 pound (basis 17 3 22-500), plus or minus 5 percent; or offset book paper, 50 pound (basis 25 3 38-500). No optical brighteners may be added to the pulp or paper during manufacture. The

paper must consist of principally bleach chemical woodpulp or

recycled printed paper. It also must be suitable sized to accept ink

without feathering.

• Copies B, C, D (for Recipient), and E (For Withholding Agent) are

provided in the official assembly solely for the convenience of the

withholding agent. Withholding agents may choose the format,

design, color and quality of the paper used for these copies.

Color and Quality of Ink

All printing must be in a high quality non-gloss black ink. Bar codes

should be free from picks and voids.

Typography

Type must be substantially identical in size and shape to corresponding type on the official form. All rules on the document are either 1

point (0.015”) or 3 point (0.045”). Vertical rules must be parallel to

the left edge of the document; horizontal rules, parallel to the top

edge.

Dimensions

• The official form is 80 wide 3 5-1/20 deep, exclusive of a 1⁄2 snap

stub on the left side of the form. The snap feature is not required on

substitutes.

• The width of a substitute Copy A must be a minimum of 70 and a

maximum of 80, although adherence to the size of the official form

is preferred. If the width of substitute Copy A is reduced from that

of the official form, the width of each field on the substitute form

must be reduced proportionately. The left margin must be 1/20 and

free of all printing other than that shown on the official form.

• The depth of a substitute Copy A must be a minimum of 5 1/60 and

a maximum of 5 1/20.

Carbons

Carbonized forms or “spot carbons” are not permissible. Interleaved

carbons, if used, must be of good quality to preclude smudging and

should be black.

Other Copies

Copies B, C, and D are required to be furnished for the convenience

of payees who are required to send a copy of the form with other federal and state returns they file. Copy E may be desired as a withholding agent’s record/copy.

Assembly

If all five parts are present, the parts of the assembly shall be arranged

from top to bottom as follows: Copy A (Original) “For Internal

Revenue Service,” Copies B, C, and D “For Recipient,” and Copy E

“For Withholding Agent.”

December 15, 1997

Specifications for Filing Substitute Schedules K–1

Schedule K–1

Requirements

Prior approval is NOT required for a substitute Schedule K–1 that accompanies Form 1065 (for partnership),

a Form 1120S (for small business corporation), or a Form 1041 (for fiduciary) when the substitute Schedule

K–1 meets all of the following requirements.

• The Schedule K–1 must contain the payer and recipient’s name, address and SSN/EIN.

• The Schedule K–1 must contain all the items required for use by the taxpayer.

• The line items must be in the same order and arrangement as those on the official form.

• Each taxpayer’s information must be on a separate sheet of paper. Therefore, all continuously printed substitutes must be separated, by taxpayer, before filing with the Service.

• Schedule K–1 for recipients must have instructions for required line items attached.

• You may be subject to penalties if you file Schedules K–1 with the Service and furnish Schedules K–1 to

partners, shareholders, or beneficiaries that do not conform to the specifications of this revenue procedure.

• The amount of each partner’s shareholder’s or beneficiary’s share of each line item must be shown. The

furnishing of a total amount of each line item and a percentage (or decimal equivalent) to be applied to

such total amount by the partner, shareholder, or beneficiary does not satisfy the law and the specifications

of this revenue procedure.

• If you file Schedules K–1 not conforming to the above specifications, IRS may consider these as not

processable and return them to you to be filed correctly. You may also be subjected to the penalty as mentioned

Procedures for Printing Internal Revenue Service Envelopes

Procedures for

Printing IRS

Envelopes

Organizations are permitted to produce substitute tax return envelopes. Use of substitute return envelopes

that comply with the requirements set forth in this section will assist in delivery of mail by the U.S. Postal

Service and facilitate internal sorting once the envelopes are received at the Internal Revenue Service

Centers.

The permanent five-digit ZIP codes must be utilized when mailing returns to the prescribed service center:

Service Center

December 15, 1997

Zip Code

Atlanta, GA

39901

Kansas City, MO

64999

Austin, TX

73301

Philadelphia, PA

19255

Memphis, TN

37501

Andover, MA

05501

Cincinnati, OH

45999

Holtsville, NY

00501

Ogden, UT

84201

Fresno, CA

93888

1997–50 I.R.B.

Procedures for Printing Internal Revenue Service Envelopes, Continued

Sorting of

Returns by Form

Type

The sorting of returns by form type is accomplished by the preprinted bar codes on return envelopes that are

included in each specific type of form or package mailed to the taxpayer. The 32 bit bar code located to the

left of the address on each envelope identifies the type of form that person is filing and assists the Service in

consolidating like returns for processing. Failure to use the envelopes furnished by the Service results in

additional processing time and effort, and possibly delays the timely deposit of funds, processing of returns,

and issuance of refund checks.

Sorting of Returns

by ZIP + 4 or 9

Digit ZIP Codes

The Internal Revenue Service will not furnish or sell bulk quantities of preprinted tax return envelopes to taxpayers or tax practitioners. A suitable alternative has been developed that will accommodate the sorting

needs of both the IRS and the U.S. Postal Service. The new alternative is based on the use of ZIP + 4 or 9

digit ZIP codes for mailing various types of tax returns to the different area service centers. Essentially, the

Postal Service will utilize the last four digits to identify and sort the various form types into separate groups

for processing. The list of add-on four digits or + 4 portion of the 9 digit ZIP codes with the related form

designations is provided below and is to become a permanent part of the five digit service center ZIP codes

shown above.

Add-on Four Digits

or + 4 Portion of

the 9 Digit

ZIP Codes

Reproducible

Program Is

Abolished

1997–50 I.R.B.

Form ZIP + FOUR

Package

XXXXX-0001

Reserved

XXXXX-0002

1040

XXXXX-0005

941

XXXXX-0006

940

XXXXX-0008

943

XXXXX-0011

1065

XXXXX-0012

1120

XXXXX-0013

1120S

XXXXX-0014

1040EZ

XXXXX-0015

1040A

XXXXX-0020

5500-CR

XXXXX-0024

5500EZ

XXXXX-0027

990

XXXXX-0031

2290

XXXXX-0044

5500

The Reproducible Program that in past years supplied the envelope Reproduction Proofs was abolished

September 30, 1996. The IRS will no longer provide camera copy to practitioners for the production of

envelopes. Practitioners must develop their own camera copy.

December 15, 1997

Procedures for Printing Internal Revenue Service Envelopes, Continued

Guidelines for

Having Envelopes

Preprinted

Use of preparer company names, addresses, and logos is permissible as long as prescribed clear areas are not

invaded. The government recommends that the envelope stock have an average opacity not less than 89 percent and contain a minimum of 50 percent waste paper. Use of carbon-based ink is essential for effective

address and bar code reading. Envelope construction can be of side seam or diagonal seam design. The government recommends that the size of the envelope should be 5-3/40 by 90. Continuous pin-fed construction

is not desirable but is permissible if the glued edge is at the top. This requirement is firm because mail opening equipment is designed to slice or otherwise open the bottom edge of each envelope.

Envelopes/

Zip Codes

The above procedures or guidelines are written for the user having envelopes preprinted. Many practitioners may not wish to have volumes of the different envelopes with differing ZIP codes/form designations

preprinted for reasons of low volume, warehousing, waste, etc. In this case, the practitioner can type or

machine print the addresses with the appropriate ZIP codes to accommodate sorting. If the

requirements/guidelines outlined in this section cannot be met, then use of only the appropriate five digit service center ZIP code is needed.

Procedures for Substitute Form 5471 and Form 5472

Form 5471 and

Form 5472

This section covers instructions for producing substitutes for:

• Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations and accompanying Schedules J, M, N, and O.

• Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation

Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code).

Paper and

ComputerGenerated

Substitutes

Paper and computer-generated substitutes for Form 5471 and the accompanying Schedules J, M, N, and O,

and Form 5472 that totally conform to the specifications contained in this procedure may be privately printed, but must have prior approval and are subject to annual review from the Internal Revenue Service.

Official Forms

Can Be Obtained

From Most Service

Offices

Copies of the official forms for the reporting year may be obtained from most Service offices. The Service

provides only cut sheets of these forms. Continuous fan-folded/pin-fed forms are not provided.

Quality Substitute

Forms

The Service will accept quality substitute tax forms that are consistent with the official forms they represent

AND that do not have an adverse impact on our processing. Therefore, only those substitute forms that conform to, and do not deviate from, the corresponding official forms are acceptable.

ComputerPrepared Tax

Forms

If the substitute returns and schedules meet the guidelines prescribed herein, the Service will (for filing purposes) accept computer-prepared Forms 5471 and 5472 filled in by a computer, word processing equipment

or similar automated equipment or a combination of computer-prepared/generated and filled in information.

They may be filed separately or attached to individual or business income tax returns.

Format

Arrangement

The specifications for Form 5471 and 5472 are as follows:

• The Substitute must follow the design of the official form as to format, arrangement, item caption, line

numbers, line references, and sequence. It must be an exact textual and graphic MIRROR image of the

official form for it to be acceptable.

• The filer must use one of the official ten character amount formats. All entries in the amount column

should have a decimal point following the whole dollar amounts whether or not the vertical line that separates the dollars from the cents is present. It must follow a consistent format.

December 15, 1997

1997–50 I.R.B.

Procedures for Substitute Form 5471 and Form 5472, Continued

Format

Arrangement

Continued

• The reference code must be printed to the left of the corresponding captioned line and also immediately

preceding the data entry field EVEN if there is no reference code preceding the data entry field on the

official form. The reference code that is immediately before the data field must either be followed by a

period or enclosed in parentheses. There also must be at least two blank spaces between the period or the

right parenthesis and the first digit of the data field.

• The size of the page must be the same as the official form (81⁄20 3 110).

• The acceptable type is “Helvetica”.

• The spacing of the type must be 6 lines/inch vertical, 10 or 12 print characters per inch horizontally.

• A 1⁄2 to 1/4” margin must be maintained across the top, bottom, and both sides (exclusive of any pin-fed

holes).

• The substitute form must be of the same number of pages as the official one.

• The preprinted brackets in the money fields should be retained.

• The filer must COMPLETELY fill in all the specified numbers or referenced lines as they appear on the

official form (not just totals) BEFORE attaching any supporting statement.

• Supporting statements are NEVER to be used until the required official form they support are first totally

filled in (completed). A blank or incomplete form that refers to a supporting statement, in lieu of completing a tax return, is unacceptable.

• Descriptions for captions, lines, etc., appearing in the substitute forms may be limited to one print line by

using abbreviations and contractions, and by omitting articles, prepostitons, etc. However, sufficient key

words must be retained to permit ready identification of the caption, line, or item.

• Text prescribed for the official form, which is solely instructional in nature, e.g., “Attach this schedule to

Form 1040”, “See instruction”, etc., may be omitted from the form.

Filing Instructions

Instructions for filing substitute forms are the same as for filing official forms.

1997–50 I.R.B.

December 15, 1997

Chapter 9

Alternative Methods of Filing

Forms for Electronically Filed Returns

Electronic Filing

Program

Since the 1986 filing season, the Service has been accepting current processing year electronically filed

refund returns. Since tax year 1991, we accept balance due returns that are filed electronically. Electronic

filing is a method by which qualified filers transmit tax return information directly to an IRS Service Center

over telephone lines in the format of the official Internal Revenue Service forms.

Applying for the

Electronic Filing

Program

Anyone wishing to participate in the Electronic Filing Program for individual income tax returns must submit a Form 8633, Application To Participate in the Electronic Filing Program. (Note: For business returns,

prospective participants must submit a Form 9041, Application For Electronic/Magnetic Media Filing of

Business and Employee Benefit Plan Returns.)

Mailing

Intructions

If an application is filed for...

Mail it to:

Form 8633 for Individual Income

Taxes (regular mail)

Internal Revenue Service

Andover Service Center

Attn: EFU Acceptance - Stop 983

P.O. Box 4099

Woburn, MA 01888-4099

Form 8633 for Individual Income

Taxes (overnight mail)

Internal Revenue Service

Andover Service Center

Attn: EFU Acceptance -Stop 983

310 Lowell Street

Andover, MA 05501

Form 9041 for Forms 1065

Internal Revenue Service

Andover Service Center

Attn: EFU Acceptance - Stop 983

P.O. Box 4050

Woburn, MA 01888-4050

Form 9041 for Forms 1041

Internal Revenue Service

Philadelphia Service Center

Attn: DP 115

11601 Roosevelt Blvd.

Philadelphia, PA 19154

Form 9041 for Forms 5500,

5500-C/R, and 5500-EZ

Internal Revenue Service

Attn: EFU (EPMF), Stop 261

P.O. Box 30309, A.M.F.

Memphis, TN 38310

Obtaining the

The taxpayer signature does not appear on the electronically transmitted tax return and is obtained by the

Taxpayer Signature qualified electronic filer on Form 8453, U. S. Individual Income Tax Declaration for Electronic Filing, for

Forms 1040, 1040A, and 1040EZ. Form 8453, which serves as a transmittal for the associated non electronic

(paper) documents, such as Forms W–2, W–2G, and 1099–R, is a one-page form and can only be approved

through the Substitute Forms Program in that format. For specific information about electronic filing, refer

to Publication 1345, Handbook for Electronic Filers of Individual Income Tax Returns. (Note: For business

returns, the electronic/magnetic media participants must use the official Form 8453–E, F or P, or an approved

substitute that duplicates the official form in language, format, content, color, and size.)

December 15, 1997

1997–50 I.R.B.

Forms for Electronically Filed Returns, Continued

Guidelines for

Preparing

Substitute Forms

in the Electronic

Filing Program

A participant in the electronic filing program who wants to develop a substitute form should follow the

guidelines for preparing substitute forms throughout this publication, and send a sample of the form for

approval to the Substitute Forms Coordinator at the address in Chapter 2. Forms 8453 prepared using a

font where all IRS-approved wording will not fit on a single page will not be accepted as a substitute form.

This applies primarily to dot-matrix printers, although forms prepared similarly on laser and inkjet printers

will also be rejected. PLEASE NOTE: Use of unapproved forms could result in suspension of the participant from the electronic filing program.

FTD Magnetic Tape Payments

Instructions for

Reporting Agents

Publication 1315 provides the requirements and instructions for reporting agents who sumit Federal Tax

Deposits (FTD) payment information on magnetic tape. Magnetic tape submissions for FTD can be made

for Forms 940, 941, 942, 943, 720, CT–1, 990–PF, 990–T, 990–C, 1042, 1120, and Schedule A (Form 941)

Backup Withholding.

Instructions for

Banks and

Fiduciaries

Revenue Procedure 89–49 (Pub. 1374) provides the requirements and instructions for certain banks and fiduciaries to submit quarterly Form 1041–ES payments on magnetic tape through the Federal Tax Deposit (FTD)

system.

Effect on Other Documents

Effect on Other

Documents

1997–50 I.R.B.

This revenue procedure supersedes Revenue Procedure 96–48, I.R.B. 1996–48.

December 15, 1997

Exhibit 1

December 15, 1997

1997–50 I.R.B.

December 15, 1997

1997–50 I.R.B.

December 15, 1997

1997–50 I.R.B.

December 15, 1997

1997–50 I.R.B.

December 15, 1997

1997–50 I.R.B.

Part IV. Items of General Interest

Foundations Status of Certain

Organizations

Announcement 97–119

The following organizations have

failed to establish or have been unable to

maintain their status as public charities or

as operating foundations. Accordingly,

grantors and contributors may not, after

this date, rely on previous rulings or designations in the Cumulative List of Organizations (Publication 78), or on the presumption arising from the filing of notices

under section 508(b) of the Code. This

listing does not indicate that the organizations have lost their status as organizations described in section 501(c)(3), eligible to receive deductible contributions.

Former Public Charities. The following

organizations (which have been treated as

organizations that are not private foundations described in section 509(a) of the

Code) are now classified as private foundations:

Alpha Community Programs, Inc.,

Toledo, OH

Amber and Babe Animal Foundation,

Vermilion, OH

Boys & Girls Club of Camilla-Mitchell

County, Inc., Camilla, GA

Boys and Girls Club of Denton County,

Inc., Lewisville, TX

Boys and Girls Club of Drew County

Arkansas, Inc., Monticello, AR

Boys & Girls Club of Edcouch-Elsa, Inc.,

Edcouch, TX

Boys and Girls Club of Kenosha, Inc.,

Kenosha, WI

Boys and Girls Clubs of the Mississippi

Valley, Inc., Moline, IL

Boys & Girls Club of Santa Cruz County,

Inc., Nogales, AZ

Boys & Girls Club of Toccoa,

Toccoa, GA

Boys Ranch of Nacogdoches, Inc.,

Nacogdoches, TX

Bradford County Families Against Drugs,

Inc., Starke, FL

Brain Injury Resource Network Inc.,

Richmond, VA

Brandcarr Publications Inc.,

Baltimore, MD

Brazos Retreat and Conference Center,

Sugar Land, TX

Breast Implant Information Foundation

Support Group, Oklahoma City, OK

1997–50 I.R.B.

Brecksville-Broadview Heights Schools

Foundation Program, Brecksville, OH

Brentwood Educational Assistance

Foundation, Inc., Springfield, OH

Brentwood Park Resident Management

Corporation, Inc., Jacksonville, FL

Brian Betzler Memorial Scholarship, Inc.,

Mt. Pleasant, MD

Brian Shimer Bobsled Club Inc.,

Naples, FL

Bridgefilm Company Inc., Aspen, CO

Bridgerland Amateur Radio Club Inc.,

Hyde Park, UT

Bridges Ministries Incorporated,

Chicago, IL

Bright Center Inc., Lawrenceburg, IN

Bright Star International Inc., Tulsa, OK

Brighton Township Beaver Soccer

Association, Beaver, PA

Bristlecone Development Corporation,

Olmsted TWP, OH

Britvil Community Food Pantry Inc.,

Oklahoma City, OK

Broken Promises Inc., Marietta, GA

Brookside Park Memorial to Veterans,

Jackson, MO

Brotherhood Community Fund Inc.,

Burlington, IA

Brotherhood Society of St. Anagiri of the

United States, LTD., Monticlair, NJ

Brothers Joined Striders, Austin, TX

Broward Autism Foundation Inc.,

Coral Springs, FL

Broward Coalition for the Homeless Inc.,

Ft. Lauderdale, FL

Brownsburg Junior Soccer League Inc.,

Brownsburg, IN

Bruce Crampton Foundation Inc.,

Vienna, VA

Brunswick Neighborhood Association,

Gary, IN

Buchanan County Olympics Inc.,

St. Joseph, MO

Bucks Co. Center for the Performing

Arts, Doylestown, PA

Build for Michigan, Bloomfield Hills, MI

Bulgarian Orthodox Religious Education

Society, Fort Wayne, IN

Burlington County Friends of the

Environment, Inc., Mt. Holly, NJ

Burns United Support Groups Inc.,

Grosse Pointe Farms, MI

Burt Lake Band of Ottawa and Chippewa

Indians, Inc., Brutus, MI

Business Leadership for Tomorrow,

Miami, FL

Buster L. Brown Memorial Scholarship

Fund, Tyler, TX

Butler County Health Network,

Hamilton, OH

Buy American Inc., Flushing, MI

Delta Epsilon Kappa, Inc. Accounting

Honor Society, Montgomery, AL

Families Unlimited, Bay Minette, AL

Heavenly Vision Economic Development

Corporation, Los Angeles, CA

Krzyzowa Kreisau Foundation,

Rumson, NJ

Lifecare Ministries of Oklahoma, Inc.,

Purcell, OK

Majestic Opera Association Inc.,

New York, NY

Merced Heights Childrens Center,

San Francisco, CA

Minnesota International Corporation,

Excelsior, MN

National Domestic Violence Hotline,

South Orange, NJ

National Policy Center on Blindness,

Sacramento, CA

People to People Foundation for

International Development,

Portage, MI

Randolph County Mayors Committee for

Disabled Persons, Asheboro, NC

396 Straight Street Corp., Patterson, NJ

Traffic Safety Association, Kirkland, WA

Women and Family Counseling Services

Inc., E. Lansing, MI

If an organization listed above submits

information that warrants the renewal of

its classification as a public charity or as a

private operating foundation, the Internal

Revenue Service will issue a ruling or determination letter with the revised classification as to foundation status. Grantors

and contributors may thereafter rely upon

such ruling or determination letter as provided in section 1.509(a)–7 of the Income

Tax Regulations. It is not the practice of

the Service to announce such revised classification of foundation status in the Internal Revenue Bulletin.

IRS Reassures Nursery Growers

About Farming Exception

Announcement 97–120

This announcement confirms that recently issued proposed regulations specifically permit nursery growers to qualify

December 15, 1997

for the “farming exception” to the uniform capitalization rules under § 263A of

the Internal Revenue Code. In recent

weeks, the Internal Revenue Service has

received numerous form letters from

nursery growers expressing concern that

they would no longer be eligible for the

farming exception as a result of the proposed regulations. However, as Service

and Treasury officials stated at a November 19, 1997, public hearing, these proposed regulations did not change who is

eligible for the farming exception.

Under § 263A(d), enacted by the Tax

Reform Act of 1986, the farming exception to the uniform capitalization rules is

available for certain plants “produced”

(e.g., grown) in a farming business. Thus,

the regulations permit nursery growers

using the farming exception to deduct the

costs of seeds and young plants purchased

for further development and cultivation

prior to sale, as well as the costs of growing the plants. Under the regulations,

nursery growers using the farming exception are permitted to deduct these costs

even if the plants are partly grown by another person or are grown by the nursery

in temporary containers. Because the

statutory exception only applies to the

costs of plants “produced” in a farming

business, the exception cannot be used for

costs incurred by a taxpayer in activities

in which the taxpayer does not grow

plants, but merely buys and resells plants

grown entirely by others. An example

will be added to the final regulations to illustrate these points.

Employee Plans Compliance

Programs

Announcement 97–121

The Office of the Assistant Commissioner, Employee Plans and Exempt Organizations of the Internal Revenue Service (Service) has established and is

committed to the enhancement of a number of programs to enable sponsors of

qualified retirement plans and tax-sheltered arrangements to maintain the tax-favored status of these plans without risking

the tax consequences of plan disqualification. In addition to the Closing Agreement Program (CAP), for plans under examination, there is the Administrative

Policy Regarding Self-Correction

(APRSC), the Standardized (SVP) and

regular Voluntary Compliance Resolution

(VCR) Programs, the Tax Sheltered Annuity Voluntary Compliance (TVC) Program, and the Voluntary Closing Agreement Program (Walk-in CAP).

APRSC is the self-correction program

that encourages employers to monitor

their plans and correct any operational defect or violation they find as soon as pos-

HEADQUARTERS

EP Division

The Service is about to issue a field directive that will provide additional insight

on the self-correction program and clarify

certain issues including, for example, timing for correction. In addition, in early

1998, the Service will publish a consolidated guide to the compliance programs

for plan sponsors and their advisors.

Since all of these programs operate out of

each of the EP/EO Key District Offices as

well as Employee Plans Division in Washington, communication to achieve consistency and coordination in the programs is

essential. The following information

about how to contact the appropriate office for information and assistance will be

included in the consolidated guide.

Projects Branch 2

CP:E:EP:P:2

1111 Constitution, Ave., NW

Washington, DC 20224

Office (202) 622-6214

FAX (202) 622-6199

NORTHEAST REGION

EP/EO Division

Review Staff

10 Metro Tech Center

625 Fulton St.

Brooklyn, NY 11201

Phone (718) 488-2400

FAX (718) 488-2405

SOUTHEAST REGION

EP/EO Division

December 15, 1997

sible. Under APRSC, if defects are discovered and corrected within a short time

following the year of the qualification

error, there is no need to contact the Service, no compliance fee and no tax sanction with respect to the error. APRSC, as

published in January 1997, allows plan

sponsors one year to correct defects without penalty. Based on our experience to

date with this well-received and increasingly used program, the Service is extending the self-correction period from one to

two years following the year in which the

operational violation occurs. As we continue to gain experience, we anticipate

that this program will continue to evolve

in order to best facilitate compliance.

Technical Branch

P.O. Box 13163

Baltimore, MD 21203

Phone (410) 962-3709

FAX (410) 962-0867

1997–50 I.R.B.

MIDSTATES REGION

EP/EO Division

Branch Office (CHI)(1)

230 S. Dearborn

Chicago, IL 60604

Phone (312) 886-4700

FAX (312) 886-3275

WESTERN REGION

EP/EO Division

Technical Branch

McCaslin Industrial Park

2 Cupania Circle

Monterey Park, CA 91755

Phone (213) 725-7164

FAX (213) 725-1442

Drafting Information

Interim Guidance

The principal author of this announcement is Carlton Watkins of the Employee

Plans Division. For further information

regarding this announcement, call (202)

622-6074/622-6075 between 1:30 and

3:30 p.m. Eastern time (not a toll-free

number). Mr. Watkins’ number is (202)

622-6214 (also not a toll-free number).

s Model forms.—New Form 5305–R,

Roth Individual Retirement Trust Account, and Form 5305–RA, Roth Individual Retirement Custodial Account, will

serve as Service-approved model forms

for use by financial institutions to offer

Roth IRAs to their customers. These

forms can be downloaded from the IRS

homepage at www.irs.ustreas.gov.

s Separate trusts.—Contributions to a

Roth IRA must be maintained as a separate

trust, custodial account or annuity from

contributions to a Traditional IRA. Separate accounting within a single trust, custodial account or annuity is not permitted.

s Opinion letters.—The Service is not

presently accepting submissions for opinion letters on prototype Roth IRAs, but

will issue procedures in the future for requesting such opinion letters.

s Combined documents.—The Service

will permit a prototype sponsor to combine a Roth IRA and a Traditional IRA in

the same document provided that (1) the

separate trust requirement, above, is satisfied and (2) the document, as completed

by the owner, clearly indicates whether it

is to be used as a Traditional IRA or as a

Roth IRA. This must be done in a way

that makes clear that designation as one

type of IRA precludes its designation as

the other type of IRA.

Interim Guidance on Roth IRAs

Announcement 97–122

The Service is issuing two model Roth

IRA Forms, 5305–R and 5305–RA, for use

by trustees and custodians, respectively,

beginning in 1998. In addition, the following interim guidance is provided for prototype sponsors and individual contributors

to Roth IRAs established under § 408A of

the Internal Revenue Code in response to

questions from the public.

Background

Individuals are permitted to make deductible and nondeductible contributions

to individual retirement accounts and annuities described in § 408(a) or (b), respectively (Traditional IRAs).

The Taxpayer Relief Act of 1997, Pub.

L. 105–34, added § 408A creating Roth

IRAs beginning in 1998. The rules that

apply to Roth IRAs and Traditional IRAs

are generally the same, except as modified by § 408A. A Roth IRA must be designated at the time of establishment as a

Roth IRA. Contributions to a Roth IRA

are not deductible and qualified distributions are not includible in gross income.

1997–50 I.R.B.

Transitional Relief

The Service will provide transitional

relief for sponsors of Roth IRAs and their

customers that is similar to the transition

relief provided for users of documents establishing SIMPLE IRAs that had not

been pre-approved by the Service. See

section 7.01 of Rev. Proc. 97–29, 1997–

24, I.R.B. 9. The Simple IRA transition

relief was conditioned on the prototype

sponsors who furnished the documents

having them subsequently approved by

the Service and meeting certain other conditions. Transition relief will also be conditioned on the document, or associated

written material, clearly designating the

trust, custodial account or annuity as a

Roth IRA at the time of establishment.

Technical Corrections

The House of Representatives has

passed technical corrections legislation

(H.R. 2645) affecting, among other

things, the taxability of distributions from

Roth IRAs. The legislation, if enacted,

would be effective January 1, 1998. In

light of this pending legislation, prototype

sponsors may wish to consider maintaining, or encouraging individuals to maintain, qualified rollover contributions (described in § 408A(e)) in separate Roth

IRAs from Roth IRAs containing regular

Roth IRA contributions (described in

§ 408A(c)(2)).

Paperwork Reduction Act

The collection of information contained in this announcement has been reviewed and approved by the Office of

Management and Budget (OMB) in accordance with the Paperwork Reduction

Act (44 U.S.C. 3507) under control number 1545–1568.

An agency may not conduct or sponsor,

and a person is not required to respond to,

a collection of information unless the collection of information displays a valid

OMB control number.

December 15, 1997

The collection of information in this

announcement is in the section headed

“Interim Guidance.” This information is

required to comply with § 302 of the Taxpayer Relief Act of 1997 in order to meet

the statutory requirements for establishing

a Roth IRA. The collection of information is required to obtain a benefit. The

likely respondents are businesses or other

December 15, 1997

for-profit institutions, and not-for-profit

institutions.

The estimated total annual reporting

burden is 8,000 hours.

The estimated annual burden per respondent varies from 0.5 hours to 4 hours,

depending on individual circumstances,

with an estimated average of 2 hours. The

estimated number of respondents is 4,000.

The estimated annual frequency of responses is one per respondent.

Books or records relating to a collection of information must be retained as

long as their contents may become material in the administration of any internal

revenue law. Generally, tax returns and

tax return information are confidential, as

required by 26 U.S.C. 6103.

1997–50 I.R.B.

Definition of Terms

Revenue rulings and revenue procedures

(hereinafter referred to as “rulings”) that

have an effect on previous rulings use the

following defined terms to describe the

effect:

Amplified describes a situation where

no change is being made in a prior published position, but the prior position is

being extended to apply to a variation of

the fact situation set forth therein. Thus,

if an earlier ruling held that a principle

applied to A, and the new ruling holds

that the same principle also applies to B,

the earlier ruling is amplified. (Compare

with modified, below).

Clarified is used in those instances

where the language in a prior ruling is

being made clear because the language

has caused, or may cause, some confusion. It is not used where a position in a

prior ruling is being changed.

Distinguished describes a situation

where a ruling mentions a previously

published ruling and points out an essential difference between them.

Modified is used where the substance

of a previously published position is

being changed. Thus, if a prior ruling

held that a principle applied to A but not

to B, and the new ruling holds that it ap-

plies to both A and B, the prior ruling is

modified because it corrects a published

position. (Compare with amplified and

clarified, above).

Obsoleted describes a previously published ruling that is not considered determinative with respect to future transactions. This term is most commonly used

in a ruling that lists previously published

rulings that are obsoleted because of

changes in law or regulations. A ruling

may also be obsoleted because the substance has been included in regulations

subsequently adopted.

Revoked describes situations where the

position in the previously published ruling is not correct and the correct position

is being stated in the new ruling.

Superseded describes a situation where

the new ruling does nothing more than

restate the substance and situation of a

previously published ruling (or rulings).

Thus, the term is used to republish under

the 1986 Code and regulations the same

position published under the 1939 Code

and regulations. The term is also used

when it is desired to republish in a single

ruling a series of situations, names, etc.,

that were previously published over a period of time in separate rulings. If the

new ruling does more than restate the

substance of a prior ruling, a combination

of terms is used. For example, modified

and superseded describes a situation

where the substance of a previously published ruling is being changed in part and

is continued without change in part and it

is desired to restate the valid portion of

the previously published ruling in a new

ruling that is self contained. In this case

the previously published ruling is first

modified and then, as modified, is superseded.

Supplemented is used in situations in

which a list, such as a list of the names of

countries, is published in a ruling and

that list is expanded by adding further

names in subsequent rulings. After the

original ruling has been supplemented

several times, a new ruling may be published that includes the list in the original

ruling and the additions, and supersedes

all prior rulings in the series.

Suspended is used in rare situations to

show that the previous published rulings

will not be applied pending some future

action such as the issuance of new or

amended regulations, the outcome of

cases in litigation, or the outcome of a

Service study.

Abbreviations

E.O.—Executive Order.

ER—Employer.

ERISA—Employee Retirement Income Security Act.

EX—Executor.

F—Fiduciary.

FC—Foreign Country.

FICA—Federal Insurance Contribution Act.

FISC—Foreign International Sales Company.

FPH—Foreign Personal Holding Company.

F.R.—Federal Register.

FUTA—Federal Unemployment Tax Act.

FX—Foreign Corporation.

G.C.M.—Chief Counsel’s Memorandum.

GE—Grantee.

GP—General Partner.

GR—Grantor.

IC—Insurance Company.

I.R.B.—Internal Revenue Bulletin.

LE—Lessee.

LP—Limited Partner.

LR—Lessor.

M—Minor.

Nonacq.—Nonacquiescence.

O—Organization.

P—Parent Corporation.

PHC—Personal Holding Company.

PO—Possession of the U.S.

PR—Partner.

PRS—Partnership.

PTE—Prohibited Transaction Exemption.

Pub. L.—Public Law.

REIT—Real Estate Investment Trust.

Rev. Proc.—Revenue Procedure.

Rev. Rul.—Revenue Ruling.

S—Subsidiary.

S.P.R.—Statements of Procedral Rules.

Stat.—Statutes at Large.

T—Target Corporation.

T.C.—Tax Court.

T.D.—Treasury Decision.

TFE—Transferee.

TFR—Transferor.

T.I.R.—Technical Information Release.

TP—Taxpayer.

TR—Trust.

TT—Trustee.

U.S.C.—United States Code.

X—Corporation.

Y—Corporation.

Z—Corporation.

The following abbreviations in current use and formerly used will appear in material published in the

Bulletin.

A—Individual.

Acq.—Acquiescence.

B—Individual.

BE—Beneficiary.

BK—Bank.

B.T.A.—Board of Tax Appeals.

C.—Individual.

C.B.—Cumulative Bulletin.

CFR—Code of Federal Regulations.

CI—City.

COOP—Cooperative.

Ct.D.—Court Decision.

CY—County.

D—Decedent.

DC—Dummy Corporation.

DE—Donee.

Del. Order—Delegation Order.

DISC—Domestic International Sales Corporation.

DR—Donor.

E—Estate.

EE—Employee.

1997–50 I.R.B.

December 15, 1997

Numerical Finding List1

Bulletins 1997–27 through 1997–49

Announcements:

97–61, 1997–29 I.R.B. 13

97–67, 1997–27 I.R.B. 37

97–68, 1997–28 I.R.B. 13

97–69, 1997–28 I.R.B. 13

97–70, 1997–29 I.R.B. 14

97–71, 1997–29 I.R.B. 15

97–72, 1997–29 I.R.B. 15

97–73, 1997–30 I.R.B. 86

97–74, 1997–31 I.R.B. 16

97–75, 1997–32 I.R.B. 28

97–76, 1997–32 I.R.B. 28

97–77, 1997–33 I.R.B. 58

97–78, 1997–34 I.R.B. 11

97–79, 1997–35 I.R.B. 8

97–80, 1997–34 I.R.B. 12

97–81, 1997–34 I.R.B. 12

97–82, 1997–34 I.R.B. 12

97–83, 1997–34 I.R.B. 13

97–84, 1997–34 I.R.B. 13

97–85, 1997–35 I.R.B. 8

97–86, 1997–35 I.R.B. 9

97–87, 1997–35 I.R.B. 9

97–88, 1997–35 I.R.B. 9

97–89, 1997–36 I.R.B. 10

97–90, 1997–36 I.R.B. 10

97–91, 1997–37 I.R.B. 25

97–92, 1997–37 I.R.B. 26

97–93, 1997–36 I.R.B. 11

97–94, 1997–36 I.R.B. 12

97–95, 1997–36 I.R.B. 12

97–96, 1997–39 I.R.B. 15

97–97, 1997–38 I.R.B. 22

97–98, 1997–39 I.R.B. 15

97–99, 1997–40 I.R.B. 7

97–100, 1997–40 I.R.B. 8

97–101, 1997–41 I.R.B. 13

97–102, 1997–41 I.R.B. 15

97–103, 1997–41 I.R.B. 16

97–104, 1997–42 I.R.B. 39

97–105, 1997–42 I.R.B. 40

97–106, 1997–45 I.R.B. 11

97–107, 1997–43 I.R.B. 25

97–108, 1997–43 I.R.B. 25

97–109, 1997–45 I.R.B. 12

97–110, 1997–45 I.R.B. 14

97–111, 1997–47 I.R.B. 15

97–112, 1997–46 I.R.B. 20

97–113, 1997–46 I.R.B. 21

97–114, 1997–46 I.R.B. 21

97–115, 1997–47 I.R.B. 17

97–116, 1997–48 I.R.B. 25

97–117, 1997–49 I.R.B. 12

97–118, 1997–49 I.R.B. 13

Court Decisions:

2061, 1997–31 I.R.B. 5

2062, 1997–32 I.R.B. 8

Delegation Orders:

97 (Rev. 34), 1997–41 I.R.B. 14

172 (Rev. 5), 1997–28 I.R.B. 6

Notices:

97–37, 1997–27 I.R.B. 4

Notices–Continued

Revenue Procedures–Continued

97–38, 1997–27 I.R.B. 8

97–39, 1997–27 I.R.B. 8

97–40, 1997–28 I.R.B. 6

97–41, 1997–28 I.R.B. 6

97–42, 1997–29 I.R.B. 12

97–43, 1997–30 I.R.B. 9

97–44, 1997–31 I.R.B. 15

97–45, 1997–33 I.R.B. 7

97–46, 1997–34 I.R.B. 10

97–47, 1997–35 I.R.B. 5

97–48, 1997–35 I.R.B. 5

97–49, 1997–36 I.R.B. 8

97–50, 1997–37 I.R.B. 21

97–51, 1997–38 I.R.B. 20

97–52, 1997–38 I.R.B. 20

97–53, 1997–40 I.R.B. 6

97–54, 1997–41 I.R.B. 7

97–55, 1997–40 I.R.B. 6

97–56, 1997–43 I.R.B. 19

97–57, 1997–43 I.R.B. 19

97–58, 1997–45 I.R.B. 7

97–59, 1997–45 I.R.B. 7

97–60, 1997–46 I.R.B. 8

97–61, 1997–48 I.R.B. 8

97–62, 1997–49 I.R.B. 8

97–63, 1997–47 I.R.B. 6

97–64, 1997–47 I.R.B. 7

97–66, 1997–48 I.R.B. 8

97–67, 1997–48 I.R.B. 10

97–68, 1997–48 I.R.B. 11

97–69, 1997–48 I.R.B. 12

97–70, 1997–49 I.R.B. 9

97–71, 1997–49 I.R.B. 9

97–45, 1997–41 I.R.B. 10

97–46, 1997–42 I.R.B. 10

97–47, 1997–42 I.R.B. 19

97–48, 1997–43 I.R.B. 19

97–49, 1997–43 I.R.B. 22

97–50, 1997–45 I.R.B. 8

97–51, 1997–45 I.R.B. 9

97–52, 1997–46 I.R.B. 17

97–53, 1997–47 I.R.B. 10

Revenue Rulings:

1997–28 I.R.B. 5

97–27, 1997–27 I.R.B. 4

97–28, 1997–28 I.R.B. 4

97–29, 1997–28 I.R.B. 4

97–30, 1997–31 I.R.B. 12

97–31, 1997–32 I.R.B. 4

97–32, 1997–33 I.R.B. 4

97–33, 1997–34 I.R.B. 4

97–34, 1997–34 I.R.B. 14

97–35, 1997–35 I.R.B. 4

97–36, 1997–36 I.R.B. 5

97–37, 1997–37 I.R.B. 15

97–38, 1997–38 I.R.B. 14

97–39, 1997–39 I.R.B. 4

97–40, 1997–39 I.R.B. 8

97–41, 1997–40 I.R.B. 4

97–42, 1997–41 I.R.B. 4

97–43, 1997–42 I.R.B. 8

97–44, 1997–45 I.R.B. 5

97–45, 1997–46 I.R.B. 4

97–46, 1997–46 I.R.B. 7

97–47, 1997–47 I.R.B. 4

97–48, 1997–49 I.R.B. 5

97–49, 1997–48 I.R.B. 4

97–50, 1997–49 I.R.B. 5

97–51, 1997–49 I.R.B. 4

Public Laws

Treasury Decisions:

105–35, 1997–43 I.R.B. 13

8722, 1997–29 I.R.B. 4

8723, 1997–30 I.R.B. 4

8724, 1997–36 I.R.B. 4

8725, 1997–37 I.R.B. 16

8726, 1997–34 I.R.B. 7

8727, 1997–34 I.R.B. 5

8728, 1997–37 I.R.B. 4

8729, 1997–38 I.R.B. 4

8730, 1997–38 I.R.B. 16

8731, 1997–42 I.R.B. 6

8732, 1997–42 I.R.B. 4

8733, 1997–43 I.R.B. 8

8734, 1997–44 I.R.B. 5

8735, 1997–43 I.R.B. 4

Railroad Retirement Quarterly Rate:

Proposed Regulations:

REG–104893–97, 1997–29 I.R.B. 13

REG–105160–97, 1997–37 I.R.B. 22

REG–105162–97, 1997–48 I.R.B. 13

REG–106043–97, 1997–37 I.R.B. 24

REG–107644–97, 1997–32 I.R.B. 24

REG–107872–97, 1997–47 I.R.B. 11

REG–114000–97, 1997–47 I.R.B. 13

REG–208151–91, 1997–38 I.R.B. 21

REG–246250–96, 1997–42 I.R.B. 30

REG–251985–96, 1997–48 I.R.B. 18

Revenue Procedures:

97–32, 1997–27 I.R.B. 9

97–32A, 1997–34 I.R.B. 10

97–33, 1997–30 I.R.B. 10

97–34, 1997–30 I.R.B. 14

97–35, 1997–33 I.R.B. 11

97–36, 1997–33 I.R.B. 14

97–37, 1997–33 I.R.B. 18

97–38, 1997–33 I.R.B. 43

97–39, 1997–33 I.R.B. 48

97–40, 1997–33 I.R.B. 50

97–41, 1997–33 I.R.B. 5

97–42, 1997–33 I.R.B. 57

97–43, 1997–39 I.R.B. 12

97–44, 1997–41 I.R.B. 8

1 A cumulative list of all revenue rulings, revenue

procedures, Treasury decisions, etc., published in

Internal Revenue Bulletins 1997–1 through 1997–26

will be found in Internal Revenue Bulletin 1997–27,

dated July 7, 1997.

December 15, 1997

1997–50 I.R.B.

Finding List of Current Action on

Previously Published Items1

Bulletins 1997–27 through 1997–49

*Denotes entry since last publication

Notices:

97–9

Modified by

97–70, 1997–49 I.R.B. 9

Revenue Procedures:

82–36

Modified and superseded by

97–49, 1997–43 I.R.B. 22

96–36

Superseded by

97–34, 1997–30 I.R.B. 14

96–42

Superseded by

97–27, 1997–27 I.R.B. 9

97–32

Modified and amplified by

97–32A, 1997–34 I.R.B. 10

Revenue Rulings:

73–67

Revoked by

97–46, 1997–46 I.R.B. 7

75–7

Revoked by

97–48, 1997–49 I.R.B. 5

89–42

Supplemented by

97–31, 1997–32 I.R.B. 4

93–76

Clarified, modified, partially

obsoleted, and superceded by

97–39, 1997–39 I.R.B 4

94–7

Clarified, modified, partially

obsoleted, and superceded by

97–39, 1997–39 I.R.B 4

1 A cumulative finding list for previously published

items mentioned in Internal Revenue Bulletins

1997–1 through 1997–26 will be found in Internal

Revenue Bulletin 1997–27, dated July 7, 1997.

1997–50 I.R.B.

December 15, 1997

Notes

December 15, 1997

1997–50 I.R.B.

Notes

1997–50 I.R.B.

December 15, 1997

Notes

December 15, 199

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