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Bulletin No. 1996–2

January 8, 1996

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

501(c)(3) of the Internal Revenue Code, that is not

required to file an annual information return Form 990,

Return of Organizations Exempt from Income Tax.

Rev. Rul. 96–2, page 5.

Insurance companies; interest rate tables. Prevailing

state assumed interest rates are provided for the

determination of reserves under section 807 of the

Code for contracts issued in 1995 and 1996. Rev. Rul.

92–19 supplemented in part.

ESTATE TAX

Rev. Rul. 96–3, page 14.

Valuation of annuities. Interest for life or a term of

years, and remainder and reversionary interests when

the individual, who is the measuring life, is terminally

ill. Rev. Ruls. 80–80 and 66–307 are obsolete

effective December 14, 1995.

Rev. Rul. 96–6, page 8.

Federal rates; adjusted federal rates; adjusted federal

long-term rate, and the long-term exempt rate. For

purposes of sections 1274, 1288, 382, and other

sections of the Code, tables set forth the rates for

January 1996.

EXCISE TAXES

Announcement 96–2, page 57.

A petition has been filed to add butyl benzyl phthalate

to the list of taxable substances in section 4672(a)(3)

of the Code.

EMPLOYEE PLANS

Notice 96–2, page 15.

Guidelines are set forth for determining for December

1995, the weighted average interest rate and the

resulting permissible range of interest rates used to

calculate current liability for purposes of the full funding

limitation of section 412(c)(7) of the Code as amended

by the Omnibus Budget Reconciliation Act of 1987 and

by the Uruguay Round Agreements Act (GATT).

ADMINISTRATIVE

Rev. Proc. 96–9, page 15.

Early referral of unagreed issues from examination to

appeals. This procedure describes the method by which

a taxpayer requests early referral of one or more

unagreed issues from Examination to Appeals.

EXEMPT ORGANIZATIONS

Rev. Proc. 96–11, page 18.

Electronic filing; magnetic media; 1995 Form 1042S

specifications. Specifications are set forth for the

magnetic or electronic filing of 1995 From 1042–S. The

form may be filed with the Service using 1⁄2 inch

magnetic tape; IBM 3480/3490 or AS400 compatible

tape cartridges; or 51⁄4-, 31⁄2-inch diskettes. Rev. Proc.

93–16 superseded.

Announcement 96–3, page 57.

A list is given of organizations now classified as private

foundations.

Rev. Proc. 96–10, page 17.

Information returns, organizations not required to file.

This procedure lists a class of organizations, affiliated

with a church or convention or association of churches,

and exempt from federal income tax under section

(Continued on page 4)

Finding Lists begin on page 60.

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Mission of the Service

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 products and services; and perform in a

manner warranting the highest degree of public

confidence in our integrity, efficiency and fairness.

Statement of Principles

of Internal Revenue

Tax Administration

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.

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.

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.

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.

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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.

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.

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.

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 procedures 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.

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 Miscellanous.

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).

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.

The first Bulletin for each month includes an index for

the matters published during the preceding month.

These monthly indexes are cumulated on a quarterly

and semiannual basis, and are published in the first

Bulletin of the succeeding quarterly and semi-annual

period, respectively.

The Bulletin Index-Digest System, a research and

reference service supplementing the Bulletin, may be

obtained from the Superintendent of Documents on a

subscription basis. It consists of four Services: Service

No. 1, Income Tax; Service No. 2, Estate and Gift

Taxes; Service No. 3, Employment Taxes; Service No.

4, Excise Taxes. Each Service consists of a basic

volume and a cumulative supplement that provides (1)

finding lists of items published in the Bulletin, (2)

digests of revenue rulings, revenue procedures, and

other published items, and (3) indexes of Public Laws,

Treasury Decisions, and Tax Conventions.

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, D.C. 20402.

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HIGHLIGHTS

OF THIS ISSUE—Continued

ADMINISTRATIVE—Continued

Announcement 96–1, page 57.

Executors and return preparers should continue to use

the August 1993 revision of Form 706, United States

Estate (and Generation-Skipping Transfer) Tax Return,

after December 31, 1995. The Service anticipates that

a revised Form 706 will be available in early 1996.

T.D. 8640, page 10.

Final regulations under section 6033 of the Code that

exempt certain integrated auxiliaries of churches from

filing information returns.

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

Section 42.—Low-Income Housing

Credit

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 8.

Section 170.—Charitable, etc.,

contributions and gifts

26 CFR 1.170A–1: Charitable, etc.,

contributions and gifts; allowance of

deduction.

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which hold that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, page 14.

26 CFR 1.170A–6: Charitable contributions in

trust.

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which holds that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, page 14.

Section 280G.—Golden Parachute

Payments

Federal short-term, mid-term, and long-term

rates are set forth for the month of January 1996.

See Rev. Rul. 96–6, page 8.

Section 382.—Limitation on Net

Operating Loss Carryforwards and

Certain Built-In Losses Following

Ownership Change

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 8.

Section 467.—Certain Payments for

the Use of Property or Services

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 8.

Section 468.—Special Rules for

Mining and Solid Waste Reclamation

and Closing Costs

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 8.

Section 483.—Interest on Certain

Deferred Payments

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 8.

Section 642.—Special rules for

credits and deductions

26 CFR 1.642(c)–6: Valuation of a remainder

interest in property transferred to a pooled

income fund after April 30, 1989.

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which hold that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, page 14.

Section 664.—Charitable remainder

trusts

The adjusted federal long-term rate is set forth

for the month of January 1996. See Rev. Rul.

96–6, page 8.

26 CFR 1.664–1: Charitable remainder trusts.

Section 412.—Minimum Funding

Standards

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which hold that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

The adjusted applicable federal short-term,

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, page 14.

Section 807.—Rules for Certain

Reserves

Insurance companies; interest rate

tables. Prevailing state assumed interest rates are provided for the determination of reserves under section 807

of the Code for contracts issued in

1995 and 1996. Rev. Rul. 92–19

supplemented in part.

Rev. Rul. 96–2

For purposes of § 807(d)(4) of the

Internal Revenue Code, for taxable

years beginning after December 31,

1994, this ruling supplements the

schedules of prevailing state assumed

interest rates set forth in Rev. Rul. 92–

19, 1992–1 C.B. 227. This information

is to be used by insurance companies in

computing their reserves for (1) life

insurance and supplementary total and

permanent disability benefits, (2) individual annuities and pure endowments,

and (3) group annuities and pure

endowments. As § 807(d)(2)(B) requires that the interest rate used to

compute these reserves be the greater

of (1) the applicable federal interest

rate, or (2) the prevailing state assumed

interest rate, the table of applicable

federal interest rates in Rev. Rul. 92–

19 is also supplemented.

Following are supplements to schedules A, B, C, and D to Part III of Rev.

Rul. 92–19, providing prevailing state

assumed interest rates for insurance

products with different features issued

in 1995 and 1996, and a supplement to

the table in Part IV of Rev. Rul. 92–19,

providing the applicable federal interest

rate under § 807(d) for 1995 and 1996.

This ruling does not supplement Parts I

and II of Rev. Rul. 92–19.

This is the fourth supplement to the

interest rates provided in Rev. Rul. 92–

19. Earlier supplements were published

in Rev. Rul. 93–58, 1993–2 C.B. 241

(interest rates for insurance products

issued in 1992 and 1993), Rev. Rul.

94–11, 1994–1 C.B. 196 (1993 and

1994), and Rev. Rul. 95–4, 1995–1

C.B. 141 (1994 and 1995).

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Part III. Prevailing State Assumed Interest Rates—Products Issued in Years After 1982.*

Schedule A

STATUTORY VALUATION INTEREST RATES

BASED ON THE 1980 AMENDMENTS TO THE

NAIC STANDARD VALUATION LAW

A. Life insurance valuation:

Guarantee Duration

(years)

Calendar Year of

Issue 1996

10 or fewer

More than 10 but not more than 20

More than 20

5.50* *

5.25* *

4.50* *

Source: Rates calculated from the monthly averages, ending June 30, 1995, of Moody’s

Corporate Bond Yield Average—Monthly Average Corporates.

* * As the applicable federal interest rate for 1996 of 6.63 percent exceeds this prevailing state

assumed interest rate, the interest rate to be used for this product under § 807 is 6.63 percent.

* The terms used in the schedules in this ruling and in Part III of Rev. Rul. 92–19 are those

used in the Standard Valuation Law; the terms are defined in Rev. Rul. 92–19.

Part III, Schedule B

STATUTORY VALUATION INTEREST RATES

BASED ON THE 1980 AMENDMENTS TO THE

NAIC STANDARD VALUATION LAW

B. Single premium immediate annuities and annuity benefits involving life contingencies arising

from other annuities with cash settlement options and from guaranteed interest contracts with

cash settlement options:

Calendar Year of

Issue

Valuation Interest

Rate

1995

7.25*

Source: Rates calculated from the monthly averages, ending June 30, 1995, of Moody’s

Corporate Bond Yield Average—Monthly Average Corporates. The terms used in this schedule

are those used in the Standard Valuation Law as defined in Rev. Rul. 92–19.

*As this prevailing state assumed interest rate exceeds the applicable federal interest rate for

1995 of 6.99 percent, the interest rate to be used for this product under § 807 is 7.25 percent.

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Part III, Schedule C13—1995

STATUTORY VALUATION INTEREST RATES

BASED ON NAIC STANDARD VALUATION LAW

FOR 1995 CALENDAR YEAR BUSINESS

GOVERNED BY THE 1980 AMENDMENTS

C. Valuation interest rates for other annuities and guaranteed interest contracts that are valued on an issue year basis:

Cash

Settlement

Options?

Future

Interest

Guarantee?

Yes

5 or fewer

More than 5, but not more than 10

More than 10, but not more than 20

More than 20

7.25

7.00

6.25*

5.25*

6.25*

5.50*

4.75*

5.75*

5.25*

4.75*

Yes

5 or fewer

More than 5, but not more than 10

More than 10, but not more than 20

More than 20

7.50

7.25

6.50*

5.50*

6.50*

5.75*

5.00*

6.00*

5.50*

5.00*

Yes or No

5 or fewer

More than 5, but not more than 10

More than 10, but not more than 20

More than 20

7.25

7.00

6.50*

5.50*

Guarantee Duration (years)

Valuation Interest Rate For

Plan Type

NOT APPLICABLE

Source: Rates calculated from the monthly averages, ending June 30, 1995 of Moody’s Corporate Bond Yield Average—

Monthly Average Corporates.

*As the applicable federal interest rate for 1995 of 6.99 percent exceeds this prevailing state assumed interest rate, the

interest rate to be used for this product under § 807 is 6.99 percent.

Part III, Schedule D13—1995

STATUTORY VALUATION INTEREST RATES

BASED ON NAIC STANDARD VALUATION LAW

FOR 1995 CALENDAR YEAR BUSINESS

GOVERNED BY THE 1980 AMENDMENTS

D. Valuation interest rates for other annuities and guaranteed interest contracts that are contracts with cash settlement

options and that are valued on a change in fund basis:

Cash

Settlement

Options?

Future

Interest

Guarantee?

Yes

5 or fewer

More than 5, but not more than 10

More than 10, but not more than 20

More than 20

8.25

8.00

7.25

6.25*

7.50

7.00

6.25*

6.00*

5.75*

5.25*

Yes

5 or fewer

More than 5, but not more than 10

More than 10, but not more than 20

More than 20

8.50

8.25

7.50

6.50*

8.00

7.25

6.50*

6.25*

6.00*

5.50*

Guarantee Duration (years)

Valuation Interest Rate

For Plan Type

Source: Rates calculated from the monthly averages, ending June 30, 1995, of Moody’s Corporate Bond Yield Average—

Monthly Average Corporates.

*As the applicable federal interest rate for 1995 of 6.99 percent exceeds this prevailing state assumed interest rate, the

interest rate to be used for this product under § 807 is 6.99 percent.

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Part IV. Applicable Federal Interest Rates.

TABLE OF

APPLICABLE FEDERAL INTEREST RATES

FOR PURPOSES OF § 807

Year

Interest Rate

1995

6.99

1996

6.63

Sources: Rev. Rul. 94–73, 1994–2 C.B. 197 for the 1995 rate and Rev. Rul. 95–79, 1995–49

I.R.B. 4 (at 6) for the 1996 rate.

EFFECT ON OTHER REVENUE

RULINGS

Section 846.—Discounted Unpaid

Losses Defined

Rev. Rul. 92–19 is supplemented by

the addition to Part III of that ruling of

prevailing state assumed interest rates

under § 807 for certain insurance products issued in 1995 and 1996 and is

further supplemented by an addition to

the table in Part IV of Rev. Rul. 92–19

listing applicable federal interest rates.

Parts I and II of Rev. Rul. 92–19 are

not affected by this ruling.

The adjusted applicable federal short-term,

mid-term, and long-term rates are set for the

month of January 1996. See Rev. Rul. 96–6,

page 00.

Section 1274.—Determination of

Issue Price in the Case of Certain

Debt Instruments Issued for Property

(Also Sections 42, 280G, 382, 412, 467, 468,

483, 807, 846, 1288, 7520, 7872.)

DRAFTING INFORMATION

The principal author of this revenue

ruling is Ann H. Logan of the Office of

Assistant Chief Counsel (Financial Institutions and Products). For further

information regarding this revenue ruling contact her on (202) 622-3970 (not

a toll-free call).

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 00.

Federal rates; adjusted federal

rates; adjusted federal long-term rate,

and the long-term exempt rate. For

purposes of sections 1274, 1288, 382,

and other sections of the Code, tables

set forth the rates for January 1996.

Rev. Rul. 96–6

This revenue ruling provides various

prescribed rates for federal income tax

purposes for January 1996 (the current

month). Table 1 contains the shortterm, mid-term, and long-term applicable federal rates (AFR) for the current

month for purposes of section 1274(d)

of the Internal Revenue Code. Table 2

contains the short-term, mid-term, and

long-term adjusted applicable federal

rates (adjusted AFR) for the current

month for purposes of section 1288(b).

Table 3 sets forth the adjusted federal

long-term rate and the long-term taxexempt rate described in section 382(f).

Table 4 contains the appropriate percentages for determining the lowincome housing credit described in

section 42(b)(2) for buildings placed in

service during the current month. Finally, Table 5 contains the federal rate

for determining the present value of an

annuity, an interest for life or for a

term of years, or a remainder or a

reversionary interest for purposes of

section 7520.

Rev. Rul. 95–79, 1995–49 I.R.B. 4,

which set forth the applicable federal

rates and various other rates for December 1995, incorrectly provided in

Table 1 that the Long-Term 120%

Applicable Federal Rate based on

annual compounding was 7.01%. The

correct percentage is 7.65%. This correction will be made to Rev. Rul. 95–

79 when it is published in issue 1995–2

of the Cumulative Bulletin.

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REV. RUL. 96–6 TABLE 1

Applicable Federal Rates (AFR) for January 1996

Period for Compounding

Annual

Semiannual

Quarterly

Monthly

Short-Term

AFR

110% AFR

120% AFR

5.50%

6.06%

6.63%

5.43%

5.97%

6.52%

5.39%

5.93%

6.47%

5.37%

5.90%

6.43%

Mid-Term

AFR

110% AFR

120% AFR

150% AFR

175% AFR

5.73%

6.32%

6.89%

8.66%

10.13%

5.65%

6.22%

6.78%

8.48%

9.89%

5.61%

6.17%

6.72%

8.39%

9.77%

5.58%

6.14%

6.69%

8.33%

9.69%

Long-Term

AFR

110% AFR

120% AFR

6.19%

6.82%

7.45%

6.10%

6.71%

7.32%

6.05%

6.65%

7.25%

6.02%

6.62%

7.21%

Quarterly

Monthly

REV. RUL. 96–6 TABLE 2

Adjusted AFR for January 1996

Period for Compounding

Annual

Semiannual

Short-term

adjusted AFR

Mid-term

adjusted AFR

Long-term

adjusted AFR

3.68%

3.65%

3.63%

3.62%

4.37%

4.32%

4.30%

4.28%

5.31%

5.24%

5.21%

5.18%

REV. RUL. 95–79 TABLE 3

Rates Under Section 382 for January 1996

Adjusted federal long-term rate for the current month

5.31%

Long-term tax-exempt rate for ownership changes during the current month (the highest of the

adjusted federal long-term rates for the current month and the prior two months).

5.65%

REV. RUL. 95–79 TABLE 4

Appropriate Percentages Under Section 42(b)(2)

for January 1996

Appropriate percentage for the 70% present value low-income housing credit

8.40%

Appropriate percentage for the 30% present value low-income housing credit

3.60%

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REV. RUL. 96–6 TABLE 5

Rate Under Section 7520 for January 1996

Applicable federal rate for determining the present value of an annuity, an interest for life or

a term of years, or a remainder or reversionary interest

Section 1288.—Treatment of Original

Issue Discount on Tax-Exempt

Obligations

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 8.

Section 2031.—Definition of gross

estate

exempt from federal income tax under section

501(c)(3) of the Internal Revenue Code, that are

not required to file an annual information Form

990, Return of Organizations Exempt from

Income Tax. See Rev. Proc. 96–10, page 17.

26 CFR 1.6033–2: Returns by exempt

organizations (taxable years beginning after

December 31, 1969) and returns by certain

nonexempt organizations (taxable years

beginning after December 31, 1980).

T.D. 8640

26 CFR 20.2031–7: Valuation of annuities,

interests for life or term of years, and

remainder or reversionary interests for estate

of decedents for which the valuation date of

the gross estate is after April 30, 1989.

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 1

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which hold that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, page 14.

Exempt Organizations Not Required

To File Annual Returns: Integrated

Auxiliaries Of Churches

Section 2512.—Valuation of gifts

SUMMARY: This document contains

final regulations that exempt certain

integrated auxiliaries of churches from

filing information returns. These regulations incorporate the rules of Rev.

Proc. 86–23 (1986–1 C.B. 564), into

the regulations defining integrated auxiliary for purposes of determining what

entities must file information returns.

The new definition focuses on the

sources of an organization’s financial

support in addition to the nature of the

organization’s activities.

26 CFR 25.2512–5: Valuation of annuities,

unitrust interests, interests for life or term of

years, and remainder or reversionary interests

transferred after April 30, 1989.

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which hold that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, page 14.

Section 6033.—Returns by Exempt

Organizations

26 CFR 1.6033–2: Returns by exempt

organizations (taxable years beginning after

December 31, 1969) and returns by certain

nonexempt organizations (taxable years

beginning after December 31, 1980).

Organizations, affiliated with a church or

convention or association of churches, and

AGENCY: Internal Revenue Service

(IRS), Treasury.

ACTION: Final regulations.

DATES: These regulations are effective

December 20, 1995.

For dates of applicability of these

regulations, see §1.6033–2(h)(6).

FOR FURTHER INFORMATION

CONTACT: Terri Harris or Paul Accettura, of the Office of the Associate

Chief Counsel (Employee Benefits and

Exempt Organizations), IRS, at

202-622-6070 (not a toll-free number).

6.8%

SUPPLEMENTARY INFORMATION:

Background

On December 15, 1994 proposed

regulations §§1.6033–2 and 1.508–1

[EE–41–86 (1995–1 C.B. 841)] under

sections 6033(a)(2) and 508 of the

Internal Revenue Code of 1986, respectively, were published in the Federal

regulations adopted the rules of Rev.

Proc. 86–23 (1986–1 C.B. 564) as the

definition of integrated auxiliary of a

church replacing the current definition

set forth in §1.6033–2(g)(5). Additionally, section 508(c) excepts integrated auxiliaries of a church from the

requirement that new organizations notify the Secretary of the Treasury that

they are applying for recognition of

section 501(c)(3) status (Form 1023).

For consistency, §1.508–1(a)(3)(i)(a),

which gives several examples of integrated auxiliaries, was proposed to be

amended by deleting the examples and

by adding a cross-reference to

§1.6033–2(h) for the definition of

integrated auxiliary of a church. After

IRS and Treasury consideration of the

public comments received regarding the

proposed regulations, the regulations

are adopted as revised by this Treasury

decision.

Explanation of Provisions

Section 6033(a)(1) requires organizations that are exempt from income tax

under section 501(a) to file annual

returns. Section 6033(a)(2)(A) provides

exceptions to this requirement for

certain specified types of organizations,

including, among others, churches,

their integrated auxiliaries, and conventions or associations of churches. Section 6033(a)(2)(B) provides that the

Secretary may relieve any organization

from the filing requirement where the

Secretary determines that filing is not

necessary to the efficient administration

of the internal revenue laws.

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Prior to this Treasury decision,

§1.6033–2(g)(5)(i) defined the term

integrated auxiliary of a church as an

organization that is: (1) exempt from

taxation as an organization described in

section 501(c)(3); (2) affiliated with a

church (within the meaning of

§1.6033–2(g)(5)(iii)); and (3) engaged

in a principal activity that is ‘‘exclusively religious.’’ Section 1.6033–

2(g)(5)(ii) provides that an organization’s principal activity is not

‘‘exclusively religious’’ if that activity

is educational, literary, charitable, or of

another nature (other than religious)

that would serve as a basis for

exemption under section 501(c)(3).

The ‘‘exclusively religious’’ element

of the definition was litigated in

Lutheran Social Service of Minnesota

v. United States, 583 F. Supp. 1298 (D.

Minn. 1984), rev’d 758 F.2d 1283 (8th

Cir. 1985), and Tennessee Baptist

Children’s Homes, Inc. v. United

States, 604 F. Supp. 210 (M.D. Tenn.

1984) aff’d, 790 F.2d 534 (6th Cir.

1986). While the litigation over the

‘‘exclusively religious’’ standard was

proceeding, Congress enacted section

3121(w) of the Internal Revenue Code,

Tax Reform Act of 1984, Pub. L. 98–

369, section 2603(b), 98 Stat. 494,

1128 (1984), which permits certain

church-related organizations to elect

out of social security coverage if they

meet a standard based on the degree of

financial support they receive from a

church. In light of this litigation and

the enactment of section 3121(w), IRS

personnel met with representatives of

various church organizations to encourage voluntary compliance with the

filing requirements and to develop a

less controversial and more objective

standard for identifying an integrated

auxiliary of a church.

Subsequent to these meetings the

IRS published Rev. Proc. 86–23, which

provides that, for tax years beginning

after December 31, 1975, an organization is not required to file Form 990 if

it is: (1) described in sections 501(c)(3)

and 509(a)(1), (2), or (3); (2) affiliated

with a church or a convention or association of churches; and (3) internally

supported. With respect to this last

criterion, Rev. Proc. 86–23 sets forth

an internal support standard that is

similar to the financial support standard

in section 3121(w).

The proposed regulations adopted the

rules of Rev. Proc. 86–23 as the

definition of the term integrated auxiliary of a church replacing the current

definition set forth in §1.6033–2(g)(5).

The final regulations retain the definition of an integrated auxiliary of a

church that is contained in the proposed regulations.

Under this Treasury decision, to be

an integrated auxiliary of a church an

organization must first be described in

section 501(c)(3) and section 509(a)(1),

(2), or (3), and be affiliated with a

church in accordance with standards set

forth in the regulations. An organization meeting those tests is an integrated

auxiliary if it either: (1) does not offer

admissions, goods, services, or facilities for sale, other than on an incidental

basis, to the general public; or (2)

offers admissions, goods, services, or

facilities for sale, other than on an

incidental basis, to the general public

and not more than 50 percent of its

support comes from a combination of

government sources, public solicitation

of contributions, and receipts other than

those from an unrelated trade or

business.

Some commentators have noted that

certain church-related organizations

that finance, fund and manage pension

programs were originally excused from

filing by Notice 84–2 (1984–1 C.B.

331), which was issued pursuant to the

Commissioner’s discretionary authority

under section 6033(a)(2)(B). Rev. Proc.

86–23 states that Notice 84–2 is

superseded by Rev. Proc. 86–23 because the organizations excused from

filing under the notice are excused

from filing by the revenue procedure.

The commentators have expressed concern that the proposed regulations did

not relieve church pension plans described in Notice 84–2 from the filing

requirement. The organizations excused

from filing under Notice 84–2 do not

necessarily meet the definition of an

integrated auxiliary of a church under

these final regulations. Nevertheless,

the proposed regulations were not

intended to alter the exemption from

filing provided in Notice 84–2 and

reaffirmed in Rev. Proc. 86–23. To

make this intent clear, the IRS is

issuing Revenue Procedure 96–10 at

the same time that it issues these final

regulations. Rev. Proc. 96–10 carries

over the exemption from filing for

church pension plan organizations that

was set forth in Notice 84–2. Having

reaffirmed those parts of Rev. Proc.

86–23 that were not incorporated into

these final regulations, Rev. Proc. 96–

10 also obsoletes Rev. Proc. 86–23.

The IRS developed the internal support test contained in the proposed

regulations based on its conclusion that

Congress intended that organizations

receiving a majority of their support

from public and government sources, as

opposed to those receiving a majority

of their support from church sources,

should file annual information returns

in order that the public have a means

of inspecting the returns of these

organizations. The annual information

return also was intended to serve as a

means by which the IRS could examine, if necessary, those organizations

receiving substantial non-church

support.

One commentator has suggested that

the definition of an integrated auxiliary

of a church should consist of a churchrelated structural test rather than an

internal support test. The IRS and the

Treasury Department believe that the

use of a structural test could lead to

problems similar to those caused by the

‘‘exclusively religious’’ test. Additionally, the suggested definition would

frustrate Congress’ intended objective

of allowing ongoing public scrutiny of

organizations receiving the majority

their support from public and government sources.

A commentator has also suggested

that by using the internal support test

as part of the new definition of an

integrated auxiliary of a church, the

IRS is attempting to ‘‘overrule’’ the

holdings in the previously mentioned

court cases (i.e. Tennessee Baptist

Children’s Home and Lutheran Social

Service of Minnesota). The IRS and the

Treasury Department believe that the

courts’ rulings questioned the validity

of the ‘‘exclusively religious’’ activity

requirement contained in the former

regulation on the basis that it is not

within the Service’s discretion to assess

the religious nature of a church’s

activities. Having eliminated the ‘‘exclusively religious’’ activity test from

the definition of integrated auxiliary of

a church, the IRS and the Treasury

Department believe that the definition

in the final regulation is consistent with

the courts’ holdings as well as the

statute and the legislative history.

Some commentators have suggested

that the first sentence of §1.6033–

2(g)(5)(iv) of the regulations in effect

prior to this Treasury decision should

be included in the final regulations.

That sentence identified specific types

of organizations as integrated auxiliaries of churches in accordance with

legislative history. Although §1.6033–

2(h) of the proposed regulations was

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intended to provide a general definition

that could apply in all instances, the

IRS and the Treasury Department agree

that, in order to be consistent with the

legislative history, parts of §1.6033–

2(g)(5)(iv) of the regulations should be

included in these final regulations.

Therefore, these final regulations include §1.6033–2(h)(5) that states that

‘‘a men’s or women’s organization, a

seminary, a mission society, or a youth

group’’ is an integrated auxiliary of a

church regardless of whether it meets

the internal support test in to §1.6033–

2(h)(1)(iii). (The tests under §1.6033–

2(h)(1)(i) and (ii) must still be met.)

Comments were received objecting

that Example 4 relating to seminaries

did not describe a realistic set of facts

and, therefore, could lead to confusion.

Accordingly, Example 4 has been

eliminated. Also, the treatment of seminaries has been clarified by §1.6033–

2(h)(5). We also note that, in addition

to the exception for seminaries,

§1.6033–2(g)(1)(vii) of the regulations

excepts certain schools below college

level that are affiliated with a church or

operated by a religious order from the

filing requirements of section 6033.

Except for a paragraph numbering

change contained in a cross-reference,

§1.6033–2(g)(1)(vii) is unchanged by

these final regulations.

Several commentators have suggested that expanded definitions of

certain terms used in the internal

support test be included in this Treasury decision. The final regulations do

not incorporate this suggestion. The

IRS and the Treasury Department

intend for these final regulations to

reissue the test published in Rev. Proc.

86–23 as the new definition for an

integrated auxiliary of a church. If

guidance is necessary on the application of the definition to specific cases,

that guidance is more appropriately

provided in non-regulatory form, such

as through private letter rulings or

revenue rulings.

The amendment to §1.6033–2(g)(5)

is effective with respect to returns filed

for taxable years beginning after December 31, 1969. However, for returns

filed for taxable years beginning after

December 31, 1969, but before December 20, 1995, the exclusively religious

test contained in §1.6033–2(g)(5) prior

to its amendment by these final regulations may, at the entity’s option, be

used as an alternative to the financial

support test in determining whether an

entity is an integrated auxiliary of a

church. The remainder of the amendments are effective with respect to

returns for taxable years beginning

after December 31, 1969. Therefore,

for returns filed for taxable years

beginning after December 20, 1995, the

definition of integrated auxiliary of a

church contained in §1.6033–2(h) will

be used in determining whether an

entity is an integrated auxiliary of a

church.

Special Analyses

It has been determined that this

Treasury decision is not a significant

regulatory action as defined in EO

12866. Therefore, a regulatory assessment is not required. It has also been

determined that section 553(b) of the

Administrative Procedure Act (5 U.S.C.

chapter 5) and the Regulatory Flexibility Act (5 U.S.C. chapter 6) do not

apply to these regulations, and, therefore, Regulatory Flexibility Analysis is

not required. Pursuant to section

7805(f) of the Internal Revenue Code,

the notice of proposed rulemaking

preceding these regulations was submitted to the Chief Counsel for Advocacy

of the Small Business Administration

for comment on its impact on small

business.

Drafting Information

§1.508–1 Notices.

(a) * * *

(3) * * * (i) Paragraphs (a)(1) and

(2) of this section are inapplicable to

the following organizations:

(a) Churches, interchurch organizations of local units of a church,

conventions or associations of

churches, or integrated auxiliaries of a

church. See §1.6033–2(h) regarding the

definition of integrated auxiliary of a

church;

Adoption of Amendments to the

Regulations

Accordingly, 26 CFR part 1 is

amended as follows:

PART 1—INCOME TAXES

Paragraph l. The authority for part 1

continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 2. Section 1.508–1 is amended

by revising paragraphs (a)(3)(i) introductory text and (a)(3)(i)(a) to read as

follows:

Par. 3. Section 1.6033–2 is amended

as follows:

1. Paragraphs (g)(1)(i) and (g)(vii)

are revised.

2. Paragraph (g)(5) is removed and

reserved.

3. Paragraphs (h) through (j) are

redesignated as paragraphs (i) through

(k).

4. New paragraph (h) is added.

The added and revised provisions

read as follows:

§1.6033–2 Returns by exempt

organizations (taxable years

beginning after December 31, 1969)

and returns by certain nonexempt

organizations (taxable years

beginning after December 31, 1980).

The principal author of this Treasury

decision is Terri Harris, Office of the

Associate Chief Counsel (Employee

Benefits and Exempt Organizations),

IRS. However, personnel from other

offices of the IRS and the Treasury

Department participated in their

development.

(g) * * *

(1) * * *

(i) A church, an interchurch organization of local units of a church, a

convention or association of churches,

or an integrated auxiliary of a church

(as defined in paragraph (h) of this

section);

(vii) An educational organization

(below college level) that is described

in section 170(b)(1)(A)(ii), that has a

program of a general academic nature,

and that is affiliated (within the meaning of paragraph (h)(2) of this section)

with a church or operated by a

religious order.

(h) Integrated auxiliary—(1) In general. For purposes of this title, the term

integrated auxiliary of a church means

an organization that is—

(i) Described both in sections

501(c)(3) and 509(a)(1), (2), or (3);

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(ii) Affiliated with a church or a convention or association of churches; and

(iii) Internally supported.

(2) Affiliation. An organization is affiliated with a church or a convention or

association of churches, for purposes of

paragraph (h)(1)(ii) of this section, if—

(i) The organization is covered by a

group exemption letter issued under

applicable administrative procedures,

(such as Rev. Proc. 80–27 (1980–1

C.B. 677); See §601.601(a)(2)(ii)(b)),

to a church or a convention or association of churches;

(ii) The organization is operated,

supervised, or controlled by or in

connection with (as defined in

§1.509(a)–4) a church or a convention

or association of churches; or

(iii) Relevant facts and circumstances

show that it is so affiliated.

(3) Facts and circumstances. For

purposes of paragraph (h)(2)(iii) of this

section, relevant facts and circumstances that indicate an organization is

affiliated with a church or a convention

or association of churches include the

following factors. However, the absence of one or more of the following

factors does not necessarily preclude

classification of an organization as

being affiliated with a church or a convention or association of churches—

(i) The organization’s enabling instrument (corporate charter, trust instrument, articles of association, constitution or similar document) or by-laws

affirm that the organization shares

common religious doctrines, principles,

disciplines, or practices with a church

or a convention or association of

churches;

(ii) A church or a convention or

association of churches has the authority to appoint or remove, or to

control the appointment or removal of,

at least one of the organization’s

officers or directors;

(iii) The corporate name of the

organization indicates an institutional

relationship with a church or a convention or association of churches;

(iv) The organization reports at least

annually on its financial and general

operations to a church or a convention

or association of churches;

(v) An institutional relationship between the organization and a church or

a convention or association of churches

is affirmed by the church, or convention or association of churches, or a

designee thereof; and

(vi) In the event of dissolution, the

organization’s assets are required to be

distributed to a church or a convention

or association of churches, or to an

affiliate thereof within the meaning of

this paragraph (h).

(4) Internal support. An organization

is internally supported, for purposes of

paragraph (h)(1)(iii) of this section,

unless it both—

(i) Offers admissions, goods, services or facilities for sale, other than on

an incidental basis, to the general

public (except goods, services, or facilities sold at a nominal charge or for an

insubstantial portion of the cost); and

(ii) Normally receives more than 50

percent of its support from a combination of governmental sources, public

solicitation of contributions, and receipts from the sale of admissions,

goods, performance of services, or

furnishing of facilities in activities that

are not unrelated trades or businesses.

(5) Special rule . Men’s and

women’s organizations, seminaries,

mission societies, and youth groups

that satisfy paragraphs (h)(1)(i) and (ii)

of this section are integrated auxiliaries

of a church regardless of whether such

an organization meets the internal

support requirement under paragraph

(h)(1)(iii) of this section.

(6) Effective date. This paragraph (h)

applies for returns filed for taxable

years beginning after December 31,

1969. For returns filed for taxable

years beginning after December 31,

1969 but beginning before December

20, 1995, the definition for the term

integrated auxiliary of a church set

forth in §1.6033–2(g)(5) (as contained

in the 26 CFR edition revised as of

April 1, 1995) may be used as an

alternative definition to such term set

forth in this paragraph (h).

(7) Examples of internal support.

The internal support test of this paragraph (h) is illustrated by the following

examples, in each of which it is

assumed that the organization’s provision of goods and services does not

constitute an unrelated trade or

business:

Example 1. Organization A is described in

sections 501(c)(3) and 509(a)(2) and is affiliated

(within the meaning of this paragraph (h)) with a

church. Organization A publishes a weekly

newspaper as its only activity. On an incidental

basis, some copies of Organization A’s publication are sold to nonmembers of the church with

which it is affiliated. Organization A advertises

for subscriptions at places of worship of the

church. Organization A is internally supported,

regardless of its sources of financial support,

because it does not offer admissions, goods,

services, or facilities for sale, other than on an

incidental basis, to the general public. Organization A is an integrated auxiliary.

Example 2. Organization B is a retirement

home described in sections 501(c)(3) and

509(a)(2). Organization B is affiliated (within the

meaning of this paragraph (h)) with a church.

Admission to Organization B is open to all

members of the community for a fee. Organization B advertises in publications of general

distribution appealing to the elderly and maintains its name on non-denominational listings of

available retirement homes. Therefore, Organization B offers its services for sale to the general

public on more than an incidental basis. Organization B receives a cash contribution of $50,000

annually from the church. Fees received by

Organization B from its residents total $100,000

annually. Organization B does not receive any

government support or contributions from the

general public. Total support is $150,000

($100,000 + $50,000), and $100,000 of that total

is from receipts from the performance of services

(66–2/3% of total support). Therefore, Organization B receives more than 50 percent of its

support from receipts from the performance of

services. Organization B is not internally supported and is not an integrated auxiliary.

Example 3. Organization C is a hospital that is

described in sections 501(c)(3) and 509(a)(1).

Organization C is affiliated (within the meaning

of this paragraph (h)) with a church. Organization C is open to all persons in need of hospital

care in the community, although most of

Organization C’s patients are members of the

same denomination as the church with which

Organization C is affiliated. Organization C

maintains its name on hospital listings used by

the general public, and participating doctors are

allowed to admit all patients. Therefore, Organization C offers its services for sale to the general

public on more than an incidental basis. Organization C annually receives $250,000 in support

from the church, $1,000,000 in payments from

patients and third party payors (including Medicare, Medicaid and other insurers) for patient

care, $100,000 in contributions from the public,

$100,000 in grants from the federal government

(other than Medicare and Medicaid payments)

and $50,000 in investment income. Total support

is $1,500,000 ($250,000 + $1,000,000 +

$100,000 + $100,000 + $50,000), and $1,200,000

($1,000,000 + $100,000 + $100,000) of that total

is support from receipts from the performance of

services, government sources, and public contributions (80% of total support). Therefore,

Organization C receives more than 50 percent of

its support from receipts from the performance of

services, government sources, and public contributions. Organization C is not internally supported and is not an integrated auxiliary.

Margaret Milner Richardson,

Commissioner of

Internal Revenue.

Approved November 27, 1995.

Leslie Samuels,

Assistant Secretary of

the Treasury.

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(Filed by the Office of the Federal Register on

December 19, 1995, 8:45 a.m., and published

in the issue of the Federal Register for

December 20, 1995, 60 F.R. 65550)

Section 7121.—Closing Agreements

Valuation of annuities. Interest for

life or a term of years, and remainder

and reversionary interests when the

individual, who is the measuring life, is

terminally ill. Rev. Ruls. 80–80 and

66–307 are obsolete effective December 14, 1995.

26 CFR 301.7121–1: Closing agreements.

Rev. Rul. 96–3

What is the method by which a taxpayer

requests early referral of one or more unagreed

issues from Examination to Appeals? See Rev.

Proc. 96–9, page 15.

Section 7520.—Valuation Tables

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 8.

26 CFR 1.7520–3: Limitation on the

application of section 7520.

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which hold that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, this page.

26 CFR 20.7520-3: Limitation on the

application of section 7520.

(Also §§ 170, 642, 664, 2031, 2512; 1.170A–1,

1.170A–6, 1.642(c)–6, 1.664–1, 20.2031–7,

25.2512–5, 1.7520–3, 25.7520–3.)

Rev. Rul. 80–80, 1980–1 C.B. 194,

and Rev. Rul. 66–307, 1966–2 C.B.

429, hold that the valuation tables in the

regulations for valuing annuities, interests for life or a term of years, and

remainder or reversionary interests are

not to be used if the individual, who is

the measuring life, is known to be

terminally ill at the time of the transfer.

These revenue rulings have been superseded by § 20.7520–3(b)(3) of the

Estate Tax Regulations, effective with

respect to estates of decedents dying

after December 13, 1995. Similar provisions are set forth in §§ 1.7520–3(b)(3)

of the Income Tax Regulations and

25.7520–3(b)(3) of the Gift Tax Regulations. Section 1.7520–3(b)(3) is effective

with respect to transactions after December 13, 1995 and § 25.7520–3(b)(3)

is effective with respect to gifts made

after December 13, 1995.

EFFECT ON

RULINGS

OTHER

DRAFTING INFORMATION

The principal author of this revenue

ruling is William L. Blodgett of the

Office of Assistant Chief Counsel

(Passthroughs and Special Industries).

For further information regarding this

revenue ruling contact Mr. Blodgett on

(202) 622-3090 (not a toll-free call).

26 CFR 25.7520–3: Limitation on the

application of section 7520.

Rev. Rul. 80–80, 1980–1 C.B. 194, and Rev.

Rul. 66–307, 1966–2 C.B. 429, which hold that

the valuation tables in the regulations for valuing

annuities, interests for life or a term of years,

and remainder or reversionary interests are not to

be used if the individual, who is the measuring

life, is known to be terminally ill at the time of

the transfer, are obsolete effective December 14,

1995. See Rev. Rul. 96–3, this page.

Section 7872.—Treatment of

Loans with Below-Market

Interest Rates

REVENUE

Rev. Rul. 80–80, 1980–1 C.B. 194,

and Rev. Rul. 66–307, 1966–2 C.B.

429 are obsolete effective December

14, 1995.

The adjusted applicable federal short-term,

mid-term, and long-term rates are set forth for

the month of January 1996. See Rev. Rul. 96–6,

page 00.

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Part III. Administrative, Procedural, and Miscellaneous

Weighted Average Interest Rate Update

Notice 96–2

Notice 88–73 provides guidelines for

determining the weighted average interest rate and the resulting permissible

range of interest rates used to calculate

current liability for the purpose of

Month

December

the full funding limitation of

§ 412(c)(7) of the Internal Revenue

Code as amended by the Omnibus

Budget Reconciliation Act of 1987 and

as further amended by the Uruguay

Round Agreements Act, Pub. L. 103–

465 (GATT).

Year

1995

Weighted

Average

7.09

90% to 109%

Permissible

Range

6.38 to 7.73

26 CFR 601.105: Examination of returns and

claims for refund, credit, or abatement;

determination of correct tax liability.

(Also Part I, Section 7121; 301.7121–1.)

Rev. Proc. 96–9

TABLE OF CONTENTS

SECTION 4. PROCESSING AN EARLY

REFERRAL REQUEST

.01 Approving or denying the request

for early referral

.02 Notification of action

.03 No appeal

SECTION 5. TRANSFERRING THE

ISSUE FROM EXAMINATION TO

APPEALS

.01 In General

.02 Examination issues Notice of Proposed Adjustment (Form 5701)

.03 Taxpayer response to Form 5701

.04 Early referral file sent to Appeals

SECTION 6. RESOLVING THE EARLY

REFERRAL ISSUE(S)

SECTION 1. PURPOSE

SECTION 2. SCOPE OF EARLY

REFERRAL PROCEDURES

.01 In general

.02 Appropriate issues for early

referral

.03 Issues excluded from early referral

SECTION 3. PROCEDURES FOR

REQUESTING EARLY REFERRAL

.01 Initiating the early referral request

.02 Statement of issues and position

.03 Perjury statement

.04 Signatures

90% to 110%

Permissible

Range

6.38 to 7.80

SECTION 1. PURPOSE

Drafting Information

The principal author of this notice is

Donna Prestia of the Employee Plans

Division. For further information regarding this notice, call (202) 622-6076

between 2:30 and 4:00 p.m. Eastern

time (not a toll-free number). Ms.

Prestia’s number is (202) 622-7377

(also not a toll-free number).

The average yield on the 30-year

Treasury Constant Maturities for

November 1995 is 6.26 percent.

The following rates were determined

for the plan years beginning in the

month shown below.

.01 In general

.02 Agreement reached

.03 Agreement not reached

SECTION 7. EFFECT OF ISSUANCE OF

A 30-DAY LETTER BY EXAMINATION

SECTION 8. WITHDRAWAL FROM THE

EARLY REFERRAL PROCESS

SECTION 9. NO USER FEE

SECTION 10. EFFECT ON OTHER

DOCUMENTS

SECTION 11. EFFECTIVE DATE,

FUTURE ACTION

Early referral is a process to resolve

Coordinated Examination Program

(CEP) cases more expeditiously

through Examination and Appeals

working simultaneously. This revenue

procedure describes the method by

which a taxpayer requests early referral

of one or more unagreed issues from

Examination to Appeals. This revenue

procedure does not alter the District

Director’s authority to audit the returns

of a taxpayer nor limit or expand the

District Director’s authority to resolve

any issues, including the authority in

Delegation Order No. 236, 1991–1 C.B.

313.

SECTION 2. SCOPE OF EARLY

REFERRAL PROCEDURES

.01 In general. Except as provided

in section 2.03, a taxpayer may request

early referral of any developed, unagreed issue under the jurisdiction of

the District Director arising from an

examination (audit). Examination will

continue to develop other issues arising

in the audit. Early referral is:

(1) optional;

(2) initiated by the taxpayer;

(3) subject to the approval of both

the District Director and the Assistant

Regional Director of Appeals-Large

Case (ARDA); and

(4) limited to CEP taxpayers.

.02 Appropriate issues for early referral. Appropriate issues for early

referral include those that:

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(1) if resolved, can reasonably be

expected to result in a quicker resolution of the entire case; and

(2) both the taxpayer and the District

Director agree should be referred to

Appeals early.

Industry Specialization Program

(ISP) and Appeals Coordinated Issues

(ACIs) can be referred to Appeals for

early resolution under these early referral procedures. ISP issues are listed in

Exhibit 8700–1 and ACIs are listed in

Exhibit 8700–4 of the Internal Revenue

Manual.

.03 Issues excluded from early

referral. Early referral does not apply

to:

(1) an issue designated for litigation

by the Office of Chief Counsel; or

(2) issues for which the taxpayer has

filed a request for Competent Authority

assistance, or issues for which the

taxpayer intends to seek Competent

Authority assistance. Taxpayers are

encouraged to request the simultaneous

Appeals/Competent Authority procedure described in section 8 of Announcement 95–9, 1995–7 I.R.B. 57 or

a subsequent revenue procedure. If a

taxpayer enters into a settlement with

Appeals (including an Appeals settlement through the early referral process), and then requests Competent

Authority assistance, the U.S. competent authority will endeavor only to

obtain a correlative adjustment with the

treaty country and will not take any

actions that would otherwise amend the

settlement. See section 7.05 of Announcement 95–9.

SECTION 3. PROCEDURES FOR

REQUESTING EARLY REFERRAL

.01 Initiating the early referral request. A request for early referral must

be submitted in writing by the CEP

taxpayer to the CEP case manager. The

CEP case manager may suggest that a

CEP taxpayer make such a request.

.02 Statement of issues and position. An early referral request must:

(1) state the issues for which early

referral is requested;

(2) identify the taxpayer (and, where

applicable, all related persons involved

in the issue(s)) and the tax period(s) to

which those issues relate; and

(3) describe the taxpayer’s and the

Service’s position with regard to the

relevant early referral issues. This

statement must contain a brief discussion of the material facts and an

analysis of the facts and law as they

apply to the early referral issues.

.03 Perjury Statement. The early

referral request, and any supplemental

submission (including additional documents), must include a declaration in

the following form:

Under penalties of perjury, I

declare that I have examined this

request [or submission], including accompanying documents,

and to the best of my knowledge

and belief, the facts presented

are true, correct, and complete.

This declaration must be signed by any

person currently authorized to sign the

taxpayer’s federal income tax returns.

.04 Signatures. A request for early

referral must be signed by the taxpayer

or the taxpayer’s authorized representative. It is preferred that Form 2848,

Power of Attorney and Declaration of

Representative, be used with regard to

an early referral request under this

revenue procedure.

SECTION 4. PROCESSING AN EARLY

REFERRAL REQUEST

.01 Approving or denying the request for early referral. An approval of

an early referral request requires the

concurrence of both the District Director and the ARDA. The early referral

request will be processed as follows:

(1) The CEP case manager will send

the taxpayer’s request for early referral

to the District Director. The CEP case

manager also may include a recommendation that the early referral request be

approved or denied.

(2) The District Director will note

the district’s approval or denial and

forward the request, whether approved

or denied, to the ARDA for

consideration.

(3) The ARDA will note his or her

approval or denial of the early referral

request and will return the request to

the CEP case manager.

.02 Notification of action. The CEP

case manager will advise the taxpayer

of the decision generally within 45

days of receipt of the request. If any

issue is approved, the CEP case manager will forward the early referral file

for this issue to Appeals as described

in section 5 below. If the request for

early referral is denied with respect to

any issue, the taxpayer retains the right

to pursue the administrative appeal of

any proposed deficiency related to that

issue at a later time.

.03 No Appeal. There is no formal

taxpayer appeal if the early referral

request is denied in whole or in part;

however, the taxpayer can request a

conference with the organization(s) that

denied the early referral request.

SECTION 5. TRANSFERRING THE

ISSUE FROM EXAMINATION TO

APPEALS

.01 In General. Jurisdiction over the

issues accepted will be transferred from

Examination to Appeals, and the procedures set forth in sections 5.02 through

5.04 will apply.

.02 Examination issues Notice of

Proposed Adjustment (Form 5701).

Examination will complete a Notice of

Proposed Adjustment (Form 5701), for

each approved early referral issue,

generally within 30 days after the CEP

case manager advises the taxpayer of

the approved early referral request.

Examination will send the Form 5701

to the taxpayer. The Form 5701 will

describe the issue and explain Examination’s proposed adjustment.

The issuance of the Form 5701 for

the early referral issue is not treated as

the first letter of proposed deficiency

for purposes of computing increased

interest under § 6621(c).

.03 Taxpayer response to Form

5701. The taxpayer must respond in

writing to Examination’s proposed adjustment to each issue set forth in the

Form 5701. The response must contain

an explanation of the taxpayer’s position regarding the issues, similar to that

which would be provided in an Appeals

protest. The response shall be submitted to the CEP case manager within 30

days (unless extended by the CEP case

manager) from the date that the proposed adjustment (Form 5701) is sent

to the taxpayer. The procedural requirements of sections 3.03 and 3.04 of this

revenue procedure (perjury statement

and signatures) also apply to the

taxpayer’s response to the Form 5701.

If a response is not received for any

issue within the time provided, the

taxpayer’s early referral request will be

considered withdrawn regarding that

particular issue without prejudice to the

taxpayer’s right to an administrative

appeal at a later date. See section 8,

Withdrawal from the Early Referral

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Process, regarding withdrawal after

Appeals has taken jurisdiction over an

early referral issue.

.04 Early referral file sent to Appeals. Once the taxpayer has responded

to the Form 5701, Examination will

send the early referral file to Appeals.

Appeals will then take jurisdiction over

the issues accepted for early referral.

All other issues in the case remain in

Examination’s jurisdiction. The early

referral file should include copies of:

(1) applicable portions of tax returns

and workpapers;

(2) the approved early referral

request;

(3) the Form 5701;

(4) the taxpayer’s written response

to the Form 5701;

(5) Examination’s response to the

taxpayer’s position, if any; and

(6) an estimate of the potential tax

effect of the proposed adjustment.

SECTION 6. RESOLVING THE EARLY

REFERRAL ISSUE

.01 In general. The taxpayer’s written response to the Form 5701 generally serves the same purpose as an

Appeals protest. Established Appeals

procedures, including those governing

submissions and taxpayer conferences,

apply to early referral issues. See

§ 601.106 et seq of the Statement of

Procedural Rules.

.02 Agreement reached.

(1) If an agreement is reached with

respect to an early referral issue, a

specific matters closing agreement

(Form 906) will be prepared. See

§ 7121 and also Rev. Proc. 68–16,

1968–1 C.B. 770, which describes the

preparation of closing agreements. The

closing agreement will be used to

compute the corrected tax as a partial

agreement prior to or concurrently with

the resolution of any other issues in the

case.

(2) If an early referral issue results

in a refund or credit requiring a report

described in § 6405 that must be

submitted to the Joint Committee on

Taxation, the report must include a

copy of the proposed closing agreement

signed by or for the taxpayer, but not

signed by or on behalf of the Commissioner. The Service will not sign the

proposed agreement until after review

by the Joint Committee.

.03 Agreement not reached. If an

agreement is not reached with respect

to an early referral issue:

(1) Appeals will close the early

referral file and return jurisdiction over

the issue to Examination. Appeals will

send a copy of the Appeals Case

Memorandum for the issue to the CEP

case manager.

(2) Appeals will not reconsider an

unagreed early referral issue if the

entire case is later protested to Appeals, unless there has been a substantial change in the circumstances regarding the early referral issue.

in the same manner as if no agreement

of those early referral issues was

reached. See section 6.03, Agreement

not reached. The withdrawal request

must be communicated in writing to the

ARDA. See section 5.03, Taxpayer

response to Form 5701, regarding a

withdrawal without prejudice prior to

Appeals taking jurisdiction over the

issue(s).

SECTION 7. EFFECT OF CONCLUSION

OF EXAMINATION

There is no user fee for an early

referral request.

If Examination issues a preliminary

notice of deficiency (‘‘30-day letter’’)

with respect to any issue that is not

accepted for early referral, all unagreed

issues, including any early referral

issues that have not yet been settled by

Appeals, will be combined in the 30day letter. Likewise, if no issues in the

case remain unagreed except for the

early referral issues that are pending in

Appeals, a 30-day letter will be issued

solely with respect to the early referral

issues. The issuance of the 30-day

letter generally will constitute the first

letter of proposed deficiency which

allows the taxpayer an opportunity for

administrative review for purposes of

the increased underpayment rate for

large corporate underpayments under

§ 6621(c).

Except as provided in section

6.03(2), once Appeals assumes jurisdiction over the case, all issues, including

all early referral issues that have not

yet been settled by Appeals, will be

considered under established Appeals

procedures.

If no issues in the case remain

unagreed except for an early referral

issue that could not be settled by

Appeals and has been returned to

Examination, no 30-day letter will be

issued. Rather, a statutory notice of

deficiency (‘‘90-day letter’’) will be

issued, which will start the period for

the increased underpayment rate for

large corporate underpayments under

§ 6621(c).

SECTION 10. EFFECT ON OTHER

DOCUMENTS

SECTION 8. WITHDRAWAL FROM THE

EARLY REFERRAL PROCESS

The purpose of this revenue procedure is to list a class of organizations,

affiliated with a church or convention

or association of churches and exempt

from federal income tax under section

501(c)(3) of the Internal Revenue

Code, that is not required to file an

annual information return on Form 990,

If the taxpayer withdraws its early

referral request with respect to one or

more of the early referral issues after

Appeals has taken jurisdiction over the

issues, such withdrawal will be treated

SECTION 9. NO USER FEE

Announcement 94–41, 1994–12

I.R.B. 7, is superseded.

SECTION 11. EFFECTIVE DATE,

FUTURE ACTION

This revenue procedure is effective

for requests for early referral filed after

January 8, 1996, the date this revenue

procedure is published in the Internal

Revenue Bulletin. Additional guidance

may be issued to supplement or modify

the procedures set forth in this revenue

procedure in order to extend the early

referral program.

DRAFTING INFORMATION

The principal author of this revenue

procedure is Thomas C. Louthan, Director, Office of International, TEFRA,

and Dispute Resolution Programs, National Office Appeals. For further

information regarding this revenue procedure, please contact Mr. Louthan at

(202) 401-4098 (not a toll-free

number).

26 CFR 601.602: Forms and instructions.

(Also Part 1, Section 6033; 1.6033–2)

Rev. Proc. 96–10

SECTION 1. PURPOSE

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Return of Organizations Exempt from

Income Tax. This revenue procedure

supplements Rev. Proc. 83–23, 1983–1

C.B. 687, and obsoletes Rev. Proc. 86–

23, 1986–1 C.B. 564.

SEC. 2. BACKGROUND

.01 Section 6033(a)(1) of the Code

generally requires all tax-exempt organizations to file an annual information

return on Form 990.

.02 Section 6033(a)(2)(A) of the

Code provides certain mandatory exceptions to this filing requirement,

specifically for churches, their integrated auxiliaries, and conventions or

associations of churches.

.03 Section 6033(a)(2)(B) of the

Code provides discretionary exceptions

from filing such returns where the

Secretary ‘‘determines such filing is

not necessary to the efficient administration of the internal revenue laws.’’

Section 1.6033–2(g)(6) of the Income

Tax Regulations delegates authority to

the Commissioner to excuse organizations from the filing requirement. It

provides that ‘‘the Commissioner may

relieve any organization or class of

organizations from filing, in whole or

in part, the annual information return

required by section 6033 where he

determines that such returns are not

necessary for the efficient administration of the internal revenue laws.’’

.04 Section 1.6033–2(g)(1) of the

regulations provides a partial list of

organizations that are not required to

file annual returns either because they

are excepted by statute or because the

Commissioner has exercised the authority referred to above in Sec. 2.03.

A more complete list is contained in

Rev. Proc. 83–23, 1983–1 C.B. 687.

.05 A return filing exception for

certain church-affiliated organizations

engaged exclusively in managing funds

or maintaining retirement programs was

announced originally in Notice 84–2,

1984–1 C.B. 331. That exemption was

carried over into Rev. Proc. 86–23,

which superseded Notice 84–2. Rev.

Proc. 86–23 also defined what is an

integrated auxiliary of a church for

purposes of the filing exception

provided in section 6033(a)(2)(A).

Treas. Reg. § 1.6033–2(h) now has

incorporated the definition of integrated

auxiliary of a church, making Rev.

Proc. 86–23 partially obsolete. Accordingly, this revenue procedure replaces

Rev. Proc. 86–23, preserving the filing

exemption that remains in effect for

certain church-affiliated organizations

that manage funds and retirement programs and deleting those portions of

Rev. Proc. 86–23 that are now part of

the regulations. Some organizations

exempted from filing by this revenue

procedure may also qualify as integrated auxiliaries exempt from filing

under section 6033(a)(2)(A).

SEC. 3. ORGANIZATIONS

EXCUSED FROM FILING

.01 The following organizations will

not be required to file Form 990:

(1) An organization described in

section 501(c)(3) that is operated,

supervised, or controlled by one or

more churches, integrated auxiliaries,

or conventions or associations of

churches, and

(a) is engaged exclusively in financing, funding the activities of, or managing the funds of

(i) a church, integrated auxiliary, or

convention or association of churches,

(ii) a group of organizations substantially all of which are described in

(1)(a)(i), if substantially all of its assets

are provided by, or held for the benefit

of, organizations described in (1)(a)(i);

(b) maintains retirement insurance

programs primarily for organizations

described in (1)(a)(i), and

(i) more than 50 percent of the

individuals covered by the programs

are directly employed by those organizations, or

(ii) more than 50 percent of the

assets are contributed by, or held for

the benefit of, employees of those

organizations.

(2) An organization described in

section 501(c)(3) that is operated,

supervised or controlled by one or

more religious orders and is engaged in

financing, funding, or managing assets

used for exclusively religious activities.

.02 For purposes of this revenue

procedure, an integrated auxiliary is an

organization that meets the definition

contained in Treas. Reg. § 1.6033–2(h).

SEC. 4. EFFECTIVE DATE

This revenue procedure is effective

for tax years beginning after December

20, 1995, the date of publication of

final Treas. Reg. § 1.6033–2(h) in the

Federal Register.

SEC. 5. EFFECT

DOCUMENTS

OTHER

Rev. Proc. 83–23 is supplemented.

Rev. Proc. 86–23 is rendered obsolete

as of the effective date set forth above

in Sec. 4.

DRAFTING INFORMATION

The principal author of this revenue

procedure is John Francis Reilly of the

Exempt Organizations Division. For

further information regarding this revenue procedure contact Mr. Reilly on

(202) 622-7352 (not a toll-free call).

26 CFR 601.602: Tax forms and instructions.

Rev. Proc. 96–11

NOTE: This revenue procedure may be

used to prepare Tax Year 1995

Form 1042–S for submission to Internal Revenue Service (IRS) using any of

the following:

Magnetic Tape

Tape Cartridge

51⁄4-inch Diskette

31⁄2-inch Diskette

Electronic Filing

*( Bisynchronous )

*(Asynchronous)

Please read this publication carefully.

Persons required to file may be subject to penalties for failure to file or

failure to include correct information if

they do not follow the instructions in

this revenue procedure.

PLEASE NOTE:

ALL CHANGES IN THE PUBLICATION, FORMAT AND

EDITORIAL, HAVE BEEN HIGHLIGHTED BY THE USE OF ITALICS

AND DOUBLE UNDERLINES.

Contents

Part A. General

Section 1.

Section 2.

Section 3.

Purpose

Nature of Changes—

Current year (Tax Year

1995)

Where to File and How

to Contact the IRS Martinsburg Co mputing

Center (IRS/MCC)

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Section 4.

Section 5.

Filing Requirements

Form 8508, Request

for Waiver from Filing

Information Returns on

Magnetic Media

Section 6. Vendor List

Section 7. Form 4419, Application for Filing Information Returns

Magnetically/Electronically

Section 8. Test Files

Section 9. Filing of Form 1042–S

Magnetically/Electronically and Retention

Requirements

Section 10. Due Dates

Section 11. Extensions of Time to

File

Section 12. Processing of Form

1042–S Magnetically/

Electronically

Section 13. Corrected Returns

Section 14. Effect on Paper Documents

Section 15. Definition of Terms

Section 16. Major Problems Encountered

Part B. Magnetic Media Specifications

Section 1.

Section 2.

Section 3.

Section 4.

Section 5.

Section 6.

Section 7.

Section 8.

Section 9.

General

Tape Specifications

Tape Cartridge Specifications

51⁄4- and 31⁄2-Inch Diskette Specifications

Data Sequence Specifications

The Transmitter ‘‘T’’

Record

Recipient ‘‘Q’’ Record

Withholding Agent

‘‘W’’ Record

End of Transmission

‘‘Y’’ Record

Part C. Bisynchronous (Mainframe)

Electronic Filing Specifications

Section 1.

Section 2.

Section 3.

Section 4.

Section 5.

Section 6.

General

Electronic Filing Approval Procedure

Test Files

Electronic Submissions

Transmittal

Requirements

IBM 3780 Bisynchronous Communication Specifications

Section 7.

Part

Bisynchronous Electronic Filing Record

Specifications

Asynchronous

Electronic

Section 1.

Section 2.

Section 3.

Section 4.

Section 5.

Section 6.

Section 7.

Filing

(IRP–BBS)

Specifications

General

Electronic Filing Approval Procedure

Test Files

Electronic Submissions

Transmittal

Requirements

Information Reporting

Program Bulletin

Board System (IRP–

BBS) Specifications

IRP–BBS First Logon

Procedures

Part E. Magnetic/Electronic Specification for Extension Of Time

Section 1.

Section 2.

Section 3.

General Information

Magnetic Tape, Tape

Cartridge, 51⁄4- and

31⁄2-inch Diskette, and

IRP–BBS Specifications

Record Layout

PART A. GENERAL

SECTION. 1. PURPOSE

.01 The purpose of this revenue

procedure is to provide the specifications under which withholding agents

may file Form 1042–S, Foreign Person’s U.S. Source Income Subject to

Withholding, Magnetically or

Electronically.

.02 This revenue procedure supersedes the following: Rev. Proc. 93–16

1993–8 C.B. 844, published as Pub.

1187 (02–93), Specifications for Filing

Form 1042–S, Foreign Person’s U.S.

Source Income Subject to Withholding,

Electronically or on Magnetic Tape,

and 5 1⁄4-, or 3 1⁄2-Inch Magnetic

Diskettes.

.03 Revenue procedures are generally revised annually to reflect legislative and form changes. Comments concerning this revenue procedure, or

suggestions for making it more helpful

and user friendly, can be addressed to

Internal Revenue Service, Martinsburg

Computing Center, P. O. Box 1359,

Martinsburg, WV 25401 ATTN: Information Returns Branch, Mail Stop 360.

.04 It is unlawful to intentionally

transmit a computer virus to the

Internal Revenue Service. Violators

may be subject to a fine and/or

imprisonment.

SEC. 2. NATURE OF CHANGES—

CURRENT YEAR (TAX YEAR 1995 )

.01 In this publication, all pertinent

changes from the last revision have

been highlighted by the use of italics

and double underline. This has been

done for the convenience of the filers

in identifying new information. Filers

are still advised to read the publication in its entirety.

.02 EDITORIAL CHANGES—GENERAL

The following changes have been

made to the revenue procedure:

a) In Contents, Part A. General—

Section 6. Vendor List has been added

to provide guidance to those filers who

may need assistance or must engage a

vendor to file on their behalf.

b) Part A. Sec. 3.01—The closing

hour of operation at IRS/MCC has

changed from 6:00 p.m. to 4:30 p.m.

Eastern Time.

c) Part A. Sec. 3.07—Text regarding the Information Reporting Program

Centralized Call Site has been updated

to reflect the change from a pilot

operation in select areas of the country,

to a nationwide service for the payer

community.

d) Part A. Sec. 4.01—A paragraph

has been added to inform the withholding agents of filing requirements with

regard to the threshold of 250 returns.

A NOTE was added to make filers

aware of the penalty which may be

imposed when failing to comply.

e) Part A. Sec. 4.04—A note has

been added for filers, who may engage

a service bureau to file on their behalf,

to be sure not to file duplicate data.

f) Part A. Sec. 5.08—A statement

has been added advising transmitters,

who have received a waiver approval

letter, to keep it on file.

g) Part A. Sec. 9.01—A statement

has been added alerting filers of the

importance of signing Form 4804. A

NOTE was also added to direct filers to

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indicate the correct tax year on computer generated forms.

h) Part A. Sec. 9.07—Statements

have been inserted regarding the Notice

210.

i) Part A. Sec. 9.11—Information

instructing filers on retention of returns

filed or the ability to reconstruct was

added.

j) Part A. Sec. 10.02—A statement to alert filers regarding the use of

a delivery service other than U. S.

Postal has been added to emphasize the

importance of the postmark in relationship to the due date of the return.

k) Part A. Sec. 10.04—A qualifying statement has been included in the

event the due date of March 15 occurs

on a legal holiday, Saturday or Sunday.

l) Part A. Sec. 11—Information

for submitting a request for Extension

of Time to File Form 1042 and Form

1042S has changed to reflect the

correct procedures to follow.

m) Part A. Sec. 11.01—A significant change was added requiring filers

requesting an extension of time for

more than 50 withholding agents to do

so magnetically or electronically.

n) Part A. Sec. 11.14—The statement regarding extension of time to file

for Form 1042, Annual Withholding

Tax Return for U. S. Source Income of

Foreign Persons, has been changed for

greater clarity.

o) Part A. Sec 13—Corrected Returns has been revised. PLEASE READ

THIS SECTION CAREFULLY.

p) Part A. Sec. 15—Additional

words and definitions have been added

for clarification in the use of this

publication.

q) Part A. Sec 16—Major Problems Encountered has been revised.

PLEASE READ THIS SECTION

CAREFULLY.

.03 EDITORIAL CHANGES—

MAGNETIC MEDIA SPECIFICATIONS

a) Throughout the publication, the

beginning ‘‘number 22’’ has been

added to explain that all magnetic and

electronic filing of Form 1042–S requires a Transmitter Control Code

(TCC) beginning with the numbers

‘‘22’’.

b) Part B. Sec. 1.03—Moved virus

information to Part A, Section 1.04,

and deleted the statement indicating

IRS/MCC will return media which has

been found to be contaminated with a

virus.

c) Part B. Sec. 2, Tape Specifications,—Changed BPI to CPI, explained compatible tape files, and

labeled and unlabeled tapes.

d) Part B. Sec. 4—51⁄4-inch and

31⁄2-inch Diskette Specifications, .02,

.03, and .04 were added for additional

information.

e) Part B. Sec. 7, Recipient ‘‘Q’’

Record, field positions 113–121,—

Explained the use of Taxpayer Identification Number and the accompanying

letter.

f) Part B. Sec. 7, field positions

137–138,—Explained the use of OC,

Other Countries.

g) Part B. Sec. 7, field positions

309–323,—Added ‘‘note’’ to use either

the Province or the Province Code for

Canada, not both.

h) Part B. Sec. 7, field positions

324–332,—Added U. S. Territories to

the title.

i) Part B. Sec. 7, field positions

355–356,—Added ‘‘Notes’’ concerning

use of certain income codes.

j) Part B. Sec. 7, field positions

357–358,—Added ‘‘Note’’ concerning

income code 20.

k) Part B. Sec. 7, field position

370,—Added ‘‘Notes’’ for clarification

for certain income codes.

l) Part B. Sec. 8, Withholding

Agent ‘‘W’’ Record, field positions 2–

3,—Changed ‘‘Payment Year’’ to ‘‘Tax

Year’’ for consistency with ‘‘Q’’

Record.

m) Part C. Bisynchronous (Mainframe) Electronic Filing Specifications

has been added to this publication for

those filers who meet the filing requirements for magnetically or electronically

filed media and chose mainframe filing

as their mode of transmission.

n) Part D. Asynchronous (IRP–

BBS) Electronic Filing Specifications

has been added to assist filers who

chose Bulletin Board Filing as the

vehicle of transmission.

o) Part E. Record Format For

Filing Extensions Of Time Magnetically or Electronically has been added

for those filers who must request an

extension for more than 50 withholding

agents.

.04 PROGRAMMING CHANGES—

MAGNETIC MEDIA SPECIFICATIONS

a) Part B. Sec. 3—New section

added, ‘‘Tape Cartridge Specifications.’’

b) Part B. Sec. 6—Transmitter

‘‘T’’ Record

(1) All ‘‘REQUIRED’’ fields

were identified.

(2) Tax Year, field positions 2–

3,—Must be incremented by one (from

94 to 95) unless reporting for prior

year data.

c) Part B. Sec. 7—Recipient ‘‘Q’’

Record.

(1) All ‘‘Required’’ fields were

identified.

(2) Removed all references to

‘‘two or more consecutive imbedded

blanks between name parts is not

acceptable.’’

(3) Review entire Country Code

List, field positions 137–138, for additions and deletions.

(4) Added two new recipient

codes, field positions 357–358,—Codes

10 Fiduciary (estate) and 11 Fiduciary

(Other).

(5) Added a new Exemption

Code 5, field position 370, (Portfolio

interest exempt under an Internal Revenue Code Section).

(6) Added new correction indicators, ‘‘V’’ and ‘‘C’’, field position

371, and explained the process of

correcting documents using those

codes.

(7) Clarified ‘‘Note’’ for field

positions 372–373; removed the tax

rate chart, and gave reference to the

location of it in Publication 515. The

Publication 1187 may not be revised

each year.

(8) Added Income Code 16

(Compensation for Independent Personal Services) to field positions 430–

439 (Foreign Student Withholding Allowance Amount) and field positions

440–449 (Net Income Amount)

d) Part B. Sec. 8—Withholding

Agent ‘‘W’’ Record

(1) All ‘‘REQUIRED’’ fields

were identified.

(2) Tax Year, field positions 2–

3,—Must be incremented by one (from

94 to 95) unless reporting for prior

year data.

e) Part B. Sec. 9—End of Transmission ‘‘Y’’ Record

(1) All ‘‘REQUIRED’’ fields

were identified.

SEC. 3. WHERE TO FILE AND HOW

TO CONTACT THE IRS MARTINSBURG

COMPUTING CENTER (IRS/MCC)

.01 All Form 1042–S filed magnetically or electronically are processed

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at IRS/MCC. Inquiries concerning application procedures, extension of time

to file, request for a waiver from the

magnetic media filing requirements, or

filing procedures specified in this revenue procedure should be directed to

IRS/MCC. Filers may contact IRS/

MCC by telephone at (304) 263-8700

(not a toll free number). The hours of

operation are 8:30 a.m. to 4:30

p.m., Eastern Time.

.02 Send magnetic media files,

and any correspondence to MCC at the

following addresses:

If by Postal Service:

IRS, Martinsburg Computing

Center

Information Reporting Program

P.O. Box 1359

Martinsburg, WV 25401-1359

If by truck or air freight:

IRS, Martinsburg Computing

Center

Information Reporting Program

Route 9 and Needy Road

Martinsburg, WV 25401

.03 This revenue procedure and

other IRS publications concerning magnetic and electronic filing of information returns are available through the

IRP–BBS as ‘‘downloadable’’ files.

Using IRP–BBS as a means of obtaining publications will provide faster

access to this information. Publications

will be available from IRP–BBS much

earlier than the printed version. The

IRP–BBS is operational 24 hours a

day, 7 days a week. The telephone

number is (304) 264-7070.

Program. The Call Site provides serv-

.04 The IRP–BBS software provides

a menu-driven environment which allows filers to access different parts of

the bulletin board. Whenever possible,

IRS/MCC personnel will provide assistance in resolving communication problems with IRP–BBS.

.05 The telephone number for the

IRS/MCC fax machine is (304) 2645602.

.06 IRS/MCC has installed Telecommunications Devices for the Deaf

(TDD). The number is (304) 267-3367.

.07 INFORMATION REPORTING PROGRAM CENTRALIZED

CALL SITE. The Call site is located

ice to the payer community (financial

institutions, employers, and other transmitters of information returns).

.08 The Call Site accepts calls

from all areas of the country. The

FAX: 202-874-5440

.11 Requests for paper returns, publications and forms not related to

magnetic media processing MUST be

requested by calling the IRS toll free

number 1-800-TAX FORM

(1-800-829-3676).

SEC. 4. FILING REQUIREMENTS

number to call is (304) 263-8700 or

Telecommunications Device for the

.01 Under section 6011(e)(2)(A)

Deaf (TDD) (304) 267-3367. These are

of the Internal Revenue Code, any per-

toll calls. Hours of operation for the

son, including a corporation, part-

Call Site are Monday through Friday,

nership, individual, estate, and trust,

8:30 a.m. to 4:30 p.m. Eastern Time.

who is required to file 250 or more in-

The Call Site is open throughout the

formation returns must file such re-

year to answer questions related to

magnetic media and tax law filing of

Form 1042–S, Questionable W–4’s,

Form 8027, all information returns,

and backup withholding due to missing

and incorrect taxpayer identifications

numbers. Due to the high demand for

assistance at the end of January and

February, it is advisable to call as

soon as possible to avoid these peak

filing

turns magnetically/electronically. Withholding agents who meet the threshold

of 250 or more Form 1042–S are required to submit their information

electronically or magnetically. Even if

the withholding agent does not meet

the required filing threshold of 250

documents, IRS encourages them to do

so.

NOTE: Those withholding agents who

seasons.

.09 For assistance with regard to

are required to file on magnetic media

the reporting of Form 1042-S, nonresi-

but fail to do so, and do not have an

dent alien withholding, magnetic media

approved waiver, may be subject to a

filing, and processing requirements,

penalty of $50 per return for failure to

contact:

file Form 1042–S on magnetic media.

Martinsburg Computing Center

Information Reporting Program

TEL: 304-263-8700

FAX: 304-264-5602

.10 If you need help with regard

to nonresident alien withholding re

quirements, contact:

Office of the Assistant Commissioner (International)

ATTN: Taxpayer Service Division

950 L’Enfant Plaza South, SW

at IRS/MCC and operates in conjunc-

Washington, D. C. 20024

tion with the Information Reporting

TEL: 202-874-1460

The penalty applies separately to original and corrected returns.

.02 Filers who are required to

submit their Form 1042–S on magnetic

media may choose to submit their

documents electronically instead. Filers

who transmit their information

electronically are considered to have

satisfied the magnetic media filing

requirements.

.03 The filing requirement applies

individually to each reporting entity as

defined by its separate Taxpayer Identification Number (TIN) (Social Security

Number [SSN] or Employer Identification Number [EIN]). For example, if

filing for a corporation with several

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branches or locations and each uses the

same name and EIN, the filer must

aggregate the total volume of returns to

be filed for that EIN and apply the

filing requirement accordingly.

.04 This requirement applies separately to original and corrected documents. For example, 300 original

documents are filed magnetically or

electronically. If 200 documents were

filed with erroneous information, corrections may be submitted on paper

forms.

NOTE: IF FILERS MEET THE FILING

REQUIREMENTS AND ENGAGE A

SERVICE

BUREAU

PREPARE

MEDIA ON THEIR BEHALF, THE

FILERS SHOULD NOT REPORT DUPLICATE DATA WHICH MAY CAUSE

PENALTY

NOTICES

GENERATED.

.05 These requirements shall not

apply if the withholding agent submits

an application for and is granted an

undue hardship waiver. (See Part A.

Sec. 5.)

.06 For additional information on

filing requirements, please refer to the

1995 Paper Instructions for FORM

1042–S.

SEC. 5. FORM 8508, REQUEST FOR

WAIVER FROM FILING INFORMATION

RETURNS ON MAGNETIC MEDIA

withholding

agent

submits

the

files

the

prescribed

types

original Form 1042–S on magnetic

magnetic

media,

250,

filing. It also contains the names

may be submitted on paper. How-

of vendors who provide software

ever, if you can submit your original

packages for payers who wish to

returns on magnetic media but not

produce

your corrections, you must request a

tronic files on their own computer

waiver for those exceeding the 250.

systems. This list is provided as

.04 Waivers are evaluated on a

case-by-case basis and are approved or

denied based on regulation criteria set

forth under section 6011(e) of the

Internal Revenue Code. The transmitter

must allow a minimum of 30 days for

IRS/MCC to respond to a waiver

request.

.05 Failure to provide all of the

information requested on the Form

8508 and/or the cost estimates, if

applicable, will result in an automatic

denial of the waiver request.

.06 An approved waiver will only

provide exemption from magnetic or

electronic filing for one tax year. A

waiver may not be requested for more

than one tax year at a time. If needed,

the withholding agent must apply each

year for a waiver.

.07 A copy of Form 8508 may be

obtained by calling 1-800-829-3676.

Form 8508 may be photocopied or

computer-generated as long as it contains all the information requested on

the original form.

.08 If a waiver request is ap-

as a courtesy and in no way implies

proved, the transmitter should keep

ware package, has the ability to pro-

corrections,

less

than

media

magnetic

via

electronic

media

elec-

IRS/MCC approval or endorsement.

NOTE:

filers

meet

the

filing

requirements and engage a service

bureau to prepare media on their

behalf, the filers should not report

duplicate data which may cause

penalty notices to be generated.

.02 A withholding agent may contact IRS/MCC via telephone or letter

(See Part A. Sec. 3) to acquire the

vendor list (Publication 1582). This information is also available from the Information Reporting Program Bulletin

Board

System

(IRP/BBS).

Vendor

names will not be provided over

the telephone.

.03 A vendor, who offers a soft-

the approval letter on file.

duce magnetic media for customers, or

.01 Withholding agents required

to file Form 1042–S magnetically or

electronically may receive a waiver if

the requirement would create an undue

hardship. The withholding agent may

request a waiver by submitting Form

8508, Request for Waiver From Filing

Information Returns on Magnetic

Media, to IRS/MCC.

.02 A separate Form 8508 must be

submitted by each withholding agent.

Filers are encouraged to submit Form

8508 at least 45 days before the due

date of the return.

.03 If a waiver for original

.09 An approved waiver from filing information returns magnetically or

electronically does not provide exemption from filing; the withholding agent

must still file information returns on

acceptable paper forms with the Philadelphia Service Center. Do not include

a copy of the approved waiver with the

paper forms.

has the capability to electronically

documents is approved, any correc-

media

tions for the same type of returns

list

contains

the

names

will be covered under this waiver. If

ice

bureaus

that

will

file information returns, and would like

to be included on the list, must submit

a written request to IRS/MCC. The request should be submitted by August 15

and

must

include:

(a) Company

SEC. 6. VENDOR LIST

name

(b) Address (include city, state,

.01 IRS/MCC prepares a list of

vendors

who

support

electronic

magnetic

filing.

This

serv-

produce

and ZIP code)

area code)

(d) Contact person

(e) Type(s) of service provided

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(e.g., service bureau and/or software)

(f) Type(s) of media offered

(e.g., magnetic tape, tape cartridge or

5 1⁄4-,

3 1⁄2-inch

tronic

filing)

diskettes

elec-

.04 The vendor list is updated

annually. Therefore, any changes to

information already on the vendor list

must be received by IRS/MCC no later

than August 15 to be included on the

most

current

vendor

list.

SEC. 7. FORM 4419, APPLICATION

FOR FILING INFORMATION RETURNS

MAGNETICALLY/ELECTRONICALLY

.01 Withholding agents or their

agents must complete and submit Form

4419, Application for Filing Information Returns Magnetically/Electronically, before they may file Form

1042–S magnetically or electronically.

Applications for tape, tape cartridge,

diskettes, and IRP–BBS may be submit

uted at any time during the year;

however, the Form 4419 must be filed

at least 30 days before March 15 in

order to allow time to receive a

response from IRS/MCC and timely

file the returns.

.02 A copy of Form 4419 may be

obtained by calling 1-800-TAX-FORM

(1-800-829-3676). Instructions on the

back of this form should be read carefully. This form may be photocopied.

.03 The filer will receive an approval letter that will contain a fivedigit Transmitter Control Code (TCC)

beginning with the numbers ‘‘22’’. DO

NOT SUBMIT Form 1042–S USING A

TCC ASSIGNED FOR THE PURPOSE OF

FILING OTHER INFORMATION RETURNS.

Form 1042–S may not be filed electronically or magnetically until an

application has been approved and a

TCC assigned. For documents to be

filed electronically using IBM 3780

bisynchronous protocols, Form 4419

must be submitted at least 45 days

prior to the due date of the returns.

A magnetic media reporting package

containing the current revenue procedure, forms, labels, and instructions

will be sent annually to the attention of

the contact person indicated on Form

4419.

.04 Once a TCC has been assigned, it is not necessary to reapply

each year. If the information provided

on Form 4419 changes, (for example,

the organization’s name or the contact

person) notify IRS/MCC in writing so

the appropriate files may be updated. In

ALL correspondence with IRS/MCC, include the TCC in order to assist IRS

personnel in locating the correct files.

.05 If a withholding agent’s files

are prepared by a service bureau, it

may not be necessary to submit an

application to obtain a TCC. Some

service bureaus will produce files, code

their own TCC on the media, and send

it to IRS/MCC for the withholding

agent. Other service bureaus will prepare magnetic media and return the

media to the withholding agent for

submission to IRS/MCC. These service

bureaus may require the withholding

agent to obtain a TCC to be coded in

the ‘‘T’’ Record. Withholding agents

should contact their service bureaus for

further information.

.06 Filers must have a TCC to

transmit data electronically. If a filer

has been assigned a TCC to file

magnetically and later chooses to file

electronically, it is not necessary to

apply for another TCC as long as the

TCC begins with the digits ‘‘22’’.

.07 When initial contact is made

with the IRP–BBS, filers will be instructed to assign their own password

and do not need prior approval, other

than a valid TCC.

SEC. 8. TEST FILES

.01 IRS/MCC does not require test

files but encourages first-time magnetic

media or electronic filers to submit a

test for review prior to the filing

season. IRS/MCC will check the file to

ensure it meets the specifications of

this revenue procedure.

.02 Application Form 4419 must

be filed with IRS/MCC and a TCC

must be assigned before test files are

submitted.

.03 Approved withholding agents

or their agents may submit test files to

IRS/MCC. IRS/MCC requires that all

test files be submitted between December 1 and February 15.

.04 Include a completed Form

4804, 4802, or computer-generated substitute. Clearly mark the ‘‘Test’’ box

on Form 4804 and media label Form

5064. On Form 4804 in the block

marked ‘‘Combined total number of

Payee records reported’’ provide the

total number of recipient ‘‘Q’’ records.

.05 If a test file is submitted

electronically, the filer will be

prompted for what type of file is being

transmitted. Choose the option T = Test

File. Once the file has been transmitted, complete Form 4804/4802 indicating TEST File in Box 1 and send to

IRS/MCC the same day. No processing

will begin until this form is received by

IRS/MCC. For additional information

on electronic filing, see Part C. and

Part D.

.06 IRS/MCC will send an acknowledgment to indicate the test results. Unacceptable magnetic media

files, along with documentation identifying the errors, will be returned to the

filer for replacement. Resubmission of

replacement magnetic media test files

must be postmarked no later than

February 15. Electronic filers will also

receive documentation identifying errors. Electronically filed tests must be

resubmitted on or before February 15.

.07 IRS/MCC does not return media once it has been successfully

processed.

SEC. 9. FILING OF FORM 1042–S

MAGNETICALLY/ELECTRONICALLY AND

RETENTION REQUIREMENTS

.01 Form 4804, Transmittal of Information Returns Reported Magnetically/Electronically, Form 4802,

Transmittal of Information Returns Reported Magnetically/Electronically

(Continuation), or computer-generated

substitute, MUST accompany ALL magnetic media shipments. For electronic

transmissions, the Form 4804 (and

Form 4802, if applicable) must be sent

the same day as the electronic transmission. Form 4802 is a continuation

of Form 4804 and should only be used

if the filer is reporting for multiple

withholding agents and has the authority to sign the affidavit on Form

4804. Failure to sign the affidavit on Form 4804 may delay processing or could result in the files being

returned unprocessed. Form 4802

is not a stand-alone form; it can only

accompany Form 4804.

.02 IRS/MCC encourages the use

of computer-generated substitutes for

Form 4804/4802 (See Note). The substitutes must contain all information

requested on the original forms includ-

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ing the affidavit and signature line.

Photocopies are acceptable but an

original signature is required.

Note: Be sure, when using computer

generated forms, to clearly mark which

tax year is being reported. This will

eliminate a phone call from IRS/MCC

question

the

tax

year.

.03 Current and prior year data

may be submitted in the same shipment; however, each tax year must be

on separate media, and a separate

Form 4804 must be prepared to clearly

indicate each tax year.

.04 Filers who have prepared their

information returns in advance of the

due date are encouraged to submit this

information to IRS/MCC no earlier

than January 1 of the year the return is

due.

.05 Do not report duplicate information. If a filer submits returns

magnetically/electronically, identical

paper documents must not be filed.

This may result in erroneous penalty

notices.

.06 Although an authorized agent

may sign the affidavit, the withholding

agent is responsible for the accuracy of

the Form 4804, the returns filed, and

will be liable for penalties for failure to

comply with filing requirements.

.07 An external label, Form 5064,

must be affixed to each tape, tape

cartridge, and diskette submitted. If

diskettes are used, and the operating

system is not MS/DOS compatible, the

operating system and hardware information must be provided. Failure to

provide this information may result in

the media being returned to the filer.

The following information is needed

on the label:

(a) Type of filing (i.e.,

Original).

(b) The tax year of the data

(i.e., 1995.)

(d) The five digit Transmitter

Control Code (TCC) beginning

(f) The total number of ‘‘Q’’

records in the file.

(g)

ransmitter’s media number. The number assigned to the media

by the transmitter.

(h) The sequence of each tape

or diskette (i.e., 001 of 008, 002 of

008, . . . , 008 of 008).

Information provided on the Form

5064 will assist IRS/MCC in identifying information that is reported and in

locating a specific file if it is necessary

to return the file to the transmitter.

.08 On the outside of the shipping

container, affix or attach Form 4801 or

a substitute for the form, which reads

‘‘DELIVER UNOPENED TO TAPE

LIBRARY—MAGNETIC MEDIA REPORTING

BOX

.’’ If there is only one container,

mark the outside as Box 1 of 1. For

multiple containers, include the sequence (for example, Box 1 of 3, 2 of

3, 3 of 3).

.09 When submitting files include

the following:

(a) A signed Form 4804;

(b) Form 4802, if applicable;

affixed to the magnetic media;

(d) and Form 4801, outside

label.

.10 IRS/MCC will not pay for or

accept ‘‘Cash-on-Delivery’’ or

‘‘Charge to IRS’’ shipments of tax

information that an individual or organization is legally required to submit.

.11 In general, withholding agents

service other than the U.S. Postal

Service the date of receipt will be the

date

received

IRS/MCC.

.03 Copies of Form 1042–S information must also be furnished to the

recipient

March

15.

.04 If the due date of March 15

falls on a Saturday, Sunday, or a legal

holiday, the return to IRS and the

statement to recipient is considered

timely if filed with IRS and furnished to

the recipient on the next business day.

.05 Late filed media could result

in a penalty for failure to file correct

information returns by the due dates.

(For information on penalties, refer to

the Penalty Section of the 1995 Instructions

for

Form

1042–S).

SEC. 11. EXTENSIONS OF TIME TO

FILE

should retain a copy of the information

.01 For Tax Year 1995 (returns

due to be filed in 1996), transmitters

requesting an extension of time to file

for more than 50 withholding agents

are required to file the extension

request on magnetic media or via IRPBBS or electronically. (See Part E.

returns filed with IRS or have the

MAGNETIC/ELECTRONIC SPECIFI-

ability to reconstruct the data for at

CATIONS

least 3 years from the reporting due

TIME.) Transmitters requesting an ex-

date.

SEC. 10. DUE DATES

numbers ‘‘22’’.

(e) Operating system software

and hardware used to create the file

(i.e., IBM PC/AT-MS/DOS, Apple

.01 The due dates for filing paper

returns with IRS also apply to magnetic

media or electronic filing. Filing of

Form 1042–S is on a calendar year

basis. Files must be submitted to IRS/

MCC postmarked no later than March

15.

.02 Form 1042–S returns filed

magnetically must be submitted to IRS/

MCC postmarked or, (if other than the

MacIntosh/MacWrite

U.S. Postal Service) received no later

V2.2).

than March 15. When using delivery

FOR

EXTENSION

tension of time for 10 or more withholding agents are encouraged to file

the request magnetically or electronically. Acceptable types of media are

tape, tape cartridge, 51⁄4- and 31⁄2-inch

diskette.

.02 If a Withholding Agent is requesting an extension of time to file

Form 1042–S, either on paper or

magnetically/electronically, they must

submit Form 8809, Request for Extension of Time to File Information Returns (Rev. 3–95) to IRS/MCC by

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March 15. If approved, an extension

If the request is denied, the statements

Coordinator

will be granted for 30 days. A FORM

Route 9 and Needy Road, MS-360

must be sent to the recipients timely.

2758 IS NO LONGER ACCEPTABLE TO

Martinsburg,

The request must be postmarked by the

REQUEST AN EXTENSION OF TIME TO

FILE

FORM

1042–S.

.03 Failure to properly complete

and sign the Form 8809 may cause

delays in processing the request or

result in a denial. Please read and

follow the instructions on the back of

the Form 8809 carefully.

.04 Withholding agents may request an extension of time to file for

30 days as soon as they are aware

that an extension is necessary, but, no

later than the due date of the return. It

will take a minimum of 30 days for

IRS/MCC to respond to an extension

request. Under certain circumstances a

request for an extension of time could

be denied. In such cases, the withholding agent receives a denial letter. When

this denial letter is received, the

withholding agent has 20 days to

provide additional or necessary information and resubmit the extension

request to IRS/MCC.

.05 If an additional extension of

time is needed, a second Form 8809

may be submitted before the end of the

initial extension. Line 7 on the form

should be checked to indicate that the

original extension has been received

and the additional extension is being

requested. A second 30-day extension

will be approved only in cases of

extreme hardship or catastrophic

event.

.06 A filer may only request an

extension of time for the tax year of

the returns that are due to be filed with

IRS.

.07 A magnetically filed request

for an extension of time should be

25401

.08 Transmitters who submit request for multiple withholding agents

will receive one approval letter with an

attached list of withholding agents

covered under that approval.

.09 If an extension of time to file

magnetically or electronically is

granted, do not include a copy of the

letter granting the extension with Form

4804 or computer-generated substitute

or to the processing site with the paper

Form 1042–S.

.10 IRS/MCC will only grant an

extension of time to file paper or

1042–S, Foreign Person’s U.S. Source

Income Subject to Withholding.

.11 An approved extension of time

for magnetic and electronic filing does

not provide additional time for supplying the statement to recipient. Requests

for an extension of time to provide the

recipient copy must be sent to the IRS/

MCC.

.12 Request an extension of time

to furnish the statements to recipients

by submitting a letter to IRS/MCC

containing the following information:

(a) Withholding Agent’s Name

(b) TIN

(d) Type of Return

(e) Specify that the extension

request is to provide statements to

recipients.

(f) Reason for Delay

(g) Signature

Postal

Service:

Withholding

Agent or Person Duly Authorized

ATTN:

Requests for an extension of time to

time

Coordinator

IRS-Martinsburg Computing Center

Extension

furnish the statements of Form 1042–S

P. O. Box 879, MS-360

are not automatically approved; how-

Kearneysville, WV 25430

ever, if approved, generally an exten-

sion will allow a maximum of 15

truck

air

freight:

IRS-Martinsburg Computing Center

additional days from the due date to

ATTN:

furnish the statements to the recipients.

Extension

Time

to the recipients.

.13 An approved extension grants

additional time to file the Form 1042–S

with IRS/MCC ONLY. This does not

include Form 1042 which is an actual

tax return. Any tax due must still be

paid timely.

.14 To request an extension of

time to file Form 1042, submit Form

2758 with the IRS at the following

address:

Internal Revenue Service Center

Philadelphia, PA 19255

magnetically/electronically filed Form

sent using the following addresses:

date on which the statements are due

SEC. 12. PROCESSING OF FORM

1042–S MAGNETICALLY/

ELECTRONICALLY

.01 All data received at IRS/MCC

for processing will be given the same

protection as individual income tax

returns (Form 1040). IRS/MCC will

process the data and determine if the

records are formatted and coded according to this revenue procedure.

.02 When the magnetic media is

returned to the transmitter for replacement, a listing identifying the type of

errors and frequency of such errors will

be provided. It is the responsibility of

the transmitter to check the entire file

for similar errors. The transmitter must

correct the problems and submit a

replacement file to IRS/MCC.

.03 Some conditions may not require corrective actions. For example,

certain recipients should have had tax

withheld at a particular rate, but the

withholding agent withheld at a different tax rate. The withholding agent

should verify that the tax rates in

question are in fact the rates at which

tax was withheld. A letter must accompany the original and/or replacement

files stipulating that the amount withheld is accurate.

.04 The following definitions have

been provided to help distinguish between a correction and a replacement:

A correction is an information return

submitted by the transmitter to correct

an information return that was successfully processed by IRS/MCC, but

contained erroneous information.

A replacement is media that IRS/

MCC has returned due to format or

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coding errors encountered during

processing.

Media returned should receive

prompt attention. After necessary

information, refer to the Penalty sec-

necessary, the corrections may be filed

on paper if the 250 correction document threshold has not been met.

.03 If the withholding agent has

250 or more corrections, they MUST

be submitted to IRS/MCC magnetically

or electronically unless a waiver has

been granted. If a waiver was granted

for original Form 1042–S, this waiver

applies to the corrections as well.

.04 Corrected returns MUST NOT

be included on the same media or sent

in the same electronic transmission

with original returns.

.05 Form 4804 and Form 4802

must be submitted with corrected

magnetically/electronically submitted

files.

.06 The record sequence for filing

corrections is the same as for original

returns.

.07 Review the chart that follows.

tion of the 1995 Instructions for Form

Each

1042–S.)

TRANSACTIONS.

changes have been made, these files

are to be returned to IRS/MCC within

45 days from the date of notice or the

withholding agent may be subject to a

failure to file penalty. A penalty may

also be assessed if the media is

returned to the withholding agent more

than two times. A penalty for intentional disregard of filing requirements

will be assessed if a replacement file is

not returned to IRS/MCC. (For penalty

.05 IRS/MCC will not return media after successful processing. Therefore, if the transmitter wants proof that

IRS/MCC received a shipment, the

transmitter should select a service with

tracing capabilities or one that will

provide proof of delivery.

.06 IRS/MCC will work with

filers as much as possible to assist with

processing problems. If the filer is

contacted by IRS/MCC, please respond

promptly. IRS/MCC may have information that the filer needs to correct their

file.

.07 Do not use special shipping

containers for transmitting data to IRS/

MCC. Shipping containers will not be

returned.

SEC. 13. CORRECTED RETURNS

.01 Form 1042–S is required to be

filed magnetically or electronically if

250 or more returns are filed. This

requirement applies separately to both

original and corrected returns.

.02 If Form 1042–S is filed magnetically or electronically, and later the

filer determines that corrections are

correction

requires

TWO

e. Prepare a ‘‘W’’ Record.

TRANSACTION 2: Report the correct

information

a. Prepare a new file with the

correct information in all records.

b. Make a separate ‘‘T’’ Record for

each

c. The ‘‘Q’’ Record must show the

correct information as well as a ‘‘C’’

in field position 371, Corrected Return

Indicator.

d. Prepare

turns Magnetically/Electronically

‘‘W’’

Record.

e. ‘‘V’’ and ‘‘C’’ Coded Corrected

returns submitted to IRS/MCC may be

on the same tape or diskette, but must

have

separate

‘‘T’’

Records.

f. Check the ‘‘Correction Box’’ on

the

Guidelines for Filing Corrected Re-

transmitter.

Form

5064.

.08 See the 1995 ‘‘Instructions for

Form 1042–S’’ for information on

filing

paper

corrections.

TRANSACTION 1: Identify incorrect

returns

a. Prepare a new Form 4804/4802

that includes information related to

this file.

b. Mark ‘‘Correction’’ in Block 1 of

Form

4804.

c. Prepare a new file. Make a

separate ‘‘T’’ Record. The information

in the ‘‘T’’ Record will be exactly the

same as it was in the original

SEC. 14. EFFECT ON PAPER

DOCUMENTS

.01 Magnetic or electronic reporting eliminates the need to submit paper

Form 1042–S to IRS.

.02 Even though the threshold for

filing Form 1042–S magnetically or

electronically is 250 or more, IRS

encourages transmitters to submit all

returns magnetically or electronically.

.03 The address for filing paper

Form 1042–S and Form 1042 is:

Internal Revenue Service Center

Philadelphia, PA 19255

submission.

d. The Recipient ‘‘Q’’ Record must

Do NOT send paper Form 1042–S or

contain exactly the same information

Form

as submitted previously except insert a

.04 If the returns were filed magnetically or electronically with IRS/

MCC, do not send paper returns to

Philadelphia. Duplicate filing may

cause penalty notices to be generated.

‘‘V’’ in field position 371, Corrected

Return Indicator.

1042

IRS/MCC.

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SEC. 15. DEFINITION OF TERMS

Element

Description

Asynchronous Protocols

The type of data transmission most often used by micro-computers, PCs and

some mini-computers. Asynchronous transmissions transfer

data at arbitrary time intervals using start-stop method. Each

character transmitted has its own start bit and stop bit.

Denotes a blank position. Enter blank(s) when this symbol is used (do not

enter the letter ‘‘b’’). This appears in numerous areas throughout the record

descriptions.

For purposes of this publication, these are electronic transmissions made using IBM 3780 protocols. These transmissions

must be in EBCDIC character code and use the Bell 208B

(4800bps) or AT&T 2296A (9600bps) modems. Standard IBM

3780 space compression is acceptable.

Bisynchronous Protocols

Blocked records

Correction

Two or more records grouped together between interrecord gaps.

Media submitted by the payer to correct records that were successfully processed by IRS/MCC, but contained erroneous

information.

Employer Identification Number (EIN)

A nine-digit number assigned by IRS to a person for Federal tax reporting

purposes.

Submission of information returns using switched telecommunications

network circuits. These transmissions use modems, dial-up phone lines,

asynchronous or bisynchronous protocols (see Part C and D of this

publication for specific information on electronic filing).

For the purpose of this revenue procedure, a file consists of all records

submitted by a transmitter either magnetically or electronically.

Electronic Filing

File

Filer

Person or organization who prepares and submits files. May be the

withholding agent and/or transmitter.

Information Reporting Program Bulletin

Board System (IRP–BBS)

IRS/MCC

An electronic bulletin board provides the ability to transmit information

returns via a personal computer (PC) using dial-up modems; provides

immediate access to the latest changes, updates, and publications.

Internal Revenue Service/Martinsburg Computing Center

Magnetic Media

Refers to 1⁄2-inch magnetic tape, tape cartridge, 5 1⁄4- or 31⁄2-inch diskettes.

Multi-reel/diskette file

A group of tapes or diskettes submitted under one TCC where all media

either ends with a Recipient ‘‘Q’’ Record or Withholding Agent ‘‘W’’

Record, EXCEPT for the last media of the file, which ends with an End of

Transmission ‘‘Y’’ Record. (Refer to Part B. Sec. 5 for data sequence)

Person or organization who is the originator of income and enters into a

contractual agreement with the withholding agent for the purpose of

disbursing income for the payer. For example, Corporation X is about to

declare a dividend. Corporation X contracts Bank Y to calculate and

distribute such dividends to recipients, and be responsible for withholding.

Corporation X is considered the Payer and Bank Y is considered the

Withholding Agent.

Person or organization receiving payments from a withholding agent.

Media that IRS/MCC has returned due to format errors encountered during

processing.

Payer

Recipient

Replacement

Service Bureau

Person or organization with whom the payer has a contract to prepare and/

or submit information return file to IRS/MCC. a parent company

submitting data for a subsidiary is not considered a service bureau.

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Element

Description

Social Security Number (SSN)

A nine-digit number assigned by the Social Security Administration (SSA)

to an individual for tax and wage reporting purposes.

Special Character

Any character that is not a numeral, an alpha, or a blank.

Taxpayer Identification Number (TIN)

May be either a Social Security Number (SSN) or an Employer

Identification Number (EIN).

Transmitter

Person or organization who prepares and submits files. May be the

withholding agent or their agent.

Transmitter Control Code (TCC)

A five-digit code assigned prior to filing. This number is inserted in the

‘‘T’’ Record and must be present. A Form 4419 must be filed with IRS/

MCC to receive this number. Transmitter control codes assigned to 1042–S

filers will always begin with ‘‘22’’.

Withholding Agent

A person or entity, U.S. or foreign, required to withhold U.S. tax on

payments of income subject to withholding from U.S. sources. A

withholding agent may be an individual, partnership, corporation, trust,

estate, government agency (Federal, State or local), association, or a taxexempt foundation or organization. The withholding agent is responsible for

the completeness, accuracy, and timely submission of files.

SEC. 16. MAJOR PROBLEMS ENCOUNTERED

PLEASE READ THE FOLLOWING LIST OF MAJOR PROBLEMS ENCOUNTERED. BEFORE SUBMITTING FILES,

REVIEW THE CONTENT AND FORMAT CAREFULLY TO ENSURE THE SPECIFICATIONS IN THIS PUBLICATION

HAVE BEEN CORRECTLY FOLLOWED. CHECK TO BE SURE THE CONTENT OF EACH TYPE OF RECORD IS

ACCURATE. THIS MAY ELIMINATE THE NEED FOR IRS/MCC TO RETURN THE FILE FOR REPLACEMENT, AND

THEREFORE REDUCE THE LIKELIHOOD OF A PENALTY ASSESSMENT FOR INCORRECT SUBMISSIONS. If due

to unavoidable circumstances the data would be unacceptable to IRS/MCC, (e.g., math or tax rate errors), include a letter of

explanation with each submission.

Listed below are some of the most common problems:

1. Records formatted incorrectly.

Failure to format records correctly will result in files being returned for replacement.

2. Incorrect or missing Transmitter Control Code.

Filers MUST use the unique Transmitter Control Code (TCC) assigned for Form 1042–S reporting (Beginning numbers

‘‘22’’). Application procedures are provided in Part A. Sec. 7 of this revenue procedure.

3. Missing Form 4804

Form 4804, Transmittal of Information Returns Reported Magnetically/Electronically, must accompany each magnetic media

shipment or electronic transmission. Forms 1042–S filed magnetically or electronically are not considered complete until a

signed Form 4804 is received by IRS/MCC.

4. Incorrect format of the Recipient Name Line.

The recipient’s surname should be reported first, followed by given names. However, if the recipient’s surname is not

entered in position 139, the filer MUST enter an asterisk that immediately precedes the recipient’s surname. If the surname

is reported first, the asterisk MUST be omitted, since an asterisk is not valid in the first position of Recipient Name Line

One.

5. Incorrect record sequence.

To be acceptable, records must be in a specific sequence. If this sequence is not followed, the file will be returned for

replacement. (Refer to Part B. Sec. 5)

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6. Incorrect block size.

Some of the files received at IRS/MCC are blocked incorrectly causing media to be returned. Refer to Part B. Magnetic

Media Specifications, Sec. 2. Tape Specifications for the correct block size for submitting Form 1042–S magnetically. A

block may not exceed 15,000 characters, although, shorter blocks may be used.

7. Incorrect Country Code in positions 137–138 of the Recipient ‘‘Q’’ Record and rate of tax withheld.

If the letters OC (which should be used ONLY when absolutely necessary) are used, the rate of tax withheld MUST be the

maximum applicable rate.

8. Incorrect Country Name in positions 335–354 of the Recipient ‘‘Q’’ Record.

This is a Required field; please read the Description and Remarks portion carefully. This may or may not be the same

country as indicated in Country Code, field position 137–138. Do not use Other Country; USA; US; outside of USA; United

States.

9. Incorrect Tax Rate, Field position 372–373 of the Recipient ‘‘Q’’ Record.

This is a Required field with very specific acceptable codes. Please ensure the accuracy of the correct tax rate depending on

the proper country code and/or exemption code.

10. Incorrect Exemption Code in field position 370.

This is a Required field which causes many processing errors. Please read carefully the description and remarks portion,

along with the note at the bottom to eliminate the possibility of errors.

11. Incorrect Recipient Address Fields.

Be sure to use specific breakdown of the address in the following positions:

244—283 Street Address

284—308 City

309—323 Province Name

324—332 Postal Code

333—334 U.S. State Code

335—354 Country Name

PART B. MAGNETIC MEDIA SPECIFICATIONS

SEC. 1. GENERAL

.01 These specifications prescribe the required format and content of the records to be included in the

magnetic media file. Usually, IRS/MCC will be able to process any compatible file. Deviations cannot and will not be

permitted in any of the data fields.

.03 Regardless of the type of media used or if returns are filed electronically, the record length must be 500 positions.

SEC. 2. TAPE SPECIFICATIONS

.01 In most instances, IRS/MCC can process any compatible magnetic tape file if the following specifications are met:

(a) 9-track EBCDIC (Extended Binary Coded Decimal Interchange Code) with:

(1) Odd parity

(2) Recording density—1600 or 6250 CPI

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

(1) Odd Parity

(2) Recording density—1600 or 6250 CPI

(3) If using UNISYS Series 1100/2200, an Interchange tape with ASCII Recording mode should be used.

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(4) If both ASCII and EBCDIC recording is available, ASCII should be used.

.02 All compatible tape files must have the following characteristics: Type of tape—1⁄2-inch (12.7 mm) wide, computergrade magnetic tape on reels of up to 2,400 feet 731.52 m) within the following specifications:

(a) Tape thickness: 1.0 or 1.5 mils, and

(b) Reel diameter: 101⁄2-inch (26.67 cm), 81⁄2-inch (21.59 cm), 7-inch (17.78 cm), or 6-inch.

.03 The tape records may be blocked subject to the following:

(a) A block may not exceed 15,000 tape positions.

(b) If the use of blocked records would result in a short block, all remaining positions of the block must be filled

with 9’s; however, the last block of the file may be filled with 9’s or truncated. Do not pad a block with blanks.

control fields or block descriptor fields which describe the length of the block or the logical records within the block. The

number of logical records within a block (the blocking factor) must be constant in every block with the exception of the last

block which may be shorter (see item b above). The block length must be evenly divisible by 500.

(d) Records may not span blocks.

.04 Labeled or unlabeled tapes may be submitted.

.05 Tape header and trailer labels, record marks, and tape marks are all optional. If used, they must conform to the

following standards:

(a) Header labels must begin with VOL1, VOL2, HDR1, HDR2, or 1HDR. They must be the first record(s) on the

reel immediately before the Transmitter ‘‘T’’ Record. Header labels may not exceed 80 characters in length.

(b) Trailer labels must begin 1EOR, 1EOF, EOF1, or EOR1. They must be the last record(s) on the reel, after the

‘‘Y’’ record and tape mark (if a tape mark is used). Trailer labels may not exceed 80 characters in length.

record. If both header and trailer labels are used, the tape mark must follow the header label and must precede and/or follow

the trailer label(s).

SEC. 3. TAPE CARTRIDGE SPECIFICATIONS

.01 In most instances, IRS/MCC can process tape cartridges that meet the following specifications:

(a) Must be IBM 3480, 3490 or AS400 compatible.

(b) Must meet American National Standard Institute (ANSI) standards, and have the following characteristics:

(1) Tape cartridges will be 1⁄2-inch tape contained in plastic cartridges which are approximately 4-inches by

5-inches by 1-inch in dimension.

(2) Magnetic tape will be chromium dioxide particle based 1⁄2-inch tape.

(3) Tape Cartridges must be 18-track or 36-track parallel. (See Note.)

(4) Tape Cartridges will contain 37,871 CPI or 75,742 CPI (characters per inch).

(5) Mode will be full function.

(6) The data may be compressed using EDRC (Memorex) or IDRC (IBM) compression.

(7) Either EBCDIC (Extended Binary Coded Decimal Interchange Code) or ASCII (American Standard Coded

Information Interchange) may be used, but we highly encourage ASCII.

.02 The tape cartridge records defined in this revenue procedure may be blocked subject to the following:

(a) A block must not exceed 15,000 tape positions.

(b) If the use of blocked records would result in a short block, all remaining positions of the block must be filled

with 9’s; however, the last block of the file may be filled with 9’s or truncated. Do not pad a block with blanks.

control fields or block descriptor fields which describe the length of the block or the logical records within the block. The

number of logical records within a block (the blocking factor) must be constant in every block with the exception of the

last block which may be shorter (see item b above). The block length must be evenly divisible by 500.

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(d) Records may not span blocks.

.03 Tape cartridges may be labeled or unlabeled.

.04 For the purposes of this revenue procedure, the following must be used:

Tape Mark:

(a) Used to signify the physical end of the recording on tape.

(b) For even parity, use BCD configuration 001111 (8421).

Note: Filers should indicate on the Form 5064 Label and transmittal Form 4804 whether the cartridge is 18- or 36-track,

and if cartridges are ASCII or EBDIC format.

SEC. 4. 51⁄4-INCH AND 31⁄2-INCH DISKETTE SPECIFICATIONS

(a) 51⁄4- or 31⁄2-inches in diameter.

(b) Data must be recorded in standard ASCII code. For 51⁄4-inch diskettes, data may be recorded using EBCDIC if

the diskette is created on an IBM System 36.

(d) Delimiter character commas (,) must not be used.

(e) Positions 499 and 500 of each record must contain carriage return/line feed (cr/lf) characters if applicable.

(f) Filename of 1042TAX must be used. Do not enter any other data in this field. If a file will consist of more than

one diskette, the filename 1042TAX will contain a 3 digit extension. This extension will indicate the sequence of the

diskettes within the file. For example, the first diskette will be named 1042TAX.001, the second diskette will be

1042TAX.002, etc.

(g) A diskette file may consist of multiple diskettes as long as the filename conventions are followed.

(h) Diskettes must meet one of the following specifications:

Capacity

1.44 mb

1.2 mb

720 kb

360 kb

320 kb

180 kb

160 kb

Tracks

96tpi

135tpi

96tpi

48tpi

Sides/Density

ds/dd

ss/dd

Sector Size

512

.02 IRS/MCC encourages transmitters to use blank or currently formatted diskettes when preparing files. If extraneous

data follows the end of ‘‘Y’’ record, the file must be returned for replacement.

.03 IRS/MCC prefers that 51⁄4- and 31⁄2-inch diskettes be created using MS/DOS; however, diskettes created using other

operating systems may be acceptable. Although, 31⁄2-inch diskettes created on a System 36 or AS400 ARE NOT

ACCEPTABLE. IRS/MCC has equipment that can convert diskettes created under virtually any operating system to the

appropriate MS/DOS format. IRS/MCC strongly recommends that transmitters submit a test file for 51⁄4- and 31⁄2-inch

diskettes, especially if their data was not created using MS/DOS.

.04 Transmitters are encouraged to use high density diskettes. Low density diskettes are acceptable but must be

formatted in low density.

SEC. 5. DATA SEQUENCE SPECIFICATIONS

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

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⁄

/28MAY96/L47-012

Transmitter

Recipient

Withholding Agent

End of Transmission

.02 In order to be acceptable, records within the file must be in the following sequence:

(a) Single tape, cartridge, or diskette:

(1) A Transmitter ‘‘T’’ Record; then

(2) One or more Recipient ‘‘Q’’ Records followed by a corresponding Withholding Agent ‘‘W’’ Record then;

(3) Additional ‘‘Q’’ and ‘‘W’’ Record sequences for other withholding agents as needed; then

(4) An End of Transmission ‘‘Y’’ Record.

(b) Multiple tapes and cartridges: (see NOTE)

(1) A Transmitter ‘‘T’’ Record at the beginning of each tape and cartridge; then

(2) Sequence of Recipient ‘‘Q’’ Records followed by corresponding Withholding Agent ‘‘W’’ Records; then

(3) A sequence of Recipient ‘‘Q’’ Records may be continued from one tape to the next if they apply to the same

withholding agent, without the necessity of repeating the ‘‘W’’ Record. The sequence might be, for example, QQQQ (end of

one tape); TQQQQW (beginning of next tape); then

(4) An End of Transmission ‘‘Y’’ Record ending the last tape.

(1) A Transmitter ‘‘T’’ Record; then

(2) One or more Recipient ‘‘Q’’ Records followed by a corresponding Withholding Agent ‘‘W’’ Record; then

(3) Additional ‘‘Q’’ and ‘‘W’’ Record sequences for other withholding agents as needed; then

(4) A sequence of Recipient ‘‘Q’’ Records may be continued from one diskette to the next if they apply to the

same withholding agent, without the necessity of repeating the ‘‘W’’ Record. The sequence might be, for example, QQQQ

(end of one diskette); QQQQW (beginning of next diskette); then

(5) An End of Transmission ‘‘Y’’ Record ending the last diskette.

.03 The minimum file transmitted must consist of a Transmitter ‘‘T’’ Record, a Recipient ‘‘Q’’ Record, and

Withholding Agent ‘‘W’’ Record, and an End of Transmission ‘‘Y’’ Record.

NOTE: Due to differences in the processing of 1042-S information filed on tapes, tape cartridges, and diskettes, it is

required that there be a ‘‘T’’ record at the beginning of each tape or cartridge, but not at the beginning of each diskette in

a shipment.

SEC. 6. THE TRANSMITTER ‘‘T’’ RECORD

.01 This record identifies the entity preparing and transmitting the file. The transmitter and the withholding agent may

be the same, but they need not be. The first record of a file MUST be a Transmitter ‘‘T’’ record, (preceded only by header

labels, if any), and must appear on each tape and cartridge, otherwise the file will be returned for replacement. FOR TAPE

AND CARTRIDGE FILES ONLY, the Sequence Number, position 4–5 of the ‘‘T’’ record must be increased by 1 (one)

for each tape and cartridge. The ‘‘T’’ Record is a fixed length of 500 positions.

.02 If the field is not applicable, allow for the field by entering blanks or zeros as instructed.

RECORD NAME: TRANSMITTER ‘‘T’’ RECORD

Position

Field Title

Length

Description and Remarks

Record Type

REQUIRED. Enter ‘‘T.’’

2–3

Tax Year

REQUIRED. Enter year for which income and withholding are being

reported (for example, enter ‘‘95’’ for income and withholding reported for

1995) (unless reporting for a different tax year).

4–5

Sequence Number

The two-digit sequence assigned by the transmitter to this media, starting with

01. If Header Labels are used, the sequence should be the same as the

Sequence Number. This field is required for tape and cartridge only.

6–14

Transmitter’s

Taxpayer

Identification

Number (TIN)

REQUIRED. Enter the Identification Number (Social Security Number (SSN)

or Employer Identification Number (EIN)) of the Transmitter. Do NOT enter

blanks, hyphens, or alpha characters. A TIN consisting of all the same digits

(e.g., 111111111) is not acceptable.

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RECORD NAME: TRANSMITTER ‘‘T’’ RECORD—Continued

Position

Field Title

Length

Description and Remarks

15–54

Transmitter Name

REQUIRED. Enter name of transmitter of file. Abbreviate if necessary to fit 40character limit. Omit punctuation if possible. Left-justify and blank fill.

55–94

Transmitter

Address

REQUIRED. Enter mailing address of the transmitter. Street address should

include number, street, apartment or suite number (or P.O. Box if mail is not

delivered to street address). Abbreviate as needed to fit 40-character limit.

Omit punctuation if possible. Left-justify and blank fill.

95–114

City

REQUIRED. Enter the city or town of transmitter. If applicable enter APO or

FPO only. Left-justify and blank fill.

115–116

State Code

REQUIRED. Enter two-letter Post Office Code as shown in the list below

ONLY. Do NOT spell out the state name.

State

Code

State

Code

State

Code

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

District of Columbia

Florida

Georgia

Hawaii

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

New Mexico

New York

North Carolina

North Dakota

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

South Dakota

Tennessee

Texas

Utah

Vermont

Virginia

Washington

West Virginia

Wisconsin

Wyoming

American Samoa

Federated States

of Micronesia

Guam

Northern Mariana Islands

Marshall Islands

Palau

Puerto Rico

Virgin Islands

NOTE: When reporting APO/FPO addresses use the following format:

Example:

Name

Street Address

*City

State

ZIP Code

PVT Willard J. Doe

Company F, PSC Box 100

APO (or FPO)

AE, AA, or AP

098010100

*AE is the designation for ZIPs beginning with 090-098, AA for ZIP 340, and AP for ZIPs 962-966.

117–125

ZIP Code

REQUIRED. Enter the ZIP code of the transmitter for all U.S. addresses, U.S.

Territories or Possessions, APO/FPO addresses. For transmitters using a fivedigit ZIP code, enter the ZIP code in the left-most five positions and zero fill

the remaining four positions. For transmitters outside the U.S., enter nine

zeros only. Do NOT blank fill.

126–130

Transmitter

Control Code

(TCC)

REQUIRED. Enter your five-digit Transmitter Control Code. This MUST be the

TCC assigned for Form 1042–S reporting ONLY. (Beginning with numbers

‘‘22’’.)

131–498

Reserved

368

Blank fill.

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RECORD NAME: TRANSMITTER ‘‘T’’ RECORD—Continued

Position

Field Title

499–500

Blank or Carriage

Return Line Feed

Length

Description and Remarks

Enter blanks or carriage return line feed (CR/LF)

TRANSMITTER ‘‘T’’ RECORD LAYOUT

Record

Type

Tax

Year

Sequence

Number

Transmitter

TIN

Transmitter

Name

Transmitter

Address

2–3

4–5

6–14

15–54

55–94

City

State Code

ZIP Code

TCC

Reserved

Blank or

CR/LF

95–114

115–116

117–125

126–130

131–498

499–500

SEC. 7. RECIPIENT ‘‘Q’’ RECORD

.01 The ‘‘Q’’ Record contains complete name and address information for both Withholding Agent and Recipient of

Income, together with all the particulars of the income paid and tax withheld. Complete Withholding Agent data is required

because each Recipient ‘‘Q’’ Record is treated as if it were a separate Form 1042–S, and is processed independently of other

records.

.02 Since the ‘‘Q’’ Record is restricted to one type of income, and one tax rate, under certain circumstances it would be

necessary to write more than one ‘‘Q’’ Record. Following are some of the circumstances when more than one ‘‘Q’’ record

for a payee would be required:

(a) Different sources of income. For example, Recipient X derived income from Capital Gains (Income Code 09) and

Industrial Royalties (Income Code 10). A separate ‘‘Q’’ record must be reported for each income code; providing Gross

Income Paid and U.S. Federal Tax Withheld pertaining to the corresponding code.

(b) Change in Country Code during the year. For example, the withholding agent received notification via Form 1001 that

the recipient changed from country X to country Y. A separate ‘‘Q’’ record must be reported for each country code;

providing Gross Income Paid, Tax Rate and U.S. Federal Tax Withheld. The amounts reported must be based on each

country code and the period of time under that country code.

(c) Change in a country’s tax treaty rate during the year. For example, effective April 1, country X changes its tax treaty

rate from 10% to 20%. A separate ‘‘Q’’ record must be reported for each of the tax rates. Provide the Gross Income Paid,

Tax Rate, and U.S. Federal Tax Withheld for the period of time under that tax rate.

(d) Gross Income Paid of more than one billion dollars. Report a Gross Income Paid of 99999999999 (dollars and cents)

in the first Recipient ‘‘Q’’ record. The second Recipient ‘‘Q’’ record will contain the remaining money amount.

.03 Failure to provide multiple recipient ‘‘Q’’ records when necessary will generate math computation errors during

processing and therefore, result in the file being returned for replacement.

.04 All recipient ‘‘Q’’ Records for a particular Withholding Agent must be written before the corresponding Withholding

Agent ‘‘W’’ Record, and before ‘‘Q’’ Records for another Withholding Agent may begin.

.05 If the field is not applicable, allow for the field by entering blanks or zeros as instructed.

RECORD NAME: RECIPIENT ‘‘Q’’ RECORD

Position

Field Title

Length

Description and Remarks

Record Type

REQUIRED. Enter ‘‘Q’’.

2–10

Withholding

Agent’s Taxpayer

Identification

Number (TIN)

REQUIRED. Enter the nine-digit Taxpayer Identification Number of the

Withholding Agent. Do NOT enter blanks, hyphens, or alpha characters. A

TIN consisting of all the same digit (e.g., 111111111) is not acceptable. Do

NOT enter the recipient’s TIN in this field.

11–45

Agent’s Name

REQUIRED. Enter the name of the Withholding Agent. Abbreviate as needed.

Left-justify and blank fill.

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RECORD NAME: RECIPIENT ‘‘Q’’ RECORD—Continued

Position

Field Title

Length

46–80

Agent’s Address

REQUIRED. Enter mailing address of the withholding agent. Street address

should include number, street, apartment or suite number (or P.O. Box if mail

is not delivered to street address). Abbreviate as needed. Left-justify and

blank fill.

81–100

Agent’s City

REQUIRED. Enter the city or town (or other locality name). Enter APO or FPO

only, if applicable. Left-justify and blank fill.

101–102

Agent’s State

Code

REQUIRED. Enter the two-character state abbreviation from the list in Part B.

Sec. 6, Field Positions 115–116 of ‘‘T’’ Record. If not a U.S. state, territory,

or APO/FPO identifier, blank fill this field. Do not use any of the two

character Country Codes in the State Code field.

103–111

Agent’s ZIP Code

REQUIRED. Enter nine numeric characters for all U.S. addresses (including

territories and possessions). If a five-digit ZIP code is used, enter the ZIP

code in the left-most five positions and zero fill the remaining four positions.

Zero fill for addresses outside the U.S.

112

Type of TIN

This field is used to identify the Taxpayer Identification Number (TIN) in

positions 113–121 as either an Employee Identification Number (EIN), Social

Security Number (SSN), or indicate that the type is undeterminable. Enter the

appropriate code from the following table:

Type of TIN

Blank

113–121

Recipient’s U.S.

Taxpayer

Identification

Number (TIN)

Description and Remarks

TIN

Employer Identification Number (EIN)

Social Security Number (SSN)

Enter a blank if type of TIN is undeterminable

Enter the Recipient’s nine-digit Taxpayer Identification Number (TIN). Do

NOT enter hyphens or alpha characters. Entry of all zeroes, all ones, twos,

etc. will have the effect of an incorrect TIN. Use the following instructions for

Entries in Positions 113–121:

1. A TIN MUST be entered when Exemption Code ‘‘1’’ is entered in Position

370 of the Recipient ‘‘Q’’ Record.

2. A TIN MUST be entered when Income Code ‘‘16’’ is entered in Positions

355–356 of the Recipient ‘‘Q’’ Record.

3. If the conditions in 1 and 2 are not present, and if a TIN is not available,

enter blanks in Positions 113–121 of the Recipient’s ‘‘Q’’ Record.* Do NOT

enter the Withholding Agent’s TIN in this field.

*NOTE: When the submission includes records in which blanks are entered in Positions 113–121, provide a letter

identifying the number of Recipient ‘‘Q’’ Records affected and presenting the reason(s) that TIN(s) are not provided. A

corrected ‘‘Q’’ record is required to be submitted upon later receipt of the Recipient TIN.

122–136

Account Number

Enter the account number assigned by the withholding agent to the recipient.

This number is used to identify a specific account. This field will be all

blanks if account numbers are NOT assigned. This field may contain numeric

or alphabetic characters, blanks or hyphens. Left-justify and blank fill.

137–138

Country Code (Do

not enter ‘‘U.S.’’

in this field)

REQUIRED. This field is used to identify the country for which the tax treaty

benefits are based. The rate of tax withheld is determined by this code. Enter

the appropriate code exactly as it appears in the following table. THIS MAY

OR MAY NOT BE THE SAME AS THE COUNTRY ENTERED IN THE COUNTRY

NAME FIELD (POSITIONS 335-354 OF THE RECIPIENT ‘‘Q’’ RECORD.) Enter

OC, Other Countries, only when the country of residence cannot be determined. If the recipient’s country of residence cannot

be determined, you must withhold at the maximum applicable

tax rate.

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COUNTRY CODES

Country

Code

Country

Code

Afghanistan

Albania

Algeria

American Samoa

Andorra

Angola

Anguilla

Antarctica

Antigua and Barbuda

Argentina

Armenia

Aruba

Ashmore and Cartier Islands

Australia

Austria

Azerbaijan

Azores

Bahamas, The

Bahrain

Baker Island

Bangladesh

Barbados

Bassas da India

Belarus

Belgium

Belize

Benin

Bermuda

Bhutan

Bolivia

Bosnia-Herzegovina

Botswana

Bouvet Island

Brazil

British Indian

Ocean Territory

Brunei

Bulgaria

Burkina Faso

Burma

Burundi

Cambodia

Cameroon

Canada

Canary Islands

Cape Verde

Cayman Islands

Central African Republic

Chad

Chile

China, People’s Republic of

Christmas Island (Indian Ocean)

Christmas Island (Pacific Ocean)

Clipperton Island

Cocos (Keeling) Islands

Colombia

Comoros

Congo

Cook Islands

Coral Sea Islands Territory

Costa Rica

Cote D’lvoire (Ivory Coast)

Croatia

Cuba

Cyprus

Czech Republic

Denmark

Djibouti

Dominica

Dominican Republic

Ecuador

Egypt

El Salvador

Equatorial Guinea

Eritrea

Estonia

Ethiopia

Europa Island

Falkland Islands (Islas Malvinas)

Faroe Islands

Fiji

Finland

France

French Guiana

French Polynesia

French Southern and Antarctic Lands

Gabon

Gambia, The

Gaza Strip

Germany

Georgia

Ghana

Gibraltar

Glorioso Islands

Greece

Greenland

Grenada

Guadeloupe

Guam

Guatemala

Guernsey

Guinea

Guinea-Bissau

Guyana

Haiti

Heard Island and McDonald Islands

Honduras

Hong Kong

Howland Island

Hungary

Iceland

India

Indonesia

Iran

Iraq

Iraq-Saudi Arabia Neutral Zone

Ireland

Isle of Man

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Country

Code

Country

Code

Israel

Italy

Jamaica

Jan Mayen

Japan

Jersey

Johnston Atoll

Jordan

Juan de Nova Island

Kazakhstan

Kenya

Kingman Reef

Kiribati

Korea, Democratic People’s

Republic of (North)

Korea, Republic of (South)

Kuwait

Kyrgyzstan

Laos

Latvia

Lebanon

Lesotho

Liberia

Libya

Liechtenstein

Lithuania

Luxembourg

Macau

Macedonia

Madagascar

Malawi

Malaysia

Maldives

Mali

Malta

Marshall Islands

Martinique

Mauritania

Mauritius

Mayotte

Mexico

Micronesia, Federated States of

Midway Islands

Moldova

Monaco

Mongolia

Montenegro

Montserrat

Morocco

Mozambique

Namibia

Nauru

Navassa Island

Nepal

Netherlands

Netherlands Antilles

New Caledonia

New Zealand

Nicaragua

Niger

Nigeria

Niue

Norfolk Island

Northern Ireland

Northern Mariana Islands

Norway

Oman

Pakistan

Palmyra Atoll

Panama

Papua New Guinea

Paracel Islands

Paraguay

Peru

Philippines

Pitcairn Islands

Poland

Portugal

Puerto Rico

Qatar

Reunion

Romania

Russia

Rwanda

St. Kitts and Nevis

St. Helena

St. Lucia

St. Pierre and Miquelon

St. Vincent and the Grenadines

San Marino

Sao Tome and Principe

Saudi Arabia

Senegal

Serbia

Seychelles

Sierra Leone

Singapore

Slovakia

Slovenia

Solomon Islands

Somalia

South Africa

South Georgia and the

South Sandwich Islands

Spain

Spratly Islands

Sri Lanka

Sudan

Suriname

Svalbard

Swaziland

Sweden

Switzerland

Syria

Taiwan

Tajikistan

Tanzania, United Republic of

Thailand

Togo

Tokelau

Tonga

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Country

Code

Country

Code

Trinidad and Tobago

Tromelin Island

Trust Territory of the Pacific Islands

Tunisia

Turkey

Turkmenistan

Turks and Caicos Islands

Tuvalu

Uganda

Ukraine

United Arab Emirates

United Kingdom

Uruguay

Uzbekistan

Vanuatu

Vatican City

Venezuela

Vietnam

Virgin Islands (British)

Virgin Islands (U.S.)

Wake Island

Wallis and Futuna

West Bank

Western Sahara

Western Samoa

Yemen

Zaire

Zambia

Zimbabwe

Other Countries

OC*

*NOTE: Enter OC, Other Countries, only when the country of residence cannot be determined. If the recipient’s country of

residence cannot be determined, you must withhold at the maximum applicable tax rate.

RECORD NAME: RECIPIENT ‘‘Q’’ RECORD

Position

Field Title

139–173

Recipient Name

Line One*

Length

Description and Remarks

REQUIRED. Provide the FULL name of the recipient (nonresident alien or

fiduciary, foreign partnership or corporation or other foreign entity). Enter

the surname of the recipient FIRST followed by given names. Enter an

asterisk(*) immediately before the surname if the surname does not begin in

position 139. For example, ‘‘JOHNb*DOE’’ is acceptable (b denotes a

blank). If there is more than one recipient, enter the name of the first

recipient only. Since some foreign recipients will not have a Taxpayer

Identification Number (TIN), it is very important that the FULL name of the

recipient be provided. Titles, if any, must be provided in Recipient Name

Line Two. (If the recipient is unknown, an account number must be entered

in positions 122–136). Valid characters are alphabetic, numeric, ampersand

(&), hyphen (-), slash (/), asterisk (*), period (.), comma (,), apostrophe (’), or

blank. Failure to code an asterisk before the surname when it is not the first

name provided, will result in your file being returned for correction. Leftjustify and blank fill.

174–208

Recipient Name

Line Two*

Enter supplementary recipient name information; otherwise enter blanks. Use

this line for additional names (e.g., partners or joint owners), for trade names,

stage names, aliases, or titles. Use this line also for ‘‘care of,’’ ‘‘via,’’ or

‘‘through’’ information. Valid characters are alphabetic, numeric, blank,

ampersand (&), hyphen (-), slash (/), pound sign (#), period (.), comma (,),

apostrophe (’) and the percent (%). The percent (% [short for ‘‘in care of’’])

is valid in the first position only. Left-justify and blank fill.

209–243

Recipient Name

Line Three*

Enter additional name data if applicable; otherwise blank fill. Specifications

are precisely as for Recipient Name Line Two.

*NOTE: 105 total characters are available for name information. IRS encourages full identification of nonresident aliens (both

individuals and organizations) because data is furnished to their governments in accordance with tax treaties and exchange of

information agreements.

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RECORD NAME: RECIPIENT ‘‘Q’’ RECORD—Continued

Position

Field Title

Length

Description and Remarks

REQUIRED. Enter the recipient’s full street address. Street address should

include number, street, apartment or suite number (or P.O. Box if mail is not

delivered to street address). If the street, building, military installation or

other name is too long for the 40-character allotment of this field, Recipient

Name Line Two or Three may be used to report address information (See the

NOTE below).

This street address field may be all blank, but only for legitimate reasons; for

example, the recipient is from a small town, islet or other place where the

town or island name is sufficient to enable mail to be received. Valid

characters are alphabetic, numeric, blank, ampersand (&), hyphen (-), slash

(/), period (.), comma (,), apostrophe (’), and pound sign (#). A blank in

position 244 is NOT acceptable. Left-justify and blank fill.

NOTE: If Recipient Name Line Two or Three fields are NOT used for NAME INFORMATION, address data may be provided in

these fields. Street address data of 40 characters or less MUST be provided in the Street Address field. Street addresses of

41 to 75 characters should begin in Recipient Name Line Three and complete in the Street Address Field. A street address of

76 or more characters should begin in Recipient Name Line Two, continue in Recipient Name Line Three, and complete in

the Street Address Field.

244–283

Street Address

REQUIRED. Enter the name of City, Town, Village, Municipality or rural place

of residence of the recipient. Valid characters are as in Street Address,

EXCEPT the pound sign (#), which is not valid and a blank in position 284 is

NOT acceptable. For U.S. military installations enter either APO or FPO as

applicable. The name of the installation or ship must be entered in the Street

address Line. Left-justify and blank fill.

NOTE: For recipient addresses outside the United States, provide a City, Province Name, Postal Code, and Country Name.

Enter a City, State Code, and ZIP Code for United States recipient addresses. Do NOT provide a Country Name for United

States addresses.

284–308

City

309–323

Province Name

Enter the name of the Province, Foreign State (but not the U.S. State),

County, Shire, District, Region, or other political subdivision. For many

countries the province (or other political subunit) is an important part of the

postal address. For Canada, the Province is required. Valid characters are

alphabetic, blank, ampersand (&), hyphen (-), period (.), comma (,),

apostrophe (’) or slash (/). Left-justify and blank fill.

Canadian Provinces and Codes

Province

Province Code

Alberta

British Columbia

Manitoba

New Brunswick

Newfoundland

Nova Scotia (including Sable Island)

Northwest Territories

Ontario

Prince Edward Island

Quebec

Saskatchewan

Yukon Territory

NOTE: A Canadian province may be expressed as a two-character code from the Canadian Province Code List, written out in

full, or appropriately abbreviated. Either the Province or the Province Code must be entered. DO NOT ENTER BOTH.

324–332

Postal Code

Enter a Foreign or U.S. Postal Code (ZIP Code). A Postal Code is

REQUIRED for United States and U.S. Territories, Canadian, and Australian

addresses. Withholding Agents should make an effort to obtain postal codes

for all other countries. Only alphabetic, numeric, and blank characters are

valid. Do not omit any blanks that may appear in the ZIP code. Use the

following table to format Postal Codes for the three required countries (‘‘a’’

denotes alpha characters, ‘‘n’’ denotes numerics, ‘‘b’’ denotes a blank). All

postal codes should be left-justified and blank filled

This text is long and has been trimmed here. Open the source document for the complete record.

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.