Bulletin No. 1998–38
Agency decision
Ask Donna
What actually matters in this document.
Text
IRB 1998-38
9/16/98 11:49 AM
Page 1
Internal Revenue
bulletin
Bulletin No. 1998–38
September 21, 1998
HIGHLIGHTS
OF THIS ISSUE
These synopses are intended only as aids to the reader in
identifying the subject matter covered. They may not be
relied upon as authoritative interpretations.
INCOME TAX
Rev. Rul. 98–45, page 4.
Low-income housing credit; satisfactory bond; “bond
factor” amounts for the period July through September 1998. This ruling announces the monthly bond factor
amounts to be used by taxpayers who dispose of qualified
low-income buildings or interests therein during the period
July through September 1998.
EMPLOYEE PLANS
Announcement 98–85, page 30.
Forms 5300, 5303, 5307 and 6406, and Schedule Q (Form
5300), used for requesting determination letters for ongoing
employee benefit plans, have been revised. The new revision
date is July 1998.
EXEMPT ORGANIZATIONS
Announcement 98–86, page 31.
A list is provided of organizations that no longer qualify as organizations to which contributions are deductible under section 170 of the Code.
ADMINISTRATIVE
Rev. Proc. 98–48, page 7.
Qualified small business stock; rollover of gain; election. Procedures are provided for taxpayers to make an
election under section 1045 of the Code to defer recognition of gain on the sale of qualified small business stock.
Rev. Proc. 98–50, page 8.
Form 1040 IRS e-file program. Participants in the Form
1040 IRS e-file program are informed of their obligations to
the Service, taxpayers, and other participants. Rev. Proc.
97–60 superseded.
Rev. Proc. 98–51, page 20.
Form 1040 on-line filing program. Participants in the
Form 1040 on-line filing program are informed of their obligations to the Service, taxpayers, and other participants. Rev.
Proc. 97–61 superseded.
Notice 98–49, page 5.
Section 408A; Roth IRAs, reporting requirements. This
notice describes certain reporting requirements for Roth
IRAs as described in section 408A of the Code and certain
changes to IRAs contained in the Internal Revenue Service
Restructuring and Reform Act of 1998. Notice 87–13 and
Notice 87–16 modified.
Announcement 98–84, page 30.
The Service announces a delay in changes to Forms W–2 and
W–3 until tax year 2000. In Announcement 98–55, 1998–26
I.R.B. 41, the Service requested comments on proposed
changes to the 1999 Forms W–2 and W–3. Based on a review of those comments, the Service will postpone making
major revisions to Forms W–2 and W–3 until tax year 2000
forms, which will be filed in 2001.
Finding Lists begin on page 33.
Announcement of Declaratory Judgment Proceedings Under section 7428 begins on page 31.
Department of the Treasury
Internal Revenue Service
IRB 1998-38
9/16/98 11:49 AM
Page 2
Mission of the Service
ucts and services; and perform in a manner warranting
the highest degree of public confidence in our integrity, efficiency, and fairness.
The purpose of the Internal Revenue Service is to collect
the proper amount of tax revenue at the least cost; serve
the public by continually improving the quality of our prod-
Statement of Principles
of Internal Revenue
Tax Administration
The Service also has the responsibility of applying and
administering the law in a reasonable, practical manner.
Issues should only be raised by examining officers when
they have merit, never arbitrarily or for trading purposes.
At the same time, the examining officer should never hesitate to raise a meritorious issue. It is also important that
care be exercised not to raise an issue or to ask a court to
adopt a position inconsistent with an established Service
position.
The function of the Internal Revenue Service is to administer the Internal Revenue Code. Tax policy for raising revenue
is determined by Congress.
With this in mind, it is the duty of the Service to carry out that
policy by correctly applying the laws enacted by Congress;
to determine the reasonable meaning of various Code provisions in light of the Congressional purpose in enacting them;
and to perform this work in a fair and impartial manner, with
neither a government nor a taxpayer point of view.
Administration should be both reasonable and vigorous. It
should be conducted with as little delay as possible and
with great courtesy and considerateness. It should never
try to overreach, and should be reasonable within the
bounds of law and sound administration. It should, however, be vigorous in requiring compliance with law and it
should be relentless in its attack on unreal tax devices and
fraud.
At the heart of administration is interpretation of the Code. It
is the responsibility of each person in the Service, charged
with the duty of interpreting the law, to try to find the true
meaning of the statutory provision and not to adopt a
strained construction in the belief that he or she is “protecting the revenue.” The revenue is properly protected only
when we ascertain and apply the true meaning of the statute.
2
IRB 1998-38
9/16/98 11:49 AM
Page 3
Introduction
The Internal Revenue Bulletin is the authoritative instrument
of the Commissioner of Internal Revenue for announcing official rulings and procedures of the Internal Revenue Service
and for publishing Treasury Decisions, Executive Orders, Tax
Conventions, legislation, court decisions, and other items of
general interest. It is published weekly and may be obtained
from the Superintendent of Documents on a subscription
basis. Bulletin contents of a permanent nature are consolidated semiannually into Cumulative Bulletins, which are sold
on a single-copy basis.
dures must be considered, and Service personnel and others concerned are cautioned against reaching the same conclusions in other cases unless the facts and circumstances
are substantially the same.
The Bulletin is divided into four parts as follows:
Part I.—1986 Code.
This part includes rulings and decisions based on provisions
of the Internal Revenue Code of 1986.
It is the policy of the Service to publish in the Bulletin all substantive rulings necessary to promote a uniform application
of the tax laws, including all rulings that supersede, revoke,
modify, or amend any of those previously published in the
Bulletin. All published rulings apply retroactively unless otherwise indicated. Procedures relating solely to matters of internal management are not published; however, statements
of internal practices and procedures that affect the rights
and duties of taxpayers are published.
Part II.—Treaties and Tax Legislation.
This part is divided into two subparts as follows: Subpart A,
Tax Conventions, and Subpart B, Legislation and Related
Committee Reports.
Part III.—Administrative, Procedural, and Miscellaneous.
To the extent practicable, pertinent cross references to
these subjects are contained in the other Parts and Subparts. Also included in this part are Bank Secrecy Act Administrative Rulings. Bank Secrecy Act Administrative Rulings
are issued by the Department of the Treasury’s Office of the
Assistant Secretary (Enforcement).
Revenue rulings represent the conclusions of the Service on
the application of the law to the pivotal facts stated in the
revenue ruling. In those based on positions taken in rulings
to taxpayers or technical advice to Service field offices,
identifying details and information of a confidential nature
are deleted to prevent unwarranted invasions of privacy and
to comply with statutory requirements.
Part IV.—Items of General Interest.
With the exception of the Notice of Proposed Rulemaking
and the disbarment and suspension list included in this part,
none of these announcements are consolidated in the Cumulative Bulletins.
Rulings and procedures reported in the Bulletin do not have
the force and effect of Treasury Department Regulations,
but they may be used as precedents. Unpublished rulings
will not be relied on, used, or cited as precedents by Service
personnel in the disposition of other cases. In applying published rulings and procedures, the effect of subsequent legislation, regulations, court decisions, rulings, and proce-
The first Bulletin for each month includes a cumulative index
for the matters published during the preceding months.
These monthly indexes are cumulated on a semiannual basis
and are published in the first Bulletin of the succeeding semiannual period, respectively.
The contents of this publication are not copyrighted and may be reprinted freely. A citation of the Internal Revenue Bulletin as the source would be appropriate.
For sale by the Superintendent of Documents, U.S. Government Printing Office, Washington, DC 20402.
3
IRB 1998-38
9/16/98 11:49 AM
Page 4
Part I. Rulings and Decisions Under the Internal Revenue Code of 1986
Section 42.—Low-Income
Housing Credit
Rev. Rul. 98–45
Low-income housing credit; satisfactory bond; “bond factor” amounts for
the period July through September
1998. This ruling announces the monthly
bond factor amounts to be used by taxpayers who dispose of qualified low-income buildings or interests therein during
the period July through September 1998.
In Rev. Rul. 90–60, 1990–2 C.B. 3, the
Internal Revenue Service provided guidance to taxpayers concerning the general
methodology used by the Treasury Department in computing the bond factor
amounts used in calculating the amount of
bond considered satisfactory by the Secretary under § 42(j)(6) of the Internal
Revenue Code. It further announced that
the Secretary would publish in the Internal Revenue Bulletin a table of “bond factor” amounts for dispositions occurring
during each calendar month.
This revenue ruling provides in Table 1
the bond factor amounts for calculating
the amount of bond considered satisfactory under § 42(j)(6) for dispositions of
qualified low-income buildings or interests therein during the period July through
September 1998
Table 1
Rev. Rul. 98–45
Monthly Bond Factor Amounts for Dispositions Expressed
As a Percentage of Total Credits
Calendar Year Building Placed in Service
or, if Section 42(f)(1) Election Was Made,
the Succeeding Calendar Year
Month of
Disposition
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
Jul ’98
Aug ’98
Sep ’98
61.09
61.09
61.09
75.25
75.25
75.25
75.33
75.13
74.93
77.22
77.01
76.81
79.49
79.27
79.06
82.08
81.85
81.63
84.70
84.47
84.23
87.18
86.93
86.70
89.60
89.35
89.12
92.21
91.97
91.74
94.81
94.61
94.42
97.21
97.21
97.21
For a list of bond factor amounts applicable to dispositions occurring during
other calendar years, see the following
revenue rulings: Rev. Rul. 95–83, 1995–
2 C.B. 8, for dispositions occurring during calendar year 1995; Rev. Rul. 98–3,
1998–2 I.R.B. 4, for dispositions occurring during the calendar years 1996 and
1997; Rev. Rul. 98–13, 1998–11 I.R.B. 4,
for dispositions occurring during the period January through March 1998; and
Rev. Rul. 98–31, 1998–25 I.R.B. 4, for
dispositions occurring during the period
April through June 1998.
Special Industries). For further information regarding this revenue ruling, contact
Mr. Malgeri at (202) 622-3040 (not a tollfree call).
September 21, 1998
Section 6061.—Signing of
Returns and Other Documents
Section 6012.—Persons
Required To Make Returns of
Income
26 CFR 1.6061–1: Signing of returns and other
documents by individuals.
26 CFR 1.6012–5: Composite return in lieu of
specified form.
For the requirements for participation in the
Form 1040 IRS e-file program, see Rev. Proc.
98–50, page 8.
For the requirements for participation in the
Form 1040 IRS e-file program, see Rev. Proc.
98–50, page 8.
DRAFTING INFORMATION
The principal author of this revenue
ruling is Jack Malgeri of the Office of Assistant Chief Counsel (Passthroughs and
Form 1040 on-line filing program, see Rev. Proc.
98–51, page 20.
26 CFR 1.6012–5: Composite return in lieu of
specified form.
26 CFR 1.6061–1: Signing of returns and other
documents by individuals.
For the requirements for participation in the
Form 1040 on-line filing program, see Rev. Proc.
98–51, page 20.
For the requirements for participation in the
4
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 5
Part III. Administrative, Procedural, and Miscellaneous
Roth IRA Guidance
Notice 98–49
PURPOSE AND BACKGROUND
This notice provides guidance relating
to Service-approved Roth IRA documents
and IRA reporting requirements. In addition, this notice summarizes a number of
recent changes in the law governing all
IRAs, which affect Notice 87–13, 1987–1
C.B. 432, and Notice 87–16, 1987–1 C.B.
446.
Roth IRAs are a new type of IRA, described in § 408A of the Internal Revenue
Code (“Code”), that individuals can use
beginning in 1998. Section 408A was
added to the Code by § 302 of the Taxpayer Relief Act of 1997 (“TRA 97”),
Pub. L. 105–34, to authorize a new type
of individual retirement arrangement (the
“Roth IRA”). This notice reflects
changes relating to Roth IRAs contained
in the Internal Revenue Service Restructuring and Reform Act of 1998 (the “IRS
Restructuring Act”), Pub. L. 105–206.
The Internal Revenue Service recently
issued proposed regulations, §§ 1.408A–1
through 1.408A–9, relating to Roth IRAs,
which were published in the Federal Register on September 3, 1998. This notice
incorporates definitions and terms that are
contained in those proposed regulations.
For more information on IRAs, including Roth IRAs, see Publication 590, Individual Retirement Arrangements (IRAs),
and Publication 553, Highlights of 1997
Tax Changes.
SECTION A. SERVICE-APPROVED
ROTH IRA DOCUMENTS
Q. A–1. Are there model forms available for establishing a Roth IRA?
A. A–1. Yes. The Service has issued
three model forms, Form 5305–R, Form
5305–RA and Form 5305–RB, that can be
used to establish a Roth IRA as a trust account, a custodial account or an annuity,
respectively. In the case of Form 5305–
RB, the model form is used as an endorsement to an insurance company’s annuity
contract. Model forms issued by the Service contain pre-approved language that,
if followed, will satisfy the applicable
statutory requirements.
1998–38 I.R.B.
Q. A–2. Can the model forms be
amended?
A. A–2. Article IX of each of these
model forms permits certain amendments
to be made to provisions of the Roth IRA
in accordance with the instructions to the
model forms. For example, under the
model forms, a spouse who is the sole
designated beneficiary is deemed to have
elected to treat the Roth IRA, upon the
death of the owner, as his or her own. The
model forms can be amended to give a
surviving spouse who is the sole designated beneficiary the option of not treating the Roth IRA, upon the death of the
owner, as his or her own.
Q. A–3. Is the Service currently accepting applications for opinion letters on
prototype Roth IRAs?
A. A–3. The Service is not currently
accepting applications for opinion letters
on prototype Roth IRAs. Announcement
97–122, 1997–50 I.R.B. 63, states that
transitional relief similar to that provided
under Rev. Proc. 97–29, 1997–1 C.B.
698, will be provided to sponsors and
their customers who establish Roth IRAs
with documents that have not been preapproved by the Service. Thus, for example, if in January 1998 an individual made
a contribution to a trust or custodial account or purchased an annuity using documents or associated written material that
clearly designates the account or annuity
as a Roth IRA, then, provided certain requirements are met, the individual will be
deemed to have established a Roth IRA
on that date using a document approved
by the Service for use as a Roth IRA.
SECTION B. IRA REPORTING
REQUIREMENTS
Q. B–1. What reporting requirements
apply to the trustees in the case of a
recharacterization of a contribution from
a FIRST IRA to a SECOND IRA as described in § 1.408A–5 of the proposed Income Tax Regulations?
A. B–1. The general reporting requirements for Roth IRAs are described in proposed regulation § 1.408A–7. In addition,
the following reporting requirements
apply to the trustees of the FIRST IRA and
the SECOND IRA when the IRA owner
elects to treat a contribution as having
5
been made to the SECOND IRA and not
to the FIRST IRA in accordance with the
rules in § 1.408A–5. To the extent that the
instructions for the 1998 Forms 1099–R
and 5498 are inconsistent with the instructions for completing those forms provided
in this Q&A B–1, trustees must follow the
guidance provided in this notice.
(1) Reporting by the trustee of the
FIRST IRA. The trustee of the FIRST
IRA reports the contribution on Form
5498 showing the character of the contribution (rollover, conversion amount, or
regular). If the recharacterization (i.e.,
the transfer) occurs in calendar year 1998,
the trustee reports the recharacterization
as a distribution on Form 1099–R showing Code G for direct rollover and showing the gross amount (contribution and
earnings) in Box 1-Gross distribution and
0 (zero) in Box 2a-Taxable amount. For
recharacterizations that occur in later
years, the trustee reports in accordance
with applicable Federal tax forms and instructions. For recharacterizations that
occur in 1999, it is anticipated that the instructions to Form 1099–R will indicate
that the trustee reports the recharacterization as a distribution on Form 1099–R
showing new Code R for recharacterization and showing the gross amount (contribution and earnings) in Box 1-Gross
distribution and 0 (zero) in Box 2a-Taxable amount.
(2) Reporting by the trustee of the SECOND IRA. For recharacterized amounts
received on or before December 31, 1998,
that are recharacterized as amounts contributed in calendar year 1998, the trustee
of the SECOND IRA reports the contribution as a rollover contribution on a 1998
Form 5498. For recharacterized amounts
received after December 31, 1998, the
trustee reports in accordance with applicable Federal tax forms and instructions. It
is anticipated that the instructions to the
1999 Form 5498 will provide that a
recharacterized amount received by the
trustee of the SECOND IRA will continue
to be reported as a rollover contribution,
but that (a) the checkbox entitled “Roth
conv.” on the 1998 Form 5498 will be
retitled to identify a contribution as a
recharacterization, (b) the trustee of the
SECOND IRA will check both the box
identifying the contribution as a recharac-
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 6
terization contribution and the box that
identifies the type of IRA involved, and
(c) the recharacterization must be reported on a Form 5498 that is separate
from any Form 5498 otherwise required
for the SECOND IRA.
Q. B–2. How does a trustee report on
Form 1099–R a distribution from a Roth
IRA that contains both regular and 1998
conversion contributions?
A. B–2. In the case of a distribution
from a Roth IRA that contains both regular and 1998 conversion contributions, the
trustee must use Code K in Box 7 of Form
1099–R.
SECTION C. OTHER RECENT
CHANGES TO IRAS
Q. C–1. What effect does the recharacterization of a contribution (as described
in § 1.408A–5 of the proposed Income
Tax Regulations) have on the rules governing the nontaxable return of basis in the
case of traditional IRA distributions?
A. C–1. Part III, “Distributions,” of
Notice 87–16, sets forth the rules for calculating the nontaxable return of basis in
the case of distributions from traditional
IRAs. These rules continue to apply except as modified below.
The total IRA account balances, the
total nondeductible contributions, and the
distribution amount (as these terms are
used in Notice 87–16) for an individual
for a taxable year are each adjusted to reflect recharacterized amounts contributed
to, or distributed from, the traditional
IRAs. For purposes of making this adjustment, the contribution that is being
recharacterized as a contribution to the
SECOND IRA is treated as having been
originally contributed to the SECOND
IRA on the same date and (in the case of a
regular contribution) for the same taxable
year that the contribution was made to the
FIRST IRA. If the recharacterization
transaction occurs after the close of the
taxable year and if the recharacterization
transaction involves a regular contribution for the prior taxable year, the recharacterization is disregarded for the prior
taxable year in determining the total IRA
account balances.
Q. C–2. Are there any new exceptions
to the 10-percent additional tax on early
distributions from IRAs?
A. C–2. Yes. Section 203 of TRA 97
added § 72(t)(2)(E) to the Code, which
September 21, 1998
provides that the additional 10-percent tax
does not apply to IRA distributions for
qualified higher education expenses of the
IRA owner, the owner’s spouse, or a child
or grandchild of either. Qualified higher
education expenses include tuition, supplies, and, for students who are at least
half-time, room and board. (See Notice
97–60, 1997–46 I.R.B. 8.)
Section 303 of TRA 97 added
§ 72(t)(2)(F) to the Code, which provides
that the additional 10-percent tax does not
apply to an IRA distribution to acquire a
first-time home for the IRA owner or a
member of his or her family. To qualify,
the distribution must be used for costs
normally associated with acquiring a principal residence and the IRA owner (and if
married, the owner’s spouse), generally,
must not have had an ownership interest
in a principal residence for the previous 2
years. If the distributed money is not
used for such purpose, the money can be
recontributed by the 120th day after the
distribution to the IRA without incurring
the 10-percent tax. This exception for a
first-time home purchase is subject to a
lifetime cap of $10,000 for each IRA
owner; thus, an individual and his or her
spouse would each be subject to a separate $10,000 lifetime cap.
In addition, § 3436 of the IRS Restructuring Act added § 72(t)(2)(A)(vii) to the
Code, which provides that the additional
10-percent tax does not apply to a distribution from a qualified retirement plan, including an IRA, that is made on account of
a levy under § 6331 on the qualified retirement plan. The provision applies to distributions made after December 31, 1999.
Previous guidance relating to § 72(t)
was provided in Part D of Notice 87–13.
These rules continue to apply except as
modified above.
Q. C–3. What changes are there in the
“active participant” rules?
A. C–3. Section 301 of TRA 97
amended § 219 of the Code to provide for
increased deductible contributions to traditional IRAs that can be made by active
participants in employer-sponsored retirement plans. In 1998, the IRA deduction
available to an unmarried active participant is phased out ratably between adjusted gross income of $30,000 and
$40,000. This phase-out range is increased annually until 2005 when the
phase-out range will be $50,000 to
6
$60,000. In the case of joint returns, the
phase-out range is $50,000 to $60,000 for
1998, rising to $80,000 to $100,000 for
2007 and later years. In addition, an individual who is not an active participant but
is married to someone who is can make a
fully deductible traditional IRA contribution if their combined adjusted gross income is not more than $150,000, or a partially deductible traditional IRA
contribution if their combined adjusted
gross income is between $150,000 and
$160,000.
Previous guidance relating to the active
participant rules was provided in Part IA
of Notice 87–16. These rules continue to
apply except as modified above.
Q. C–4. Are there any changes to the
permissible investments available in an
IRA?
A. C–4. Yes. Section 304 of TRA 97
amended § 408(m) of the Code to permit
IRAs to invest in certain platinum coins
and in gold, silver, platinum or palladium
bullion, provided the bullion is in the
physical possession of an IRA trustee.
Previous guidance relating to collectibles was provided in Part V of Notice
87–16. These rules continue to apply except as modified above.
EFFECT ON OTHER DOCUMENTS
Notice 87–16 and Notice 87–13 are
modified.
REQUEST FOR COMMENTS
The Service and Treasury invite comments and suggestions concerning the
guidance provided in this notice. Any
correspondence received will be evaluated to determine whether additional
guidance on Roth IRAs is necessary.
In particular, comments are requested
on appropriate reporting of recharacterization transactions described in proposed
regulation § 1.408A–5. The Service and
Treasury recognize that recharacterization
transactions present novel reporting issues for IRA trustees, and this notice provides for reporting such transactions in a
manner that most closely approximates
reporting for ordinary IRA distributions,
contributions and trustee-to-trustee transfers. However, the Service and Treasury
are considering other possible reporting
alternatives for recharacterization transactions. For example, it might be appropri-
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 7
ate to require that the recharacterized contribution be reported by the trustee of the
SECOND IRA on a Form 5498 for the
year for which it is treated as having been
contributed, even if the recharacterization
occurs in the subsequent year. Another
possible approach would be to require
only the reporting by the trustee of the
SECOND IRA involved in the recharacterization transaction that would have
been required if the contribution had initially been made to the SECOND IRA and
never had been made to the FIRST IRA.
Comments can be addressed to
CC:DOM:CORP:R (Notice 98–49), room
5228, Internal Revenue Service, POB
7604, Ben Franklin Station, Washington,
DC 20044. In the alternative, comments
may be hand delivered between the hours
of 8 a.m. and 5 p.m. to CC:DOM:CORP:
R (Notice 98–49), Courier’s Desk, Internal Revenue Service, 1111 Constitution
Avenue NW, Washington, DC. Alternatively, taxpayers may transmit comments
electronically via the IRS Internet site at:
http://www.irs.ustreas.gov/prod/tax_regs/
comments.html.
This revenue procedure provides procedures for taxpayers to make an election
under § 1045 of the Internal Revenue
Code (“§ 1045 election”) to defer recognition of certain gain on the sale of qualified small business stock (“QSB stock”).
§ 313(a) of the Taxpayer Relief Act of
1997, Pub. L. No. 105–34, 111 Stat. 788
(Aug. 5, 1997), and amended by § 6005(f)
of the Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L.
No. 105–206, 112 Stat. 685 (July 22,
1998), generally allows a taxpayer other
than a C corporation to elect not to recognize gain from the sale of QSB stock held
by the taxpayer for more than six months.
If the taxpayer makes the election under
§ 1045 and this revenue procedure, gain
from such sale is recognized only to the
extent that the amount realized on the sale
exceeds:
(1) the cost of any QSB stock that
the taxpayer purchases during the 60-day
period beginning on the date of sale, reduced by
(2) any portion of the cost of the replacement QSB stock that was previously
taken into account under § 1045. However, the election is not available to defer
any gain on the sale that is treated as ordinary income for purposes of the Code.
.02 Under § 1045(b), “qualified small
business stock” has the same meaning as
provided in § 1202(c).
.03 Section 1045(b)(5) provides that,
for QSB stock held through passthrough
entities, rules similar to the rules of
§ 1202(g) apply for purposes of § 1045.
For example, a passthrough entity may
make a § 1045 election if the entity sells
QSB stock held for more than six months
and purchases replacement QSB stock
during the 60-day period beginning on the
date of the sale. The benefit of deferral
with respect to a sale of QSB stock by the
passthrough entity will flow through to
taxpayers (other than C corporations) that
held interests in the entity during the entire period in which the entity held the
QSB stock. Also, for example, if a passthrough entity sells QSB stock held for
more than six months, an individual who
has held an interest in the entity during
the entire period in which the entity held
the QSB stock and who purchases replacement QSB stock during the 60-day
period beginning on the date of the sale of
the QSB stock may make the § 1045 election with respect to the individual’s share
of any gain on the sale that the entity does
not defer under § 1045.
A § 1045 election must be made on
or before the later of December 31, 1998,
or the due date (including extensions) for
filing the income tax return for the taxable
year in which the QSB stock is sold.
.02 Manner of Making the Election.
(1) In general. Except as provided
in section 3.02(2) of this revenue procedure, the election is made by:
(a) reporting the entire gain from
the sale of QSB stock on Schedule D,
Capital Gains and Losses, of the return in
accordance with the instructions for
Schedule D;
(b) writing “section 1045 rollover” directly below the line on which the
gain is reported; and
(c) entering the amount of the gain
deferred under § 1045 on the same line as
(b) above, as a loss, in accordance with
the instructions for Schedule D.
(2) Transition rule. If gain is reportable on a return filed before October
21, 1998, and the return does not satisfy
the requirements of section 3.02(1) of this
revenue procedure but discloses the gain
and includes an affirmative statement to
the effect that a § 1045 election applies to
the gain, the requirements of section
3.02(1) will be treated as satisfied and an
amended return is not required to make
the § 1045 election. Otherwise, an original or amended return satisfying the requirements of section 3.02(1) of this revenue procedure is required to make the
§ 1045 election with respect to such gain.
.03 Scope of the Election.
If a person has more than one sale of
QSB stock in a taxable year that qualifies
for the § 1045 election, the person may
make a § 1045 election for any one or
more of those sales.
.04 Revocation.
A § 1045 election is revocable only
with the prior written consent of the Commissioner. To obtain the Commissioner’s
consent, the person who made the § 1045
election must submit a request for a private letter ruling in accordance with the
provisions of Rev. Proc. 98–1, 1998–1
I.R.B. 7 (or its successor).
SECTION 2. BACKGROUND
SECTION 3. PROCEDURE
DRAFTING INFORMATION
DRAFTING INFORMATION
The principal author of this notice is
Roger Kuehnle of the Employee Plans Division. For further information regarding
this notice, please contact the Employee
Plans Division’s taxpayer assistance telephone service at (202) 622-6074/6075
(not toll-free numbers), between the hours
of 1:30 and 3:30 p.m. Eastern Time, Monday through Thursday.
Section 1045: Rollover of Gain
From Qualified Small Business
Stock to Another Qualified Small
Business Stock
Rev. Proc. 98–48
SECTION 1. PURPOSE
.01 Section 1045(a), as added by
1998–38 I.R.B.
.01 Time for Making the Election.
7
SECTION 4. EFFECTIVE DATE
This revenue procedure is effective for
sales of QSB stock occurring after August
5, 1997.
The principal author of this revenue
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 8
procedure is J. Peter Baumgarten of the
office of Assistant Chief Counsel (Income
Tax and Accounting). For further information regarding this revenue procedure,
contact Mr. Baumgarten on (202) 6224950 (not a toll-free call).
26 CFR 601.602: Tax forms and instructions.
(Also Part I, Sections 6012, 6061; 1.6012–5,
1.6061–1.)
Rev. Proc. 98–50
CONTENTS
PURPOSE
BACKGROUND AND
CHANGES
SECTION 3 FORM 1040 IRS e-file
PROGRAM PARTICIPANTS—DEFINITIONS
SECTION 4 ACCEPTANCE IN THE
FORM 1040 IRS e-file
PROGRAM
SECTION 5 RESPONSIBILITIES OF
AN AUTHORIZED IRS
e-file PROVIDER
SECTION 6 PENALTIES
SECTION 7 FORM 8453, U.S. INDIVIDUAL INCOME TAX
DECLARATION FOR
AN IRS e-file RETURN
SECTION 8 INFORMATION AN AUTHORIZED IRS e-file
PROVIDER MUST FURNISH TO THE TAXPAYER
SECTION 9 DIRECT DEPOSIT OF
REFUNDS
SECTION 10 REFUND ANTICIPATION LOANS
SECTION 11 BALANCE DUE RETURNS
SECTION 12 ADVERTISING STANDARDS FOR AUTHORIZED
IRS
e-file
PROVIDERS AND FINANCIAL INSTITUTIONS
SECTION 13 MONITORING AND
SUSPENSION OF AN
AUTHORIZED IRS e-file
PROVIDER
SECTION 14 ADMINISTRATIVE REVIEW PROCESS FOR
DENIAL OF PARTICIPATION IN THE FORM
1040 IRS e-file PROGRAM
SECTION 1
SECTION 2
September 21, 1998
SECTION 15 ADMINISTRATIVE REVIEW PROCESS FOR
SUSPENSION FROM
THE FORM 1040 IRS efile PROGRAM
SECTION 16 VITA AND TCE SPONSORED PARTICIPATION IN THE FORM
1040 IRS e-file PROGRAM
SECTION 17 EMPLOYER SPONSORED PARTICIPATION IN THE FORM
1040 IRS e-file PROGRAM
SECTION 18 PILOT PROGRAMS
SECTION 19 EFFECT ON OTHER
DOCUMENTS
SECTION 20 EFFECTIVE DATE
SECTION 21 INTERNAL REVENUE
SERVICE OFFICE CONTACT
SECTION 22 PAPERWORK REDUCTION ACT
SECTION 1. PURPOSE
This revenue procedure informs those
who participate in the Form 1040 IRS
e-file Program (formerly known as the
Form 1040 Electronic Filing (ELF) Program) of their obligations to the Internal
Revenue Service, taxpayers, and other
participants. The following returns can be
filed under the Form 1040 IRS e-file Program: (1) Form 1040 and Form 1040A,
U.S. Individual Income Tax Return; and
(2) Form 1040EZ, Income Tax Return for
Single and Joint Filers With No Dependents. This revenue procedure updates
and supersedes Rev. Proc. 97–60, 1997–
52 I.R.B. 38.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 1.6012–5 of the Income
Tax Regulations provides that the Commissioner may authorize the use, at the
option of a person required to make a return, of a composite return in lieu of any
form specified in 26 CFR Part 1 (Income
Tax), subject to the conditions, limitations, and special rules governing the
preparation, execution, filing, and correction thereof as the Commissioner may
deem appropriate.
.02 For purposes of this revenue procedure, an electronically filed Form 1040,
8
Form 1040A, or Form 1040EZ is a composite return consisting of electronically
transmitted data and certain paper documents. The paper portion of the return
consists of Form 8453, U.S. Individual
Income Tax Declaration for an IRS e-file
Return, and other paper documents that
cannot be electronically transmitted.
Form 8453 must be received by the Service before the composite return is considered filed (see section 5.08 of this revenue procedure). The composite return
must contain the same information that a
return filed completely on paper contains.
See section 7 of this revenue procedure
for procedures for completing Form 8453.
.03 Each year prior to the start of the
filing season, the Service will issue Publication 1345A, Filing Season Supplement
for Electronic Return Originators, and
Publication 1346, Electronic Return File
Specifications and Record Layouts for Individual Income Tax Returns. These publications list the forms and schedules associated with the Form 1040 series that
can be electronically transmitted during
the upcoming filing season.
.04 For purposes of the Form 1040 IRS
e-file Program, a Form 1040, Form
1040A, or Form 1040EZ for any taxable
year cannot be electronically filed after
the 15th day of October following the
close of that taxable year, notwithstanding
the fact that the taxpayer has been granted
an extension to file a return beyond that
date. If the 15th day of October falls on a
Saturday, Sunday, or legal holiday, then
the electronically filed return may be filed
on the next succeeding day which is not a
Saturday, Sunday, or legal holiday.
.05 An amended tax return cannot be
electronically filed under the Form 1040
IRS e-file Program. A taxpayer must file
an amended tax return on paper in accordance with the instructions for Form
1040X, Amended U.S. Individual Income
Tax Return.
.06 A tax return that has a foreign address for the taxpayer cannot be electronically filed under the Form 1040 IRS e-file
Program. Army/Air Force (APO) and
Fleet (FPO) post offices are not considered foreign addresses for this purpose.
.07 A tax return for a decedent cannot
be electronically filed under the Form
1040 IRS e-file Program. The decedent’s
spouse or personal representative must
file a paper tax return for the decedent.
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 9
.08 Some of the updates and changes
to Rev. Proc. 97–60 are as follows:
(1) the name of the program has
changed to the “Form 1040 IRS e-file
Program” and participants in the program
are known as “Authorized IRS e-file
Providers”;
(2) references to specific dates and specific tax years have been replaced with
more general references in order to eliminate the need for annual updates to this
revenue procedure;
(3) the application period for new applicants who intend to participate in the
Form 1040 IRS e-file Program for any filing season is extended beyond the beginning of the filing season (section 4.05);
and
(4) the provisions of this revenue procedure apply to participants in various
pilot programs conducted with respect to
the Form 1040 IRS e-file Program (section 18).
SECTION 3. FORM 1040 IRS e-file
PROGRAM PARTICIPANTS—
DEFINITIONS
.01 After acceptance into the Form
1040 IRS e-file Program, as described in
section 4 of this revenue procedure, a participant is referred to as an “Authorized
IRS e-file Provider.”
.02 The Authorized IRS e-file Provider
categories are:
(1) ELECTRONIC RETURN
ORIGINATOR. An “Electronic Return
Originator” (ERO) is: (a) an “Electronic
Return Preparer” who prepares tax returns, including Forms 8453, for taxpayers who intend to have their returns electronically filed; and/or (b) an “Electronic
Return Collector” who accepts completed
tax returns, including Forms 8453, from
taxpayers who intend to have their returns
electronically filed.
(2) SERVICE BUREAU. A “Service
Bureau” receives tax return information
on any media from an ERO, formats the
return information, and either forwards
the return information to a Transmitter or
sends back the return information to the
ERO. A Service Bureau may send Forms
8453 to the appropriate service center.
(3) SOFTWARE DEVELOPER. A
“Software Developer” develops software
for the purposes of (a) formatting the
electronic portion of returns according to
Publication 1346; and/or (b) transmitting
1998–38 I.R.B.
the electronic portion of returns directly
to the Service. A Software Developer
may also sell its software.
(4) TRANSMITTER. A “Transmitter” transmits the electronic portion of a
return directly to the Service. An entity
that provides a “bump-up” service is a
Transmitter. A bump-up service provider
increases the transmission rate or line
speed of formatted or reformatted information that is being sent to the Service via
a public switched telephone network. The
Service accepts transmissions using a variety of telecommunications protocols.
.03 The Authorized IRS e-file Provider
categories are not mutually exclusive.
For example, an ERO can, at the same
time, be considered a Transmitter, Software Developer, or Service Bureau depending on the function(s) performed.
.04 An ERO may have a “Drop-Off
Collection Point(s).” The activity at a
Drop-Off Collection Point is limited
solely to receiving a return or return information that a taxpayer wants to have electronically filed and collecting a fee for
electronically filing that return. Return
preparation activity may not be conducted
at a Drop-Off Collection Point. Return
preparation activity includes, but is not
limited to, comparing amounts listed on
Form 8453 with those on the paper return
or return information provided by a taxpayer and verifying routing numbers and
account numbers used for direct deposit
of refunds. Return preparation activity
does not include collecting a fee for electronic filing or ensuring that the taxpayer
has signed Form 8453. An ERO need not
have an ownership interest in the DropOff Collection Point.
SECTION 4. ACCEPTANCE IN THE
FORM 1040 IRS e-file PROGRAM
.01 Except as provided in sections 4.02
through 4.04 of this revenue procedure,
an Electronic Filer or Authorized IRS
e-file Provider that participated in the
most recent Form 1040 ELF or Form
1040 IRS e-file filing season does not
have to reapply to participate in the next
Form 1040 IRS e-file filing season. However, an Authorized IRS e-file Provider
that intends to participate as a Transmitter
or a Software Developer must first successfully complete, for each filing season,
the testing referred to in section 4.08 of
this revenue procedure. In addition, sec-
9
tion 4.15 of this revenue procedure provides for the Service’s issuance of credentials necessary for participation in the
Form 1040 IRS e-file Program.
.02 Applicants and Authorized IRS
e-file Providers must file a new Form
8633, Application to Participate in the
IRS e-file Program, with completed fingerprint cards for the appropriate individuals, if:
(1) the applicant has never participated in the Form 1040 ELF Program or
the Form 1040 IRS e-file Program;
(2) the applicant has previously been
denied participation in the Form 1040
ELF Program or the Form 1040 IRS e-file
Program;
(3) the applicant has been suspended
from the Form 1040 ELF Program or the
Form 1040 IRS e-file Program; or
(4) the Authorized IRS e-file
Provider is participating in the Form 1040
IRS e-file Program and wants to operate
an IRS e-file business at an additional location (except that an individual listed on
the Authorized IRS e-file Provider’s application who has submitted a fingerprint
card with a previously accepted application need not submit an additional fingerprint card).
.03 An Authorized IRS e-file Provider
must submit a revised Form 8633, signed
by all “Principals” and the “Responsible
Official” (as described in sections 4.09
through 4.12 of this revenue procedure),
with completed fingerprint cards for those
appropriate individuals who have not submitted a fingerprint card with a previously
accepted application, if:
(1) the Authorized IRS e-file Provider participated solely as a Software
Developer in the most recent Form 1040
ELF or Form 1040 IRS e-file filing season, and intends to participate as an ERO,
Service Bureau, or Transmitter;
(2) there is an additional Principal,
such as a partner or a corporate officer,
that must be listed on Form 8633;
(3) there is a Principal listed on Form
8633 that should be deleted; or
(4) the Responsible Official on Form
8633 changes.
.04 Except as provided in section 4.03
of this revenue procedure, an Authorized
IRS e-file Provider must submit either a revised Form 8633, or a letter containing the
same information contained in a revised
Form 8633, if any information on the Au-
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 10
thorized IRS e-file Provider’s Form 8633
has changed. A revised Form 8633 or letter submitted under this section should include only the changed information and
the following identifying information:
(1) the Authorized IRS e-file Provider’s legal name;
(2) the Authorized IRS e-file Provider’s employer identification number
and/or social security number (EIN/SSN);
(3) the Authorized IRS e-file Provider’s “Doing Business As” (DBA)
name;
(4) whether the Authorized IRS e-file
Provider is controlled or owned by another Authorized IRS e-file Provider;
(5) the Authorized IRS e-file
Provider’s controlling office name;
(6) the Electronic Transmitter Identification Number (ETIN) of the Authorized IRS e-file Provider’s controlling office;
(7) the Electronic Filing Identification Number (EFIN) of the Authorized
IRS e-file Provider’s controlling office;
and
(8) the business address of the Authorized IRS e-file Provider’s controlling
office.
A Principal or the Responsible Official
must sign the revised Form 8633 or the
letter.
.05 Applicants and Authorized IRS
e-file Providers described in section 4.02
of this revenue procedure must submit
new applications within the following
time periods:
(1) except as provided in section
4.05(2) of this revenue procedure, the application period for new applicants who
intend to participate in the Form 1040 IRS
e-file Program for any filing season begins on the 1st day of August preceding
the filing season and continues into the
filing season (see the Form 8633 instructions for the last date to file a new application); however, applications submitted
after the 1st day of December preceding
the filing season may not be processed in
time for the applicant to participate in the
Form 1040 IRS e-file Program by the start
of the filing season; and
(2) if an applicant purchases an existing Authorized IRS e-file Provider’s
business, a new application and proof of
sale must be submitted during the period
beginning 45 days before, and ending 30
days after, the date of the purchase.
September 21, 1998
.06 Revised applications described in
sections 4.03 and 4.04 of this revenue
procedure must be submitted within 30
days of the change(s) reflected on the revised Form 8633 or in the letter. Authorized IRS e-file Providers that fail to submit revised applications may be
temporarily dropped from the Form 1040
IRS e-file Program.
.07 Applicants and Authorized IRS
e-file Providers described in sections 4.02
through 4.04 of this revenue procedure
must file Form 8633 (or a letter as provided in section 4.04 of this revenue procedure) with the Application Processing
Center at the address listed in the instructions for Form 8633.
.08 Applicants and Authorized IRS
e-file Providers described in sections 4.01
through 4.04 of this revenue procedure
that intend to participate as a Transmitter
or a Software Developer in the Form 1040
IRS e-file Program must first successfully
complete the necessary testing at the appropriate service center(s). Such testing
must be completed for each filing season
during which the applicant or Authorized
IRS e-file Provider intends to participate
as a Transmitter or Software Developer.
.09 Each individual listed as a Principal or a Responsible Official on a Form
8633 must:
(1) be a United States citizen or an
alien lawfully admitted for permanent residence as described in 8 U.S.C.
§ 1101(a)(20) (1994);
(2) have attained the age of 21 as of
the date of application;
(3) submit with Form 8633 one standard fingerprint card with a full set of fingerprints taken by a law enforcement
agency, except as provided in section 4.13
of this revenue procedure;
(4) except as provided in section
4.17 of this revenue procedure, pass a
suitability check that includes a credit
check, a tax compliance check, and a fingerprint check; and
(5) meet any applicable state and
local licensing and/or bonding requirements in connection with the preparation
of tax returns and the collection of prepared returns that taxpayers intend to have
electronically filed. However, if the state
and local licensing and/or bonding requirements apply to a business entity, the
individual(s) must demonstrate that the
business entity meets the requirements.
10
.10 A Principal for a firm or organization includes the following:
(1) Sole Proprietorship. The sole
proprietor is the Principal for a sole proprietorship.
(2) Partnership. Each partner who
has a 5 percent or more interest in the
partnership is a Principal of the partnership. If no partner has at least a 5 percent
or more interest in the partnership, the
Principal is an individual authorized to act
for the partnership in legal and/or tax matters (at least one such individual must be
listed on Form 8633).
(3) Corporation. The President,
Vice-President, Secretary, and Treasurer
of the corporation are each a Principal of
the corporation.
(4) Other. The Principal for a forprofit entity that is not a sole proprietorship, partnership, or corporation, is an individual authorized to act for the entity in
legal and/or tax matters (at least one such
individual must be listed on Form 8633).
.11 A Responsible Official is the individual who oversees the daily operations
of an Authorized IRS e-file Provider’s office. A Responsible Official may also be
a Principal. As set forth in section 4.12 of
this revenue procedure, a Responsible Official may be responsible for more than
one office.
.12 The Responsible Official categories are:
(1) TIER I RESPONSIBLE OFFICIAL. A “Tier I Responsible Official” is
a Responsible Official who does not meet
the definition of a “Tier II Responsible
Official.” A Tier I Responsible Official
should be able to visit on a daily basis
each office for which he or she is listed as
a Responsible Official. A Tier I Responsible Official may be listed on a maximum of ten applications (Forms 8633).
(2) TIER II RESPONSIBLE OFFICIAL. A “Tier II Responsible Official” is
an individual who has participated in the
Form 1040 ELF Program or Form 1040
IRS e-file Program as a Responsible Official during at least the two most recent filing seasons and who has never been suspended from participation in the Form
1040 ELF Program or Form 1040 IRS efile Program. A Tier II Responsible Official should be able to visit on a daily basis
any office for which he or she is listed as
a Responsible Official. A Tier II Responsible Official may be listed on a maxi-
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 11
mum of twenty applications (Forms
8633).
.13 In lieu of a standard fingerprint
card, an individual may choose to submit
evidence that the individual is:
(1) an attorney in good standing of
the bar of the highest court of any State,
Commonwealth, possession, territory, or
the District of Columbia, and is not currently under suspension or disbarment
from practice before the Service or the bar
of the highest court of any State, Commonwealth, possession, territory, or the
District of Columbia;
(2) a certified public accountant who
is duly qualified to practice as a certified
public accountant in any State, Commonwealth, possession, territory, or the District of Columbia, and is not currently
under suspension or disbarment from
practice before the Service or whose license to practice is not currently suspended or revoked by any State, Commonwealth, possession, territory, or the
District of Columbia;
(3) an enrolled agent pursuant to part
10 of 31 C.F.R. Subtitle A;
(4) an officer of a publicly held corporation; or
(5) a banking official who is bonded
and has been fingerprinted within the last
two years.
.14 If an Authorized IRS e-file
Provider has a foreign location, the stateside contact representative will receive all
Service correspondence for the foreign location relating to the Form 1040 IRS
e-file Program.
.15 The Service will issue credentials
each year to eligible applicants, Authorized IRS e-file Providers that do not have
to reapply pursuant to section 4.01 of this
revenue procedure, and Authorized IRS
e-file Providers that comply with section
4.03 or 4.04 of this revenue procedure,
provided they have first satisfactorily
completed the testing described in section
4.08 of this revenue procedure if they intend to participate as a Transmitter or
Software Developer. No one may participate in the Form 1040 IRS e-file Program
without the following credentials:
(1) a letter of acceptance into the
Form 1040 IRS e-file Program;
(2) an EFIN or a Service Bureau
Identification Number (SBIN);
(3) if appropriate, an ETIN; and
1998–38 I.R.B.
(4) if appropriate, a Collection Point
Identification Number (CPIN).
.16 The Service will not issue a letter
of acceptance to an ERO to participate in
any Form 1040 IRS e-file filing season if
the Service did not receive and accept
during the immediately preceding filing
season any electronically filed returns
containing the ERO’s EFIN. In addition,
an ERO who has been issued a letter of
acceptance for any filing season may be
dropped from the Form 1040 IRS e-file
Program if the Service does not receive
and accept, prior to the 15th day of April
of that filing season, any electronically
filed returns containing the ERO’s EFIN.
In either case, the Service will notify the
ERO that it has been dropped from the
Form 1040 IRS e-file Program and explain what steps the ERO needs to take
for future participation in the program.
.17 If an Authorized IRS e-file
Provider is a Software Developer that performs no other function in the Form 1040
IRS e-file Program but software development, no Principal or Responsible Official
needs to pass a suitability check.
.18 If an ERO will have a Drop-Off
Collection Point(s) (as defined in section
3.04 of this revenue procedure), the ERO
must submit a Form 8633 that lists each
Drop-Off Collection Point. By listing a
Drop-Off Collection Point on Form 8633,
an ERO becomes a “parent” in relation to
a listed Drop-Off Collection Point.
.19 The Service may reject an application to participate in the Form 1040 IRS
e-file Program for the following reasons
(this list is not all-inclusive). These reasons apply to any firm, organization, Principal, or Responsible Official listed on
Form 8633:
(1) conviction of any criminal offense under the revenue laws of the
United States, or of any offense involving
dishonesty or breach of trust;
(2) failure to file timely and accurate
tax returns, including returns indicating
that no tax is due (unless the applicant did
not have a legal filing requirement);
(3) failure to timely pay any tax liabilities;
(4) assessment of any tax penalties;
(5) suspension/disbarment from
practice before the Service;
(6) disreputable conduct or other
facts that would reflect adversely on the
Form 1040 IRS e-file Program;
11
(7) misrepresentation on an application;
(8) suspension or rejection from the
program in a prior year;
(9) unethical practices in return
preparation;
(10) assessment against the applicant
of a penalty under § 6695(g) of the Internal Revenue Code;
(11) stockpiling returns prior to official acceptance into the Form 1040 IRS
e-file Program (see section 5.14 of this
revenue procedure);
(12) knowingly and directly or indirectly employing or accepting assistance
from any firm, organization, or individual
that is prohibited from applying to participate in the Form 1040 IRS e-file Program
(see section 14.09 of this revenue procedure) or that is suspended from participating in the Form 1040 IRS e-file Program
(see section 13.11 of this revenue procedure). This includes any individual
whose actions resulted in the rejection or
suspension of a corporation or a partnership from the Form 1040 ELF Program or
the Form 1040 IRS e-file Program; or
(13) knowingly and directly or indirectly accepting employment as an associate, correspondent, or as a subagent from,
or sharing fees with, any firm, organization, or individual that is prohibited from
applying to participate in the Form 1040
IRS e-file Program (see section 14.09 of
this revenue procedure) or that is suspended from participating in the Form
1040 IRS e-file Program (see section
13.11 of this revenue procedure). This includes any individual whose actions resulted in the rejection or suspension of a
corporation or a partnership from the
Form 1040 ELF Program or the Form
1040 IRS e-file Program.
SECTION 5. RESPONSIBILITIES OF
AN AUTHORIZED IRS e-file
PROVIDER
.01 To ensure that complete returns are
accurately and efficiently filed, an Authorized IRS e-file Provider must comply
with all publications and notices of the
Service relating to the Form 1040 IRS
e-file Program. The Service will from
time to time update such publications and
notices to reflect changes to the program.
It is the responsibility of the Authorized
IRS e-file Provider to ensure that it com-
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 12
plies with the latest version of all publications and notices. The publications and
notices governing the Form 1040 IRS
e-file Program include:
(1) Publication 1345, Handbook for
Electronic Return Originators of Individual Income Tax Returns, and Publication
1345A;
(2) Publication 1346;
(3) Publication 1436, Test Package
for Electronic Filing of Individual Income
Tax Returns; and
(4) Postings to the Electronic Filing
System Bulletin Board (EFS Bulletin
Board) and the IRS “Digital Daily” web
site at:
http://www.irs.ustreas.gov
on the Internet;
.02 An Authorized IRS e-file Provider
must maintain a high degree of integrity,
compliance, and accuracy.
.03 An Authorized IRS e-file Provider
may accept returns for the Form 1040 IRS
e-file Program only from the taxpayer filing the return, Drop-Off Collection Points
as listed on the ERO’s Form 8633 (see
section 4.18 of this revenue procedure), or
from another Authorized IRS e-file
Provider.
.04 If the taxpayer’s address on a Form
W–2, Wage and Tax Statement, Form
W–2G, Statement for Recipients of Certain Gambling Winnings, Form 1099–R,
Distributions From Pensions, Annuities,
Retirement or Profit-Sharing Plans, IRAs,
Insurance Contracts, etc., Form 1040,
Schedule C, Profit or Loss From Business
(Sole Proprietorship), or Form 1040,
Schedule C-EZ, Profit or Loss From
Business - Short Version, or any other tax
form is different than the taxpayer’s address in the entity section of the electronic
portion of the taxpayer’s Form 1040, the
ERO or the Service Bureau must input for
transmission to the Service those addresses that differ from the taxpayer’s address on the electronic portion of the taxpayer’s Form 1040.
.05 If an Authorized IRS e-file Provider charges a fee for the transmission of
the electronic portion of a tax return, the
fee may not be based on a percentage of
the refund amount or any other amount
from the tax return. An Authorized IRS
e-file Provider may not charge a separate
fee for Direct Deposit. See section 9 of
this revenue procedure.
.06 An Authorized IRS e-file Provider
September 21, 1998
must submit a revised Form 8633 (or a
letter as provided in section 4.04 of this
revenue procedure) to the Application
Processing Center within 30 days of when
any of the conditions or changes described in section 4.03 or 4.04 of this revenue procedure occur. See section 4.06 of
this revenue procedure.
.07 An Authorized IRS e-file Provider
must notify the Application Processing
Center (at the address listed in the instructions for Form 8633) within 30 days of
discontinuing its participation in the Form
1040 IRS e-file Program. This does not
preclude reapplication in the future.
.08 An Authorized IRS e-file Provider
must ensure that it promptly processes returns submitted to it for electronic filing.
See sections 5.14, 5.15, 5.16, and 7.01 of
this revenue procedure. However, an Authorized IRS e-file Provider that receives
a return for electronic filing on or before
the due date of the return must ensure that
the electronic portion of the return is
transmitted on or before that due date (including extensions). An electronically
filed return is not considered filed until
the electronic portion of the tax return has
been acknowledged by the Service as accepted for processing and a completed
and signed Form 8453 has been received
by the Service. However, if the electronic
portion of a return is successfully transmitted on or shortly before the due date
and the Authorized IRS e-file Provider
complies with section 7.01 of this revenue
procedure, the return will be deemed
timely filed. If the electronic portion of a
return is transmitted on or shortly before
the due date and is ultimately rejected, but
the Authorized IRS e-file Provider and the
taxpayer comply with section 5.13 of this
revenue procedure, the return will be
deemed timely filed. For a balance due
return, see section 11 of this revenue procedure for instructions on how to make a
timely payment of tax.
.09 An Authorized IRS e-file Provider
that functions as an ERO must:
(1) comply with the procedures for
completing and securing Forms 8453 described in section 7 of this revenue procedure;
(2) comply with the procedures described in section 11 of this revenue procedure for handling a balance due return;
(3) while returns are being filed by
the ERO, retain and make available to the
12
Service upon request the following material at the business address from which a
return was accepted for electronic filing:
(a) a copy of the signed Form
8453 and paper copies of Forms W–2,
W–2G, and 1099-R;
(b) a complete copy of the electronic portion of the return (which may be
retained on magnetic media) that can be
readily and accurately converted into an
electronic transmission that the Service
can process; and
(c) the acknowledgement file
(stating that the Service accepts the electronic portion of the taxpayer’s return for
processing) received from the Service or
from a third party Transmitter; and
(4) retain until the end of the calendar year in which a return was filed, and
make available to the Service upon request the materials described in section
5.09(3) of this revenue procedure at either
the business address from which a return
was electronically filed or from the contact representative named on Form 8633.
.10 An ERO who is the paid preparer
of an electronic tax return must also retain
for the prescribed amount of time the materials described in § 1.6107–1(b) that are
required to be kept by an income tax return preparer.
.11 An ERO must identify the paid preparer (if any) in the appropriate field of
the electronic portion of the return and ensure that the paid preparer signed Form
8453. If Form 8453 is not signed by the
paid preparer, the ERO must attach to
Form 8453 a copy of pages 1 and 2 of the
Form 1040EZ, Form 1040A, or Form
1040 signed by the paid preparer. These
copies must be marked “COPY-DO NOT
PROCESS” to prevent duplicate filings.
.12 An ERO must ensure against the
unauthorized use of its EFIN and, if applicable, the CPIN(s) issued to its DropOff Collection Point(s). An ERO must
not transfer its EFIN or the CPIN(s) of its
Drop-Off Collection Point(s) by sale,
merger, loan, gift, or otherwise to another
entity.
.13 If the Service rejects the electronic
portion of a taxpayer’s return (the Service
states that it rejects the electronic portion
of a taxpayer’s return for processing in
the acknowledgment file), and the reason
for the rejection cannot be rectified by the
actions described in section 6.02(3) of
this revenue procedure, the ERO, within
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 13
24 hours of receiving the rejection, must
take reasonable steps to inform the taxpayer that the taxpayer’s return has not
been filed. When the ERO advises the
taxpayer that the taxpayer’s return has not
been filed, the ERO must provide the taxpayer with the reject code(s), an explanation of the reject code(s), and the sequence number of each reject code(s) (see
Publication 1345A). If the taxpayer
chooses not to have the electronic portion
of the return corrected and transmitted to
the Service, or if the electronic portion of
the return cannot be accepted for processing by the Service, the taxpayer must file
a paper return by the later of:
(1) the due date of the return; or
(2) ten calendar days after the date
the Service gives notification that the
electronic portion of the return is rejected
or that the electronic portion of the return
cannot be accepted for processing.
The paper return should include an explanation of why the return is being filed
after the due date.
.14 An ERO is responsible for ensuring that stockpiling does not occur at its
office(s) or Drop-Off Collection Point(s).
Stockpiling means collecting returns from
taxpayers or from another Authorized IRS
e-file Provider prior to official acceptance
into the Form 1040 IRS e-file Program,
or, after official acceptance into the Form
1040 IRS e-file Program, waiting more
than three calendar days to send a return
to the Service after receiving the information necessary for transmission of the
electronic portion of a tax return.
.15 An Authorized IRS e-file Provider
that participates as a Service Bureau
must:
(1) deliver all electronic returns to a
Transmitter or to the ERO who gave the
electronic returns to the Service Bureau
within three calendar days of receipt;
(2) retrieve the acknowledgement
file from the Transmitter within one calendar day of receipt by the Transmitter;
(3) send the acknowledgement file to
the ERO (whether related or not) within
one work day of retrieving the acknowledgement file;
(4) if the Service Bureau processes
Forms 8453, send back to the ERO any
return and Form 8453 that needs correction, unless the correction is described in
section 6.02(3) of this revenue procedure;
1998–38 I.R.B.
(5) accept tax return information
only from Authorized IRS e-file
Providers;
(6) include its SBIN and the ERO’s
EFIN with all return information the Service Bureau forwards to a Transmitter or
sends back to an ERO;
(7) retain each acknowledgement file
received from a Transmitter until the end
of the calendar year in which the electronic return was filed;
(8) if requested, serve as a contact
point between its client EROs and the
Service;
(9) if requested, provide the Service
with a list of each client ERO; and
(10) ensure against the unauthorized
use of its SBIN. A Service Bureau must
not transfer its SBIN by sale, merger,
loan, gift, or otherwise to another entity.
.16 An Authorized IRS e-file Provider
that participates as a Transmitter must:
(1) send to the Service all electronic
portions of returns within three calendar
days of receipt;
(2) retrieve the acknowledgement
file within two work days of transmission;
(3) match the acknowledgement file
to the original transmission file and send
the acknowledgement file to the ERO or
the Service Bureau (whether or not the
ERO or the Service Bureau are related to
the Transmitter) within two work days of
retrieving the acknowledgement file;
(4) retain an acknowledgement file
received from the Service until the end of
the calendar year in which the electronic
return was filed;
(5) immediately contact the appropriate service center for further instructions if an acknowledgement of acceptance for processing has not been received
by the Transmitter within two work days
of transmission or if a Transmitter receives an acknowledgement for a return
that was not transmitted on the designated
transmission;
(6) promptly correct any transmission error that causes an electronic transmission to be rejected;
(7) contact the service center that rejected the electronic portion of the return
for assistance if that portion of the return
has been rejected after three transmission
attempts;
(8) ensure the security of all transmitted data;
13
(9) ensure against the unauthorized
use of its EFIN or ETIN. A Transmitter
must not transfer its EFIN or ETIN by
sale, merger, loan, gift, or otherwise to another entity; and
(10) not use software that has a Service assigned production password built
into the software.
.17 A Transmitter must accept electronic returns for transmission to the Service only from Authorized IRS e-file
Providers. A Transmitter must include the
ERO’s EFIN and if applicable, the CPIN
on each return that the Transmitter accepts from an ERO. In addition, a Transmitter must also include a Service Bureau’s SBIN if a Service Bureau formats
the return information.
.18 An Authorized IRS e-file Provider
that participates as a Software Developer
must:
(1) promptly correct any software
error which causes the electronic portion
of a return to be rejected;
(2) promptly distribute any software
correction;
(3) ensure that any software package
that will be used to transmit electronic
portions of returns from multiple Authorized IRS e-file Providers has the capability of combining returns from these Authorized IRS e-file Providers into one
Service transmission file taking into account the sorting requirements of the Declaration Control Number (DCN);
(4) ensure that no other entity uses
the Software Developer’s EFIN or ETIN.
A Software Developer must not transfer
by sale, merger, loan, gift, or otherwise its
EFIN or ETIN to another entity; and
(5) not incorporate into its software a
Service assigned production password.
.19 An ERO with a Drop-Off Collection Point must clearly display its name at
each Drop-Off Collection Point. The Service will hold the ERO responsible for
any violation of the advertising standards
described in section 12 or any other violation of this revenue procedure that occurs
at a Drop-Off Collection Point listed on
the ERO’s Form 8633. The ERO must
also serve as the contact point between
the Service and the Drop-Off Collection
Point for all correspondence including
problem resolution and report evaluation.
.20 In addition to the specific responsibilities described in this section, an Au-
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 14
thorized IRS e-file Provider must meet all
the requirements in this revenue procedure to retain the privilege of participating in the Form 1040 IRS e-file Program.
SECTION 6. PENALTIES
.01 Penalties for Disclosure or Use of
Information.
(1) An Authorized IRS e-file Provider, except a Software Developer, is a
tax return preparer (Preparer) under the
definition of § 301.7216–1(b) of the Regulations on Procedure and Administration.
A Preparer is subject to a criminal penalty
for unauthorized disclosure or use of tax
return information. See § 7216 of the Internal Revenue Code and § 301.7216–
1(a). In addition, § 6713 establishes civil
penalties for unauthorized disclosure or
use of tax return information.
(2) Under § 301.7216–2(h), disclosure of tax return information among Authorized IRS e-file Providers for the purpose of preparing a return is permissible.
For example, an ERO may pass on tax return information to a Service Bureau
and/or a Transmitter for the purpose of
having an electronic return formatted and
transmitted to the Service. However, if
the tax return information is disclosed or
used in any other way, a Service Bureau
and/or a Transmitter may be subject to the
penalties described in section 6.01(1) of
this revenue procedure.
.02 Other Preparer Penalties.
(1) Preparer penalties may be asserted against an individual or firm meeting the definition of an income tax return
preparer under § 7701(a)(36) and
§ 301.7701–15. Preparer penalties that
may be asserted under appropriate circumstances include, but are not limited to,
those set forth in §§ 6694, 6695, and
6713.
(2) Under § 301.7701–15(d), Electronic Return Collectors, Service Bureaus, Transmitters, and Software Developers are not income tax return preparers
for the purpose of assessing most preparer
penalties as long as their services are limited to “typing, reproduction, or other mechanical assistance in the preparation of a
return or claim for refund.”
(3) If an Electronic Return Collector,
Service Bureau, Transmitter, or the product of a Software Developer alters the return information in a nonsubstantive way,
this alteration will be considered to come
September 21, 1998
under the “mechanical assistance” exception described in § 301.7701–15(d)(1). A
nonsubstantive change is a correction or
change limited to a transposition error,
misplaced entry, spelling error, or arithmetic correction that falls within the following tolerances:
(a) the amount of “Total tax”,
“Federal income tax withheld”, “Refund”,
or “Amount you owe” on Form 8453 differs from the corresponding amount on
the electronic portion of the tax return by
no more than $7;
(b) the amount of “Total income”
on Form 8453 differs from the corresponding amount on the electronic portion of the tax return by no more than $25;
or
(c) dropping cents and rounding to
whole dollars.
(4) If an Electronic Return Collector,
Service Bureau, or Transmitter alters the
return information in a substantive way,
rather than having the taxpayer alter the
return, the Electronic Return Collector,
Service Bureau, or Transmitter will be
considered to be an income tax return preparer for purposes of § 7701(a)(36).
(5) If an Electronic Return Collector,
Service Bureau, or Transmitter, or the
product of a Software Developer, goes beyond mechanical assistance, any of these
parties may be held liable for income tax
return preparer penalties. See Rev. Rul.
85–189, 1985–2 C.B. 341 (which describes a situation where a Software Developer was determined to be an income
tax return preparer and subject to certain
preparer penalties).
.03 Other Penalties. In addition to the
above specified provisions, the Service
reserves the right to assert all appropriate
preparer, nonpreparer, and disclosure
penalties against an Authorized IRS e-file
Provider as warranted under the circumstances.
SECTION 7. FORM 8453, U.S.
INDIVIDUAL INCOME TAX
DECLARATION FOR AN IRS e-file
RETURN
.01 Procedures for Completing Form
8453.
(1) Form 8453 must be completed in
accordance with the instructions for that
form.
(2) The taxpayer(s)’s name, address,
social security number(s), and tax return
14
information in the electronic transmission
must be identical to the information on
the Form 8453 that the taxpayer(s) signed
and provided for submission to the Service.
(3) An Authorized IRS e-file
Provider, a financial institution, or any
other entity associated with the electronic
filing of a taxpayer’s return must not put
its address in the section reserved for the
taxpayer’s address on Form 8453 or anywhere in the electronic portion of a return.
(4) Before the electronic portion of
the return is transmitted, the taxpayer
must verify the information on the electronic portion of the return and on Form
8453, and must sign Form 8453. Both
spouses’ signatures are required on the
Form 8453 prior to the electronic transmission of a joint tax return. The taxpayer may verify the information on the
electronic portion of the return by viewing this information on a computer display terminal. A taxpayer need not verify
the electronic portion of the return prior to
its transmission if the taxpayer provided a
completed paper return for filing and the
information on the electronic portion is
identical to the information provided by
the taxpayer.
(5) An Authorized IRS e-file Provider must submit the taxpayer’s Form
8453 to the service center that acknowledged acceptance of the electronic portion
of the return within one work day after the
Authorized IRS e-file Provider receives
the acknowledgment file.
(6) An Authorized IRS e-file Provider functioning as an ERO must sign
the “Declaration of ERO” on Form 8453.
(7) If the ERO is also the paid preparer, the ERO must check the “Paid Preparer” box and sign the “Declaration of
ERO” on Form 8453.
.02 Corrections to Form 8453.
(1) A new Form 8453 is not required
for a nonsubstantive change. A nonsubstantive change is limited to a correction
that does not exceed the tolerances described in section 7.02(2) of this revenue
procedure for arithmetic errors, a transposition error, a misplaced entry, or a
spelling error. The incorrect nonsubstantive information must be neatly lined
through on the Form 8453 and the correct
data entered next to the lined-through
entry. Also, the individual making the
correction must initial the correction.
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 15
(2) The tolerances for section 7.02(1)
of this revenue procedure are:
(a) the amount of “Total income”
does not differ from the amount on the
electronic portion of the tax return by
more than $25; or
(b) the amount of “Total tax”,
“Federal income tax withheld”, “Refund”,
or “Amount you owe” does not differ
from the amount on the electronic portion
of the tax return by more than $7.
(3) If the ERO makes a substantive
change to the electronic portion of the return after Form 8453 has been signed by
the taxpayer, but before it is transmitted,
the ERO must have all the necessary parties described above sign a new Form
8453 that reflects the corrections before
the electronic portion of the return is
transmitted.
(4) Dropping cents or rounding to
whole dollars does not constitute a substantive change or alteration to the return
unless the amount differs by more than
the above tolerances. All rounding should
be accomplished in accordance with the
instructions in the Form 1040 tax package.
.03 Missing Form 8453. If the Service
determines that a Form 8453 is missing,
the ERO must provide the Service with a
replacement. The ERO must also provide
a copy of the Form(s) W–2, W–2G,
1099R, and all other attachments to Form
8453.
.04 Substitute Form 8453. If a substitute Form 8453 is used, it must be approved by the Service prior to use.
SECTION 8. INFORMATION AN
AUTHORIZED IRS e-file PROVIDER
MUST FURNISH TO THE TAXPAYER
.01 The ERO must furnish the taxpayer with a complete paper copy of the
taxpayer’s return. However, the copy
need not contain the social security number of the paid preparer. See Rev. Rul.
78–317, 1978–2 C.B. 335. A complete
copy of a taxpayer’s return includes:
(1) Form 8453 and other paper documents that cannot be electronically transmitted; and
(2) a printout of the electronic portion of the return.
See section 2.02 of this revenue procedure. The electronic portion of the return
can be contained on a replica of an official form or on an unofficial form. How-
1998–38 I.R.B.
ever, on an unofficial form, data entries
must be referenced to the line numbers on
an official form. Also, a printout of the
electronic portion of the return does not
have to be provided to the taxpayer if the
taxpayer provided a completed paper return for electronic filing and the information on the electronic portion of the return
is identical to the information provided by
the taxpayer.
.02 The ERO must advise the taxpayer
to retain a complete copy of the return and
any supporting material.
.03 The ERO must advise the taxpayer
that an amended return, if needed, must
be filed as a paper return and mailed to
the service center that would handle the
taxpayer’s paper return.
.04 The ERO must, upon request, provide the taxpayer with the DCN and the
date the Service acknowledged that the
electronic portion of the taxpayer’s return
was accepted for processing.
.05 The ERO must advise taxpayers of
the appropriate IRS TeleTax number to inquire about the status of their tax refund.
The ERO should also advise taxpayers to
wait at least three weeks from the date the
Service acknowledged that the electronic
portion of the taxpayer’s return was accepted for processing before calling the
TeleTax number.
.06 If a taxpayer chooses to use an address other than his or her home address
on the return, the ERO must inform the
taxpayer that the address on the electronic
portion of the return, once processed by
the Service, will be used to update the
taxpayer’s address of record. The Service
uses the taxpayer’s address of record for
various notices that are required to be sent
to a taxpayer’s “last known address”
under the Internal Revenue Code, and for
refunds of overpayments of tax (unless
otherwise specifically directed by the taxpayer, such as by Direct Deposit).
SECTION 9. DIRECT DEPOSIT OF
REFUNDS
.01 The Service will ordinarily process
a request for Direct Deposit but reserves
the right to issue a paper refund check.
.02 The Service does not guarantee a
specific date by which a refund will be directly deposited into the taxpayer’s financial institution account.
.03 Neither the Service nor Financial
Management Service (FMS) is responsi-
15
ble for the misapplication of a Direct Deposit that is caused by error, negligence,
or malfeasance on the part of the taxpayer, Authorized IRS e-file Provider, financial institution, or any of their agents.
.04 An ERO must:
(1) advise taxpayers of the option to
receive their refund by paper check or direct deposit;
(2) not charge a separate fee for a Direct Deposit;
(3) accept any Direct Deposit election to any eligible financial institution
designated by the taxpayer;
(4) ensure that the taxpayer is eligible to choose Direct Deposit;
(5) caution the taxpayer that once the
electronic portion of the return has been
accepted for processing by the Service:
(a) the Direct Deposit election
cannot be rescinded;
(b) the routing number of the financial institution cannot be changed; and
(c) the taxpayer’s account number
cannot be changed; and
(6) advise the taxpayer that refund
information is available by calling the appropriate IRS TeleTax number. See section 8.05 of this revenue procedure.
SECTION 10. REFUND
ANTICIPATION LOANS
.01 A Refund Anticipation Loan
(RAL) is money borrowed by a taxpayer
that is based on a taxpayer’s anticipated
income tax refund. The Service has no
involvement in RALs. A RAL is a contract between the taxpayer and the lender.
.02 Any entity that is involved in the
Form 1040 IRS e-file Program, including
a financial institution that accepts direct
deposits of income tax refunds, has an
obligation to every taxpayer who applies
for a RAL to clearly explain to the taxpayer that a RAL is in fact a loan, and not
a substitute for, or a quicker way of, receiving an income tax refund. An Authorized IRS e-file Provider must advise the
taxpayer that if a Direct Deposit is not
timely, the taxpayer may be liable to the
lender for additional interest on the RAL.
.03 An Authorized IRS e-file Provider
may assist a taxpayer in applying for a
RAL.
.04 An Authorized IRS e-file Provider
may charge a flat fee to assist a taxpayer
in applying for a RAL. The fee must be
identical for all of the Authorized IRS
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 16
e-file Provider’s customers and must not
be related to the amount of the refund or a
RAL. The Authorized IRS e-file Provider
must not accept a fee from a financial institution for any service connected with a
RAL that is contingent upon the amount
of the refund or a RAL.
.05 The Service has no responsibility
for the payment of any fees associated
with the preparation of a return, the transmission of the electronic portion of a return, or a RAL.
.06 An Authorized IRS e-file Provider
may disclose tax information to the lending financial institution in connection
with an application for a RAL only with
the taxpayer’s written consent as specified in § 301.7216–3(b).
.07 An Authorized IRS e-file Provider
that is also the return preparer, and the financial institution or other lender that
makes an RAL, may not be related taxpayers within the meaning of § 267 or
§ 707.
.08 Section 6695(f) imposes a $500
penalty on a return preparer who endorses
or negotiates a refund check issued to any
taxpayer other than the return preparer.
However, a bank, as defined in § 581,
may accept the full amount of a refund
check as a deposit in the taxpayer’s account for the benefit of the taxpayer. Section 1.6695-1(f) clarifies § 6695(f) by explaining that the prohibition on a return
preparer negotiating a refund check is
limited to a refund check for a return that
the return preparer prepared. A preparer
that is also a financial institution, but has
not made a loan to the taxpayer on the
basis of the taxpayer’s anticipated refund,
may (1) cash a refund check and remit all
of the cash to the taxpayer or accept a refund check for deposit in full to a taxpayer’s account, provided the bank does
not initially endorse or negotiate the
check; or (2) endorse a refund check for
deposit in full to a taxpayer’s account pursuant to a written authorization of the taxpayer. A preparer bank may also subsequently endorse or negotiate a refund
check as part of the check-clearing
process through the financial system after
initial endorsement. Any income tax return preparer that violates this provision
may be suspended from the Form 1040
IRS e-file Program.
September 21, 1998
SECTION 11. BALANCE DUE
RETURNS
.01 All service centers that accept electronically filed returns will accept electronically filed balance due returns.
.02 Taxpayers who file balance due returns under the Form 1040 IRS e-file Program for any taxable year are responsible
for making full and timely payment of
any tax that is due. Failure to make full
payment on or before the due date of the
return (determined without regard to extensions) will result in the imposition of
interest and may result in the imposition
of penalties.
.03 Taxpayers have several options for
paying balances due, including the following:
(1) DIRECT DEBIT. Taxpayers
may authorize the Service to debit their
checking or savings account for the
amount of the balance due;
(2) PAY BY CHECK. Taxpayers
may pay any balance due by sending a
check, along with Form 1040-V, Payment
Voucher, to the Service. The Authorized
IRS e-file Provider must furnish Form
1040-V to any taxpayer paying a balance
due by check; and
(3) INSTALLMENT AGREEMENT. Taxpayers who cannot pay the
balance due with the return may request
an installment payment arrangement by
filing Form 9465, Installment Agreement
Request, with their return.
SECTION 12. ADVERTISING
STANDARDS FOR AUTHORIZED IRS
e-file PROVIDERS AND FINANCIAL
INSTITUTIONS
.01 An Authorized IRS e-file Provider
must comply with the advertising and solicitation provisions of 31 C.F.R. Part 10
(Treasury Department Circular No. 230).
This circular prohibits the use or participation in the use of any form of public
communication containing a false, fraudulent, misleading, deceptive, unduly influencing, coercive, or unfair statement or
claim. Any claims concerning faster refunds by virtue of electronic filing must
be consistent with the language in official
Service publications.
.02 An Authorized IRS e-file Provider
must adhere to all relevant federal, state,
16
and local consumer protection laws that
relate to advertising and soliciting.
.03 An Authorized IRS e-file Provider
must not use the Service’s name, “Internal
Revenue Service” or “IRS”, within a
firm’s name. However, once accepted
into the Form 1040 IRS e-file Program, a
participant may represent itself as an “Authorized IRS e-file Provider.”
.04 An Authorized IRS e-file Provider
must not use improper or misleading advertising in relation to the Form 1040 IRS
e-file Program (including the time frames
for refunds and RALs).
.05 An Authorized IRS e-file Provider
using promotional materials or logos provided by the Service must comply with all
Service instructions pertaining to the promotional materials or logos.
.06 An Authorized IRS e-file Provider
using the Direct Deposit name and logo
must comply with the following:
(1) The name “Direct Deposit” will
be used with initial capital letters or all
capital letters;
(2) The logo/graphic for Direct Deposit will be used whenever feasible in
advertising copy; and
(3) The color or size of the Direct
Deposit logo/graphic may be changed
when used in advertising pieces.
.07 Advertising materials must not
carry the FMS, IRS, or other Treasury
Seals.
.08 Advertising for a cooperative electronic return filing project (public/private
sector) must clearly state the names of all
cooperating parties.
.09 In advertising the availability of a
RAL, an Authorized IRS e-file Provider
and a financial institution must clearly
(and, if applicable, in easily readable
print) refer to or describe the funds being
advanced as a loan, not a refund; that is, it
must be made clear in the advertising that
the taxpayer is borrowing against the anticipated refund and not obtaining the refund itself from the financial institution.
.10 If an Authorized IRS e-file Provider uses radio or television broadcasting
to advertise, the broadcast must be prerecorded. The Authorized IRS e-file
Provider must keep a copy of the prerecorded advertisement for a period of at
least 36 months from the date of the last
transmission or use.
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 17
.11 If an Authorized IRS e-file Provider uses direct mail or fax communications to advertise, the Authorized IRS efile Provider must retain a copy of the
actual mailing or fax, along with a list or
other description of the firms, organizations, or individuals to whom the communication was mailed, faxed, or otherwise
distributed for a period of at least 36
months from the date of the last mailing,
fax, or distribution.
.12 Acceptance to participate in the
Form 1040 IRS e-file Program does not
imply endorsement by the Service, FMS,
or the Treasury Department of the software or quality of services provided.
SECTION 13. MONITORING AND
SUSPENSION OF AN AUTHORIZED
IRS e-file PROVIDER
.01 The Service will monitor an Authorized IRS e-file Provider for conformity with this revenue procedure. Before
suspending an Authorized IRS e-file
Provider, the Service may issue a warning
letter that describes specific corrective action for deviations from this revenue procedure. However, the Service can immediately suspend, without notice, an
Authorized IRS e-file Provider from the
Form 1040 IRS e-file Program. In most
circumstances, a suspension from participation in the Form 1040 IRS e-file Program is effective as of the date of the letter informing the Authorized IRS e-file
Provider of the suspension.
.02 If a Principal or Responsible Official is suspended from the Form 1040 IRS
e-file Program, every entity that listed the
suspended Principal or Responsible Official on its Form 8633 may also be suspended.
.03 The Service will monitor the Authorized e-file Provider’s compliance with
the provisions of section 6695(g) (relating
to the due diligence requirements for returns claiming the earned income credit).
.04 The Service will monitor the
timely receipt of Forms 8453, as well as
their overall legibility.
.05 The Service will monitor the quality of an Authorized IRS e-file Provider’s
transmissions throughout the filing season. The Service will also monitor the
electronic portion of returns and tabulate
rejections, errors, and other defects. If
quality deteriorates, the Authorized IRS
e-file Provider will receive a warning
from the Service.
1998–38 I.R.B.
.06 The Service will monitor Drop-Off
Collection Points and advise a parent of
any Form 1040 IRS e-file Program violations the Service has encountered with a
parent’s Drop-Off Collection Point. If a
parent fails to correct a Drop-Off Collection Point problem, the parent will be required to eliminate that Drop-Off Collection Point. Failure to take corrective
action or eliminate a Drop-Off Collection
Point may cause the Service to suspend
the parent from participating in the Form
1040 IRS e-file Program.
.07 The Service will monitor complaints about an Authorized IRS e-file
Provider and issue a warning or suspension letter as appropriate.
.08 The Service reserves the right to
suspend an Authorized IRS e-file Provider
from participation in the Form 1040 IRS
e-file Program for violating any provision
of this revenue procedure. Generally, the
Service will advise a suspended Authorized IRS e-file Provider concerning the
requirements for reacceptance into the
Form 1040 IRS e-file Program. The following reasons may lead to a warning letter and/or suspension of an Authorized
IRS e-file Provider from the Form 1040
IRS e-file Program (this list is not all-inclusive):
(1) the reasons listed in section 4.19
of this revenue procedure;
(2) deterioration in the format of individual transmissions;
(3) unacceptable cumulative error or
rejection rate;
(4) untimely received, illegible, incomplete, missing, or unapproved substitute Forms 8453;
(5) stockpiling returns at any time
while participating in the Form 1040 IRS
e-file Program;
(6) failure on the part of a Transmitter to retrieve acknowledgement files
within two work days of transmission by
the Service;
(7) failure on the part of a Transmitter to provide an ERO or Service Bureau
with acknowledgement files within two
work days after receipt from the Service;
(8) significant complaints about an
Authorized IRS e-file Provider’s performance in the Form 1040 IRS e-file Program;
(9) failure on the part of an Authorized IRS e-file Provider to ensure against
the unauthorized use of its EFIN and/or
ETIN;
17
(10) having more than one EFIN for
the same business entity at the same location (the business entity is generally the
entity that reports on its return the income
derived from electronic filing), unless the
Service has issued more than one EFIN to
a business entity at the same location. For
example, the Service may issue more than
one EFIN to accommodate high volumes
of returns;
(11) failure on the part of a Transmitter to include a Service Bureau’s SBIN in
the transmission of a return submitted by
a Service Bureau;
(12) failure on the part of an ERO to
include a Drop-Off Collection Point’s
CPIN as part of a return collected from a
Drop-Off Collection Point;
(13) failure on the part of an Authorized IRS e-file Provider to cooperate
with the Service’s efforts to monitor Authorized IRS e-file Providers and investigate electronic filing abuse;
(14) failure on the part of an Authorized IRS e-file Provider to properly use
the standard/non-standard W–2 indicator;
(15) failure on the part of an Authorized IRS e-file Provider to properly use
the refund anticipation loan (RAL) indicator;
(16) failure on the part of a Service
Bureau or a Transmitter to include the
ERO’s EFIN as part of a return that the
ERO submits to the Service Bureau or the
Transmitter;
(17) violation of the advertising standards described in section 12 of this revenue procedure;
(18) failure to maintain and make
available records as described in section
5.09(4) of this revenue procedure;
(19) accepting a tax return for filing
through the Form 1040 IRS e-file Program either directly or indirectly from a
firm, organization, or individual (other
than the taxpayer who is submitting his or
her return) that is not an Authorized IRS
e-file Provider;
(20) submitting the electronic portion of a return with information that is
not identical to the information on Form
8453;
(21) failure to timely submit a revised Form 8633 (or a letter containing
the same information contained in a revised Form 8633) notifying the Service of
changes described in section 4.03 or 4.04
of this revenue procedure; or
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 18
(22) failure to comply with a provision of an implementing document for
any pilot program in which the Authorized IRS e-file Provider is a participant
(see section 18 of this revenue procedure).
.09 The Service may list in the Internal
Revenue Bulletin, district office listings,
district office newsletters, and the EFS
Bulletin Board the name and owner(s) of
any entity suspended from the Form 1040
IRS e-file Program and the effective date
of the suspension.
.10 A district director may warn Authorized IRS e-file Providers that are
using the services of a rejected or a suspended Authorized IRS e-file Provider
that sections 4.19(12) and (13) of this revenue procedure prohibit a business relationship with a rejected or a suspended
Authorized IRS e-file Provider. However,
in appropriate circumstances, the Service
may immediately suspend the Authorized
IRS e-file Provider without such warning.
.11 If an Authorized IRS e-file Provider is suspended from participating in
the Form 1040 IRS e-file Program, the period of suspension includes the remainder
of the calendar year in which the suspension occurs plus the next two calendar
years. A suspended participant may submit a new application for the application
period immediately preceding the end of
the suspension.
SECTION 14. ADMINISTRATIVE
REVIEW PROCESS FOR DENIAL OF
PARTICIPATION IN THE FORM 1040
IRS e-file PROGRAM
.01 An applicant that has been denied
participation in the Form 1040 IRS e-file
Program has the right to an administrative
review. During the administrative review
process, the denial of participation remains in effect.
.02 In response to the submission of a
Form 8633, the Application Processing
Center will either (1) accept an applicant
into the Form 1040 IRS e-file Program, or
(2) issue a proposed letter of denial that
explains to the applicant why the Application Processing Center proposes to reject
the application to participate in the Form
1040 IRS e-file Program.
.03 An applicant that receives a proposed letter of denial may mail or deliver,
within 30 calendar days of the date of the
proposed letter of denial, a written re-
September 21, 1998
sponse to the Application Processing Center. The applicant’s response must address the Application Processing Center’s
reason(s) for proposing the denial to participate.
.04 Upon receipt of an applicant’s
written response, the Application Processing Center will reconsider its proposed
letter of denial. The Application Processing Center may either (1) withdraw its
proposed letter of denial and accept the
applicant into the Form 1040 IRS e-file
Program, or (2) finalize the proposed denial letter.
.05 If an applicant receives a final denial letter from the Application Processing
Center, the applicant is entitled to an appeal, in writing, to the Director of Practice.
.06 The appeal must be mailed or delivered to the Application Processing Center
within 30 calendar days of the date of the
final denial letter. An applicant’s written
appeal must contain a detailed explanation, with supporting documentation, of
why the denial should be reversed.
.07 The Application Processing Center
will, upon receipt of a written appeal to
the Director of Practice, forward to the
Director of Practice its file on the applicant and the material described in section
14.06 of this revenue procedure. The Application Processing Center will forward
these materials to the Director of Practice
within 15 calendar days of receipt of the
applicant’s written appeal.
.08 Failure to respond within either of
the 30-day periods described in sections
14.03 and 14.06 of this revenue procedure
irrevocably terminates an applicant’s right
to an administrative review or appeal.
.09 If an application for participation
in the Form 1040 IRS e-file Program is
denied, the applicant is ineligible to submit a new application for two years from
the application date of the denied application.
SECTION 15. ADMINISTRATIVE
REVIEW PROCESS FOR
SUSPENSION FROM THE FORM 1040
IRS e-file PROGRAM
.01 An Authorized IRS e-file Provider
that has been suspended from participation in the Form 1040 IRS e-file Program
has the right to an administrative review.
During the administrative review process,
the suspension remains in effect.
18
.02 If an Authorized IRS e-file
Provider receives a suspension letter, the
Authorized IRS e-file Provider may mail
or deliver, within 30 calendar days of the
date of the suspension letter, a detailed
written explanation, with supporting documentation, of why the suspension letter
should be withdrawn. This written response should be sent to the district office
or service center that issued the suspension letter.
.03 Upon receipt of the Authorized IRS
e-file Provider’s written response, the district office or service center will reconsider
its suspension of the Authorized IRS e-file
Provider. The district office or service center may either (1) withdraw its suspension
letter, or (2) affirm the suspension.
.04 If an Authorized IRS e-file
Provider receives a letter affirming the
suspension, the Authorized IRS e-file
Provider is entitled to an appeal, in writing, to the Director of Practice.
.05 The appeal must be mailed or delivered to the district office or service
center that issued the suspension letter
within 30 calendar days of the date of the
letter affirming the suspension. The Authorized IRS e-file Provider’s written appeal must contain detailed reasons, with
supporting documentation, for reversal of
the suspension.
.06 The district office or service center
whose decision to suspend is being appealed will, upon receipt of a written appeal to the Director of Practice, forward
its file on the Authorized IRS e-file
Provider to the Director of Practice. The
district office or service center will also
forward to the Director of Practice the
material described in section 15.05 of this
revenue procedure. The district office or
the service center will forward these materials within 15 calendar days of the receipt of the Authorized IRS e-file
Provider’s written request for appeal.
.07 Failure to appeal within either of
the 30-day periods described in sections
15.02 and 15.05 of this revenue procedure
irrevocably terminates an Authorized IRS
e-file Provider’s right to an appeal.
SECTION 16. VITA AND TCE
SPONSORED PARTICIPATION IN THE
FORM 1040 IRS e-file PROGRAM
.01 This revenue procedure applies to
VITA (Volunteer Income Tax Assistance)
and TCE (Tax Counseling for the Elderly)
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 19
sponsors, subject to the exceptions and restrictions described in this section.
.02 For purposes of this section, the
District Director may be represented by an
individual designated by the District Director such as a District Office Electronic
Tax Administration (ETA) Coordinator or
a Taxpayer Education Coordinator.
.03 To be accepted in, or to continue
participation in, the Form 1040 IRS e-file
Program, a VITA or TCE sponsor must:
(1) have obtained the District Director’s permission (and, in the case of a
TCE sponsor, the permission of the Service office that is funding the TCE program) to provide electronic filing; and
(2) have a manual or electronic quality review system for each return to be
electronically filed.
.04 The District Director will advise
the VITA and TCE sponsor how to submit
or transmit returns. Some of the options
available to the District Director are:
(1) having the VITA or TCE sponsor
submit returns on paper, magnetic disk, or
in an electronic transmission to the District Office ETA Coordinator or other locally designated office;
(2) having the VITA or TCE sponsor
directly transmit returns to the appropriate
service center; or
(3) having the VITA or TCE sponsor
use a third party Transmitter.
.05 A VITA or TCE sponsor is not required to sign Form 8453 as ERO. However, if the VITA or TCE sponsor chooses
not to sign Form 8453, the VITA or TCE
sponsor must otherwise furnish on Form
8453 its VITA or TCE acronym and, if
operating from multiple sites, a site designation number.
.06 A VITA or TCE sponsor can only
accept a return for electronic filing that is
(1) prepared at the VITA or TCE site by a
VITA or TCE volunteer, (2) prepared by a
taxpayer that meets the criteria for VITA
or TCE assistance, or (3) prepared by a
paid preparer that meets the criteria for
VITA or TCE assistance.
.07 Only returns and accompanying
forms and schedules included in a district,
VITA, or TCE training course may be accepted for electronic filing by a VITA or
TCE sponsor.
.08 A VITA or TCE sponsor and a District Director may enter into an agreement
that provides for the retention of copies of
tax returns and Forms 8453 by a District
1998–38 I.R.B.
Director. This information must be retained by either the VITA or TCE sponsor
or a District Director. This information
must not be given to a third party, including a third party Transmitter.
.09 A District Director is responsible for
ensuring that Form 8453 is sent to the appropriate district office or service center.
However, a District Director may delegate
to the VITA or TCE sponsor the responsibility for mailing Form 8453 to the appropriate district office or service center.
.10 A VITA or TCE sponsor may collect a fee only if it is directly related to defraying the actual cost of electronically
transmitting a tax return. A VITA or TCE
sponsor may also collect this fee on behalf of a third party Transmitter who electronically transmitted a VITA or TCE return.
.11 Before a VITA or TCE sponsor
may collect a fee for electronically filing
a tax return, the VITA or TCE sponsor
must ensure that the taxpayer understands
that:
(1) the fee is not for the preparation
of the return; and
(2) the VITA or TCE service is offered without regard to either the electronic filing of a return or the collection of
a fee.
SECTION 17. EMPLOYER
SPONSORED PARTICIPATION IN THE
FORM 1040 IRS e-file PROGRAM
.01 This revenue procedure applies to
an employer who chooses to offer electronic filing as an employee benefit to (1)
business owners and spouses, (2) employees and spouses, and/or (3) dependents of
business owners and employees, subject
to the exceptions and restrictions described in this section.
.02 For purposes of this section, the
District Director may be represented by
an individual designated by the District
Director.
.03 An employer may choose to transmit the electronic portion of returns or
may arrange to have them transmitted
through a third party. If an employer
chooses to transmit from more than one
location, the employer must submit a
properly completed Form 8633 for each
location.
.04 An employer may offer electronic
filing as an employee benefit whether the
employer chooses to transmit tax returns
19
or contracts with a third party to transmit
the tax returns.
.05 If an employer contracts with a
third party to transmit tax returns, the employer may collect from participating employees a fee that is directly related to defraying the actual cost of transmitting the
electronic portion of a tax return.
.06 An employer is not required to sign
Form 8453 as ERO. However, if the employer chooses not to sign Form 8453, the
employer must otherwise furnish on Form
8453 its name, address, and the designation “Employee Benefit,” and if operating
from multiple sites, a site designation
number.
.07 An employer and a District Director may enter into an agreement that provides for the retention of copies of tax returns including Forms 8453. In the
absence of such an agreement, this information must be retained by the employer.
This information is not to be given to a
third party, including a third party Transmitter.
SECTION 18. PILOT PROGRAMS
.01 The Service regularly conducts
pilot programs to introduce new technology into the Form 1040 IRS e-file Program. These pilot programs are usually
conducted within a limited geographic
area or within a limited taxpayer or practitioner community. The Service establishes rules for participating in these pilot
programs and embodies these rules in an
implementing document typically referred to as a “Memorandum of Understanding” (MOU) or “Memorandum of
Agreement” (MOA). Pilot participants
must agree to the provisions of the implementing document in order to participate
in the pilot program.
.02 An implementing document supplements this revenue procedure, but does
not supersede it. Participants in a pilot
program remain subject to the provisions
of this revenue procedure unless the implementing document specifically provides otherwise.
.03 A violation of a provision of an implementing document is considered a violation of this revenue procedure and may
subject the participant to penalties and/or
suspension as provided in this revenue
procedure. See section 13.08(22) of this
revenue procedure.
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 20
SECTION 19. EFFECT ON OTHER
DOCUMENTS
Rev. Proc. 97–60, 1997–52 I.R.B. 38,
is superseded.
SECTION 20. EFFECTIVE DATE
This revenue procedure is effective
September 21, 1998.
SECTION 21. INTERNAL REVENUE
SERVICE OFFICE CONTACT
All questions regarding this revenue
procedure should be directed to the Internal Revenue Service. The telephone
number for this purpose is (202) 2830531 (not a toll-free number).
SECTION 22. PAPERWORK
REDUCTION ACT
The collections of information contained in this revenue procedure have
been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act
(44 U.S.C. 3507) under control number
1545–1512.
An agency may not conduct or sponsor,
and a person is not required to respond to,
a collection of information unless the collection of information displays a valid
control number.
The collections of information in this
revenue procedure are in sections 5, 8, 9,
and 12. This information is required to
implement the Form 1040 IRS e-file Program and to enable taxpayers to file their
individual income tax returns electronically. The information will be used to ensure that taxpayers receive accurate and
essential information regarding the filing
of their electronic returns and to identify
the persons involved in the filing of electronic returns. The collections of information are required to retain the benefit of
participating in the Form 1040 IRS e-file
Program. The likely respondents are
business or other for-profit institutions.
The estimated total annual reporting
and recordkeeping burden is 1,146,272
hours.
The estimated annual burden per respondent/recordkeeper varies from six (6)
minutes to 15.5 hours, depending on individual circumstances, with an estimated
average of 15.28 hours (or approximately
six (6) minutes per electronically filed re-
September 21, 1998
turn). The estimated number of respondents and recordkeepers is 75,000.
The estimated annual frequency of responses is on occasion.
Books or records relating to a collection of information must be retained as
long as their contents may become material in the administration of any internal
revenue law. Generally, tax returns and
tax return information are confidential, as
required by 26 U.S.C. § 6103.
26 CFR 601.602: Tax forms and instructions.
(Also Part I, Sections 6012, 6061; 1.6012–5,
1.6061–1.)
Rev. Proc. 98–51
CONTENTS
PURPOSE
BACKGROUND AND
CHANGES
SECTION 3 ON-LINE FILING PARTICIPANTS—DEFINITIONS
SECTION 4 ACCEPTANCE IN THE
FORM 1040 ON-LINE
FILING PROGRAM
SECTION 5 RESPONSIBILITIES OF
AN ON-LINE FILER
SECTION 6 PENALTIES
SECTION 7 FORM 8453-OL, U.S. INDIVIDUAL TAX DECLARATION FOR ONLINE FILING
SECTION 8 INFORMATION AN ONLINE FILER MUST
FURNISH TO THE TAXPAYER
SECTION 9 DIRECT DEPOSIT OF
REFUNDS
SECTION 10 BALANCE DUE RETURNS
SECTION 11 ADVERTISING STANDARDS FOR ON-LINE
FILERS
SECTION 12 MONITORING AND
SUSPENSION OF AN
ON-LINE FILER
SECTION 13 ADMINISTRATIVE REVIEW PROCESS FOR
DENIAL OF PARTICIPATION IN THE FORM
1040 ON-LINE FILING
PROGRAM
SECTION 14 ADMINISTRATIVE REVIEW PROCESS FOR
SUSPENSION FROM
SECTION 1
SECTION 2
20
SECTION 15
SECTION 16
SECTION 17
SECTION 18
SECTION 19
THE FORM 1040 ONLINE FILING PROGRAM
PILOT PROGRAMS
EFFECT ON OTHER
DOCUMENTS
EFFECTIVE DATE
INTERNAL REVENUE
SERVICE OFFICE CONTACT
PAPERWORK REDUCTION ACT
SECTION 1. PURPOSE
This revenue procedure informs those
who participate in the Form 1040 OnLine Filing Program of their obligations
to the Internal Revenue Service, taxpayers, and other participants. The following
returns can be filed under the Form 1040
On-Line Filing Program: (1) Form 1040
and Form 1040A, U.S. Individual Income
Tax Return; and (2) Form 1040EZ, Income Tax Return for Single and Joint Filers With No Dependents. This revenue
procedure updates and supersedes Rev.
Proc. 97–61, 1997–52 I.R.B. 50.
SECTION 2. BACKGROUND AND
CHANGES
.01 Section 1.6012–5 of the Income
Tax Regulations provides that the Commissioner may authorize the use, at the
option of a person required to make a return, of a composite return in lieu of any
form specified in 26 C.F.R. Part 1 (Income Tax), subject to the conditions, limitations, and special rules governing the
preparation, execution, filing, and correction thereof as the Commissioner may
deem appropriate.
.02 For purposes of this revenue procedure, an on-line electronically filed Form
1040, Form 1040A, or Form 1040EZ is a
composite return consisting of electronically transmitted data and certain paper
documents. The paper portion of the return consists of Form 8453–OL, U.S. Individual Income Tax Declaration for OnLine Filing, and other paper documents
that cannot be electronically transmitted.
Form 8453–OL must be received by the
Service before the composite return is
considered filed (see section 5.07 of this
revenue procedure). The composite return must contain the same information
that a return filed completely on paper
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 21
contains. See section 7 of this revenue
procedure for procedures for completing
Form 8453–OL.
.03 Each year prior to the start of the
filing season, the Service will issue Publication 1345A, Filing Season Supplement
for Electronic Return Originators, and
Publication 1346, Electronic Return File
Specifications and Record Layouts for Individual Income Tax Returns. These publications list the forms and schedules associated with the Form 1040 series that
can be electronically transmitted during
the upcoming filing season.
.04 For purposes of the Form 1040 OnLine Filing Program, a Form 1040, Form
1040A, or Form 1040EZ for any taxable
year cannot be electronically filed after
the 15th day of October following the
close of that taxable year, notwithstanding
the fact that the taxpayer has been granted
an extension to file a return beyond that
date. If the 15th day of October falls on a
Saturday, Sunday, or legal holiday, then
the electronically filed return may be filed
on the next succeeding day which is not a
Saturday, Sunday, or legal holiday.
.05 An amended tax return cannot be
electronically filed under the Form 1040
On-Line Filing Program. A taxpayer
must file an amended tax return on paper
in accordance with the instructions for
Form 1040X, Amended U.S. Individual
Income Tax Return.
.06 A tax return that has a foreign address for the taxpayer cannot be electronically filed under the Form 1040 On-Line
Filing Program. Army/Air Force (APO)
and Fleet (FPO) post offices are not considered foreign addresses for this purpose.
.07 A tax return for a decedent cannot
be electronically filed under the Form
1040 On-Line Filing Program. The decedent’s spouse or personal representative
must file a paper tax return for the decedent.
.08 Some of the updates and changes
to Rev. Proc. 97–61 are as follows:
(1) references to specific dates and
specific tax years have been replaced with
more general references in order to eliminate the need for annual updates to this
revenue procedure;
(2) the application period for new
applicants that intend to participate in the
Form 1040 On-Line Filing Program for
any filing season is extended beyond the
beginning of the filing season (section
4.05);
1998–38 I.R.B.
(3) On-Line Filers participating as
Software Developers must provide the
Service with a copy of their software and
its accompanying documentation (section
5.10(9));
(4) the number of returns that may be
filed from one software package or from
one e-mail address has been increased
from three returns to five (sections
5.09(2), 5.10(3), 5.10(4), and 5.11(12));
and
(5) the provisions of this revenue
procedure apply to participants in various
pilot programs conducted with respect to
the Form 1040 On-Line Filing Program
(section 15).
SECTION 3. ON-LINE FILING
PARTICIPANTS—DEFINITIONS
.01 After acceptance into the Form
1040 On-Line Filing Program, as described in section 4 of this revenue procedure, a participant is referred to as an
“On-Line Filer.”
.02 The On-Line Filer categories are:
(1) ON-LINE SERVICE PROVIDER. An “On-Line Service Provider”
is an on-line information service organization that provides paying subscribers
(individuals who use the various services
offered by an On-Line Service Provider)
dial-up access to a variety of data bases.
For purposes of the Form 1040 On-Line
Filing Program, an On-Line Service
Provider must also have:
(a) an established subscriber or
client base to whom the On-Line Service
Provider offers services on a continuing
basis and about which the On-Line Service Provider maintains certain minimum
information identifying the subscriber.
Such information could include the subscriber’s name, account number, credit
card number, or demand deposit account
number;
(b) a port capacity of at least 1,000
lines or the ability to simultaneously service 1,000 customers;
(c) a network of personal computers that are linked by modems;
(d) access to a broad spectrum of
information and/or entertainment services; and
(e) a client base that has the ability
to communicate using electronic mail.
(2) SOFTWARE DEVELOPER. A
“Software Developer” develops software
21
for the purposes of (a) formatting the
electronic portion of returns according to
Publication 1346; and/or (b) transmitting
the electronic portion of returns directly
to the Service. A Software Developer
may also sell its software.
(3) TRANSMITTER. A “Transmitter” transmits the electronic portion of a
return directly to the Service. An entity
that provides a “bump-up” service is a
Transmitter. A “bump-up” service
provider increases the transmission rate or
line speed of formatted or reformatted information that is being sent to the Service
via a public switched telephone network.
The Service accepts transmissions using a
variety of telecommunications protocols.
.03 The On-Line Filer categories are
not mutually exclusive. For example, a
Software Developer can, at the same time,
be considered a Transmitter or an OnLine Service Provider depending on the
function(s) performed.
SECTION 4. ACCEPTANCE IN THE
FORM 1040 ON-LINE FILING
PROGRAM
.01 Except as provided in sections 4.02
through 4.04 of this revenue procedure,
an On-Line Filer that participated in the
most recent Form 1040 On-Line filing
season does not have to reapply to participate in the next Form 1040 On-Line filing
season. However, an On-Line Filer that
intends to participate as a Transmitter or a
Software Developer must first successfully complete, for each filing season, the
testing referred to in section 4.11 of this
revenue procedure. In addition, section
4.14 of this revenue procedure provides
for the Service’s issuance of credentials
necessary for participation in the Form
1040 On-Line Filing Program.
.02 Applicants must file a new Form
8633, Application to Participate in the
IRS e-file Program, with completed fingerprint cards for the appropriate individuals, if:
(1) the applicant has never participated in the Form 1040 On-Line Filing
Program;
(2) the applicant has previously been
denied participation in the Form 1040 OnLine Filing Program; or
(3) the applicant has been suspended
from the Form 1040 On-Line Filing Program.
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 22
Applicants must designate that the
Form 8633 is for the Form 1040 On-Line
Filing Program by checking the box titled
“ON-LINE FILING.”
.03 An On-Line Filer must submit a revised Form 8633 (designated for the Form
1040 On-Line Filing Program as described in section 4.02 of this revenue
procedure), signed by all “Principals” and
the “Responsible Official” (as described
in section 4.12 of this revenue procedure),
with completed fingerprint cards for those
appropriate individuals who have not submitted a fingerprint card with a previously
accepted application, if:
(1) the On-Line Filer participated
solely as a Software Developer in the
most recent Form 1040 On-Line filing
season and intends to participate as an
On-Line Service Provider or Transmitter;
(2) there is an additional Principal,
such as a partner or a corporate officer,
that must be listed on Form 8633;
(3) there is a Principal listed on Form
8633 that should be deleted; or
(4) the Responsible Official on Form
8633 changes.
.04 Except as provided in section 4.03
of this revenue procedure, an On-Line
Filer must submit either a revised Form
8633 (designated for the Form 1040 OnLine Filing Program as described in section 4.02 of this revenue procedure), or a
letter containing the same information
contained in a revised Form 8633, if any
information on the On-Line Filer’s Form
8633 has changed. A revised Form 8633
or letter submitted under this section
should include only the changed information and the following identifying information:
(1) the On-Line Filer’s legal name;
(2) the On-Line Filer’s employer
identification number and/or social security number (EIN/SSN);
(3) the On-Line Filer’s “Doing Business As” (DBA) name;
(4) whether the On-Line Filer is controlled or owned by another On-Line
Filer;
(5) the On-Line Filer’s controlling
office name;
(6) the Electronic Transmitter Identification Number (ETIN) of the On-Line
Filer’s controlling office;
(7) the Electronic Filing Identification Number (EFIN) of the On-Line
Filer’s controlling office; and
September 21, 1998
(8) the business address of the OnLine Filer’s controlling office.
A Principal or the Responsible Official
must sign the revised Form 8633 or the
letter.
.05 For applicants described in section
4.02 of this revenue procedure, the application period begins on the 1st day of August preceding the filing season during
which they intend to participate in the
Form 1040 On-Line Filing Program. The
application period continues into the filing season (see the Form 8633 instructions for the last date to file a new application); however, applications submitted
after the 1st day of December preceding
the filing season may not be processed in
time for the applicant to participate in the
Form 1040 On-Line Filing Program by
the start of the filing season.
.06 Revised applications described in
sections 4.03 and 4.04 of this revenue
procedure must be submitted within 30
days of the change(s) reflected on the revised Form 8633 or in the letter. On-Line
Filers that fail to submit revised applications may be temporarily dropped from
the Form 1040 On-Line Filing Program.
.07 Applicants and On-Line Filers described in sections 4.02 through 4.04 of
this revenue procedure must file Form
8633 (or a letter as provided in section
4.04 of this revenue procedure) with the
Application Processing Center at the address listed in the instructions for Form
8633.
.08 Applicants described in section
4.02 that submit their applications on or
before the 31st day of December preceding the filing season must submit the following information (or the name and
phone number of an individual who can
provide the information) to the IRS Headquarters Form 1040 On-Line Filing Program Analyst (see section 18 of this revenue procedure) no later than the 31st day
of December preceding the filing season:
(1) the brand name of the software
the applicant will be using, has developed, or will be transmitting, and the following information regarding the software:
(a) the name of the Software Developer for the software;
(b) the name of the Transmitter for
the software;
(c) the retail cost of the software
and any additional costs for transmitting
22
the electronic portion of the taxpayer’s return;
(d) whether the software can be
used to file Federal/State returns;
(e) whether the software is available on the Internet and, if so, the Internet
address; and
(f) the Professional Package name
of the software submitted for Participants
Acceptance Testing (PATS) and whether
the software has successfully completed
PATS;
(2) the applicant’s point of contact
for matters relating to the Form 1040 OnLine Filing Program and the telephone
number for the point of contact;
(3) the applicant’s customer service
telephone number; and
(4) the procedures the applicant will
use to ensure that no more than five returns are transmitted from one software
package or from one e-mail address (see
sections 5.09(2), 5.10(3), 5.10(4), and
5.11(12)).
.09 Applicants described in section
4.02 that do not submit their applications
on or before the 31st day of December
preceding the filing season during which
they intend to participate must submit the
information described in sections 4.08(1)
through (4) at the time they submit their
applications.
.10 On-Line Filers must submit any
changes to the information contained in
sections 4.08(1) through (4) of this revenue procedure to the IRS Headquarters
Form 1040 On-Line Filing Program Analyst by the 31st day of December preceding the next filing season.
.11 Applicants and On-Line Filers described in sections 4.01 through 4.04 of
this revenue procedure that intend to participate as a Transmitter or a Software Developer in the Form 1040 On-Line Filing
Program must first successfully complete
the necessary testing at the appropriate
service center(s). Such testing must be
completed for each filing season during
which the applicant or On-Line Filer intends to participate as a Transmitter or
Software Developer.
.12 Each individual listed as a Principal or a Responsible Official on a Form
8633 must:
(1) be a United States citizen or an
alien lawfully admitted for permanent residence as described in 8 U.S.C. § 1101(a)(20) (1994);
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 23
(2) have attained the age of 21 as of
the date of application;
(3) submit with Form 8633 one standard fingerprint card with a full set of fingerprints taken by a law enforcement
agency, except as provided in section 4.13
of this revenue procedure; and
(4) except as provided in section
4.15 of this revenue procedure, pass a
suitability check that includes a credit
check, a tax compliance check, and a fingerprint check.
.13 In lieu of a standard fingerprint
card, an individual may choose to submit
evidence that the individual is:
(1) an attorney in good standing of
the bar of the highest court of any State,
Commonwealth, possession, territory, or
the District of Columbia, and is not currently under suspension or disbarment
from practice before the Service or the bar
of the highest court of any State, Commonwealth, possession, territory, or the
District of Columbia;
(2) a certified public accountant who
is duly qualified to practice as a certified
public accountant in any State, Commonwealth, possession, territory, or the District of Columbia, and is not currently
under suspension or disbarment from
practice before the Service or whose license to practice is not currently suspended or revoked by any State, Commonwealth, possession, territory, or the
District of Columbia;
(3) an enrolled agent pursuant to part
10 of 31 C.F.R. Subtitle A;
(4) an officer of a publicly held corporation; or
(5) a banking official who is bonded
and has been fingerprinted within the last
two years.
.14 The Service will issue credentials
each year to eligible applicants, On-Line
Filers that do not have to reapply pursuant
to section 4.01 of this revenue procedure,
and On-Line Filers that comply with section 4.03 or 4.04 of this revenue procedure, provided they have first satisfactorily completed the testing described in
section 4.11 of this revenue procedure if
they intend to participate as a Transmitter
or Software Developer. No one may participate in the Form 1040 On-Line Filing
Program without the following credentials:
(1) a letter of acceptance into the
Form 1040 On-Line Filing Program;
1998–38 I.R.B.
(2) an EFIN for each applicable service center; and
(3) if appropriate, an ETIN for each
applicable service center.
.15 If an On-Line Filer is a Software
Developer that performs no other function
in the Form 1040 On-Line Filing Program
but software development, no Principal or
Responsible Official needs to pass a suitability check.
.16 The Service may reject an application to participate in the Form 1040 OnLine Filing Program for the following
reasons (this list is not all-inclusive).
These reasons apply to any firm, organization, Principal, or Responsible Official
listed on Form 8633:
(1) conviction of any criminal offense under the revenue laws of the
United States, or of any offense involving
dishonesty or breach of trust;
(2) failure to file timely and accurate
tax returns, including returns indicating
that no tax is due (unless the applicant did
not have a legal filing requirement);
(3) failure to timely pay any tax liabilities;
(4) assessment of any tax penalties;
(5) suspension/disbarment from
practice before the Service;
(6) disreputable conduct or other
facts that would reflect adversely on the
Form 1040 On-Line Filing Program;
(7) misrepresentation on an application;
(8) suspension or rejection from either the Form 1040 On-Line Filing Program, the Form 1040 Electronic Filing
(ELF) Program, or the Form 1040 IRS
e-file Program in a prior year;
(9) unethical practices in return
preparation;
(10) stockpiling returns prior to official acceptance into the Form 1040 OnLine Filing Program (see section 5.21 of
this revenue procedure);
(11) knowingly and directly or indirectly employing or accepting assistance
from any firm, organization, or individual
that is prohibited from applying to participate in the Form 1040 On-Line Filing
Program, the Form 1040 ELF Program, or
the Form 1040 IRS e-file Program, or that
is suspended from participating in the
Form 1040 On-Line Filing Program, the
Form 1040 ELF Program, or the Form
1040 IRS e-file Program. This includes
any individual whose actions resulted in
23
the rejection or suspension of a corporation or a partnership from the Form 1040
On-Line Filing Program, the Form 1040
ELF Program, or the Form 1040 IRS
e-file Program; or
(12) knowingly and directly or indirectly accepting employment as an associate, correspondent, or as a subagent from,
or sharing fees with, any firm, organization, or individual that is prohibited from
applying to participate in the Form 1040
On-Line Filing Program, the Form 1040
ELF Program, or the Form 1040 IRS
e-file Program, or that is suspended from
participating in the Form 1040 On-Line
Filing Program, the Form 1040 ELF Program, or the Form 1040 IRS e-file Program. This includes any individual
whose actions resulted in the rejection or
suspension of a corporation or a partnership from the Form 1040 On-Line Filing
Program, the Form 1040 ELF Program, or
the Form 1040 IRS e-file Program.
SECTION 5. RESPONSIBILITIES OF
AN ON-LINE FILER
.01 To ensure that complete returns are
accurately and efficiently filed, an OnLine Filer must comply with all the publications and notices of the Service relating
to the Form 1040 On-Line Filing Program. The Service will from time to time
update such publications and notices to
reflect changes to the program. It is the
responsibility of the On-Line Filer to ensure that it complies with the latest version of all publications and notices. The
publications and notices governing the
Form 1040 On-Line Filing Program include:
(1) Publication 1345, Handbook for
Electronic Return Originators of Individual Income Tax Returns, and Publication
1345A;
(2) Publication 1346;
(3) Publication 1436, Test Package
for Electronic Filing of Individual Income
Tax Returns; and
(4) Postings to the Electronic Filing
System Bulletin Board (EFS Bulletin
Board), and the IRS “Digital Daily” web
site at:
http://www.irs.ustreas.gov
on the Internet.
.02 An On-Line Filer must maintain a
high degree of integrity, compliance, and
accuracy.
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 24
.03 An On-Line Filer may accept returns for the Form 1040 On-Line Filing
Program only from the taxpayer filing the
return or from another On-Line Filer.
.04 If an On-Line Filer charges a fee
for the transmission of the electronic portion of a tax return, the fee may not be
based on a percentage of the refund
amount or any other amount from the tax
return.
.05 An On-Line Filer must submit a revised Form 8633 (or a letter as provided
in section 4.04 of this revenue procedure)
to the Application Processing Center
within 30 days of when any of the conditions or changes described in section 4.03
or 4.04 of this revenue procedure occur.
See section 4.06 of this revenue procedure.
.06 An On-Line Filer must notify the
Application Processing Center (at the address listed in the instructions for Form
8633) within 30 days of discontinuing its
participation in the Form 1040 On-Line
Filing Program. This does not preclude
reapplication in the future.
.07 An On-Line Filer must ensure that
it promptly processes returns submitted to
it for electronic filing. See sections 5.09,
5.10, and 5.11 of this revenue procedure.
However, an On-Line Filer that receives a
return for electronic filing on or before
the due date of the return must ensure that
the electronic portion of the return is
transmitted on or before that due date (including extensions). An electronically
filed return is not considered filed until
the electronic portion of the tax return has
been acknowledged by the Service as accepted for processing and a completed
and signed Form 8453–OL has been received by the Service. However, if the
electronic portion of a return is successfully transmitted on or shortly before the
due date and the taxpayer complies with
section 7.01 of this revenue procedure,
the return will be deemed timely filed. If
the electronic portion of a return is transmitted on or shortly before the due date
and is ultimately rejected, but the taxpayer complies with section 5.18 of this
revenue procedure, the return will be
deemed timely filed. For a balance due
return, see section 10 of this revenue procedure for instructions on how to make a
timely payment of tax.
.08 An On-Line Filer must ensure
against the unauthorized use of its EFIN
September 21, 1998
or ETIN. An On-Line Filer must not
transfer its EFIN or ETIN by sale, loan,
gift, or otherwise to another entity.
.09 An On-Line Filer that participates
as an On-Line Service Provider must:
(1) provide assistance to a subscriber
in transmitting the electronic portion of a
tax return;
(2) ensure that no more than five tax
returns are filed electronically by one subscriber;
(3) not provide to a subscriber software that has a Service-assigned production password built into the software; and
(4) immediately send to a subscriber
the information provided by a Transmitter
under section 5.16 or 5.17 of this revenue
procedure.
.10 An On-Line Filer that participates
as a Software Developer must:
(1) promptly correct any software
error which causes the electronic portion
of a return to be rejected;
(2) promptly distribute any software
correction;
(3) ensure that its software package
cannot be used to transmit more than five
electronic returns;
(4) ensure that its software, if available for use on an Internet web site, cannot be used to file more than five electronic returns from one e-mail address;
(5) ensure that its software contains a
Form 8453–OL format that can be printed
and used by a taxpayer to file with the
Service;
(6) ensure that its software contains a
Form 1040–V, Payment Voucher, that can
be printed and used by a taxpayer to file
with the Service;
(7) ensure that its software contains a
consent to disclosure statement;
(8) not incorporate into its software a
Service-assigned production password;
and
(9) provide a copy of the software
and accompanying documentation (a
demonstration package is sufficient) to
the IRS Headquarters On-Line Filing Analyst upon successful completion of the
testing described in section 4.11 of this
revenue procedure.
.11 An On-Line Filer that participates
as a Transmitter must:
(1) assign (as prescribed in Publication 1346) a Declaration Control Number
(DCN) to the electronic portion of each
return received from a taxpayer;
24
(2) include the assigned DCN in the
transmission of the electronic portion of a
return;
(3) send all electronic portions of returns within three calendar days of receipt
to the appropriate service center based on
the state code in the taxpayer’s return address;
(4) retrieve the acknowledgement
file (in which the Service states whether it
accepts or rejects the electronic portion of
a taxpayer’s return for processing) within
two work days of transmission;
(5) match the acknowledgement file
to the original transmission file and notify
the taxpayer of the status of a transmitted
return as prescribed in section 5.19 of this
revenue procedure;
(6) retain, until the end of the calendar year in which a return was filed, the
acknowledgement file received from the
Service;
(7) retain, until the end of the calendar year in which a return was filed, the
complete copy of the electronic portion of
the return (may be retained on magnetic
media) that can be readily and accurately
converted into an electronic transmission
that the Service can process;
(8) immediately contact the appropriate service center for further instructions if an acknowledgement of acceptance for processing has not been received
by the Transmitter within two work days
of transmission or if the Transmitter receives an acknowledgement for a return
that was not transmitted on the designated
transmission;
(9) promptly correct any transmission error that causes an electronic transmission to be rejected;
(10) contact the service center that
rejected the electronic portion of the return for assistance if that portion of the return has been rejected after three transmission attempts;
(11) ensure the security of all transmitted data;
(12) ensure that it does not transmit
or accept for transmission more than five
electronic returns originating from one
software package or from one e-mail address;
(13) ensure that the electronic portion of a return contains a completed consent to disclosure statement; and
(14) ensure that it does not use software that has a Service-assigned production password built into the software.
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 25
.12 A Transmitter must include an OnLine Service Provider’s EFIN on each return that the Transmitter accepts from an
On-Line Service Provider.
.13 A Transmitter must enter the letter
“O” in the Trans Record “A” as the
“Transmission Type Code” when transmitting the electronic portion of an online electronically filed return to the Service.
.14 A Transmitter must ensure that it
does not combine, within the same transmission to the Service, the electronic portion of a return filed under the Form 1040
On-Line Filing Program with the electronic portion of a return filed under any
other electronic filing program.
.15 A Transmitter must ensure that it
does not use an EFIN or ETIN obtained
through the Form 1040 IRS e-file Program in a transmission of the electronic
portion of a taxpayer’s return as part of
the Form 1040 On-Line Filing Program.
.16 If the Service accepts the electronic portion of a taxpayer’s return, the
Transmitter must notify the taxpayer (as
prescribed in section 5.19 of this revenue
procedure) of the following:
(1) the date the transmission was accepted;
(2) the DCN;
(3) where to put the DCN on Form
8453–OL;
(4) the requirement to properly complete and timely submit a Form 8453–OL
with accompanying paper documents (including Form W–2, Wage and Tax Statement; Form W–2G, Statement for Recipients of Certain Gambling Winnings; and
Form 1099–R, Distributions From Pensions, Annuities, Retirement or ProfitSharing Plans, IRAs, Insurance Contracts,
etc.) within one work day;
(5) the appropriate service center’s
address to which Form 8453–OL with accompanying paper documents must be
sent;
(6) that a Form 8453–OL must be received by the Service before an on-line
electronically filed return is complete;
and
(7) that the taxpayer’s failure to
timely submit a Form 8453–OL with accompanying paper documents could result in the Service not allowing the taxpayer to file a tax return through the Form
1040 On-Line Filing Program in the
future.
1998–38 I.R.B.
.17 If the Service informs the Transmitter (in an acknowledgement file) that
the electronic portion of a taxpayer’s return has been rejected, the Transmitter
must notify the taxpayer, as prescribed in
section 5.19 of this revenue procedure, of
the following:
(1) that the Service rejected the electronic portion of the taxpayer’s return;
(2) the date of the rejection;
(3) what the reject code(s) means;
(4) what steps the taxpayer needs to
take to correct the error that caused the rejection; and
(5) the information contained in section 5.18 of this revenue procedure.
.18 If the taxpayer chooses not to have
the electronic portion of the return corrected and transmitted to the Service, or if
the electronic portion of the return cannot
be accepted for processing by the Service,
the taxpayer must file a paper return by
the later of:
(1) the due date of the return; or
(2) ten calendar days after the date
the Service gives notification that the
electronic portion of the return is rejected
or that the electronic portion of the return
cannot be accepted for processing.
The paper return should include an explanation of why the return is being filed
after the due date.
.19 A Transmitter that transmits a return of a taxpayer who is a subscriber of
an On-Line Service Provider must notify
the taxpayer by sending an electronic
transmission to the On-Line Service
Provider within two work days of retrieving the acknowledgement file. A Transmitter that transmits a return of a taxpayer
who is not a subscriber of an On-Line
Service Provider must notify the taxpayer
by:
(1) sending an electronic transmission to the taxpayer within two work days
of retrieving the acknowledgement file; or
(2) mailing a written notification to
the taxpayer within one work day of retrieving the acknowledgement file.
.20 A Transmitter must make available
to the Service upon request all items required by this section to be retained until
the end of the calendar year in which a return was filed. The Transmitter must
make this material available either at the
business address of the Transmitter or
from the contact representative named on
Form 8633.
25
.21 A Transmitter is responsible for ensuring that stockpiling does not occur.
Stockpiling means collecting returns from
taxpayers prior to official acceptance into
the Form 1040 On-Line Filing Program,
or, after official acceptance into the Form
1040 On-Line Filing Program, waiting
more than three calendar days to transmit
a return to the Service after receiving the
information necessary for transmission of
the electronic portion of a tax return.
.22 An On-Line Filer may not offer,
nor in any way participate in or facilitate,
a Refund Anticipation Loan (RAL) in
connection with any return filed under the
Form 1040 On-Line Filing Program. A
RAL is money borrowed by a taxpayer
that is based on a taxpayer’s anticipated
income tax refund.
.23 An On-Line Filer may not charge a
separate fee for a Direct Deposit. See
section 9 of this revenue procedure.
.24 In addition to the specific responsibilities described in this section, an OnLine Filer must meet all the requirements
in this revenue procedure to keep the privilege of participating in the Form 1040
On-Line Filing Program.
SECTION 6. PENALTIES
.01 Penalties for Disclosure or Use of
Information.
(1) An On-Line Filer, except a Software Developer that performs no other
function in the Form 1040 On-Line Filing
Program but software development, is a
tax return preparer (Preparer) under the
definition of § 301.7216–1(b) of the Regulations on Procedure and Administration.
A Preparer is subject to a criminal penalty
for unauthorized disclosure or use of tax
return information. See § 7216 of the Internal Revenue Code and § 301.7216–
1(a). In addition, § 6713 establishes civil
penalties for unauthorized disclosure or
use of tax return information.
(2) Under § 301.7216–2(h), disclosure of tax return information among accepted On-Line Filers for the purpose of
preparing a return is permissible. For example, an On-Line Service Provider may
pass on tax return information to a Transmitter for the purpose of having an online electronic return formatted and transmitted to the Service. However, if the tax
return information is disclosed or used in
any other way, an On- Line Filer may be
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 26
subject to the penalties described in section 6.01(1) of this revenue procedure.
.02 Other Preparer Penalties.
(1) Preparer penalties may be asserted against an individual or firm meeting the definition of an income tax return
preparer under § 7701(a)(36) and
§ 301.7701–15. Preparer penalties that
may be asserted under appropriate circumstances include, but are not limited to,
those set forth in §§ 6694, 6695, and
6713.
(2) Under § 301.7701–15(d), an OnLine Filer is not an income tax return preparer for the purpose of assessing most
preparer penalties as long as the On-Line
Filer’s services are limited to “typing, reproduction, or other mechanical assistance in the preparation of a return or
claim for refund.”
(3) If an On-Line Filer alters the return information in a nonsubstantive way,
this alteration will be considered to come
under the “mechanical assistance” exception described in § 301.7701–15(d)(1). A
nonsubstantive change is a correction or
change limited to a transposition error,
misplaced entry, spelling error, or arithmetic correction that falls within the following tolerances:
(a) the amount of “Total tax”,
“Federal income tax withheld”, “Refund”,
or “Amount you owe” on Form 8453–OL
differs from the corresponding amount on
the electronic portion of the tax return by
no more than $7;
(b) the amount of “Total income”
shown on Form 8453–OL differs from the
corresponding amount on the electronic
portion of the tax return by no more than
$25; or
(c) dropping cents and rounding to
whole dollars.
(4) If an On-Line Filer alters the return information in a substantive way,
rather than having the taxpayer alter the
return, the On-Line Filer will be considered to be an income tax return preparer
for purposes of § 7701(a)(36).
(5) If an On-Line Filer goes beyond
mechanical assistance, the On-Line Filer
may be held liable for income tax return
preparer penalties. See Rev. Rul. 85–189,
1985–2 C.B. 341 (which describes a situation where a Software Developer was
determined to be an income tax return
preparer and subject to certain preparer
penalties).
September 21, 1998
.03 Other Penalties. In addition to the
above specified provisions, the Service
reserves the right to assert all appropriate
preparer, nonpreparer, and disclosure
penalties against an On-Line Filer as warranted under the circumstances.
SECTION 7. FORM 8453-OL, U.S.
INDIVIDUAL INCOME TAX
DECLARATION FOR ON-LINE
FILING
.01 Procedures for Completing Form
8453–OL.
(1) Form 8453–OL must be completed by the taxpayer in accordance with
the instructions for that form.
(2) The taxpayer(s)’s name, address,
social security number(s), and tax return
information in the electronic transmission
must be identical to the information on
the Form 8453–OL that the taxpayer(s)
signs and will mail to the service center
that acknowledged acceptance of the electronic portion of the return.
(3) If the electronic portion of a return was filed as a joint return, both
spouses’ signatures are required on Form
8453–OL.
(4) The taxpayer’s Form 8453–OL
must be sent to the address of the service
center that acknowledged acceptance of
the electronic portion of the return within
one work day after the taxpayer is provided notification that the electronic portion of the taxpayer’s return has been accepted for processing.
.02 Missing Form 8453–OL. If the
Service determines that a Form 8453–OL
is missing, the taxpayer must provide the
Service with a replacement. A taxpayer
must also provide a copy of any Form(s)
W–2, W–2G, 1099–R, and all other attachments to Form 8453–OL.
.03 Substitute Form 8453–OL. If a
substitute Form 8453–OL is used, it must
be approved by the Service prior to use.
.03 The Transmitter must give the taxpayer the DCN for the taxpayer’s Form
8453–OL and instructions to the taxpayer
for entering the DCN on Form 8453–OL.
.04 If a taxpayer inquires about the status of a refund, the Transmitter, or OnLine Service Provider if the taxpayer is a
subscriber, must advise the taxpayer of
the appropriate IRS TeleTax number to inquire about the status of the taxpayer’s refund. The Transmitter or On-Line Service
Provider should also advise the taxpayer
to wait at least three weeks from the date
the Service acknowledged that the electronic portion of the taxpayer’s return was
accepted for processing before calling the
TeleTax number.
.05 The Transmitter must inform the
taxpayer that the address on the electronic
portion of the return, once processed, will
be used to update the taxpayer’s address
of record. The Service uses the taxpayer’s address of record for various notices that are required to be sent to a taxpayer’s “last known address” under the
Internal Revenue Code and for refunds of
overpayments of tax (unless otherwise
specifically directed by the taxpayer, such
as by Direct Deposit).
SECTION 9. DIRECT DEPOSIT OF
REFUNDS
.01 The Service will ordinarily process
a request for Direct Deposit but reserves
the right to issue a paper refund check.
.02 The Service does not guarantee a
specific date by which a refund will be directly deposited into the taxpayer’s financial institution account.
.03 Neither the Service nor Financial
Management Service (FMS) is responsible for the misapplication of a Direct Deposit that is caused by error, negligence,
or malfeasance on the part of the taxpayer, On-Line Filer, financial institution,
or any of their agents.
SECTION 8. INFORMATION AN
ON-LINE FILER MUST FURNISH TO
THE TAXPAYER
SECTION 10. BALANCE DUE
RETURNS
.01 The Transmitter must advise a taxpayer to retain a complete copy of the return and any supporting material.
.02 The Transmitter must advise the
taxpayer that an amended return, if
needed, must be filed as a paper return
and mailed to the service center that
would handle the taxpayer’s paper return.
.01 An on-line electronically filed balance due return is transmitted to the appropriate service center in the same manner that a refund or zero balance return is
filed. A balance due return is not complete unless and until the Service receives
Form 8453–OL completed and signed by
the taxpayer.
26
1998–38 I.R.B.
IRB 1998-38
9/16/98 11:49 AM
Page 27
.02 Taxpayers who file balance due returns under the Form 1040 On-Line Filing
Program for any taxable year are responsible for making full and timely payment
of any tax that is due. Failure to make full
payment on or before the due date of the
return (determined without regard to extensions) will result in the imposition of
interest and may result in the imposition
of penalties.
.03 Taxpayers have several options for
paying balances due, including the following:
(1) DIRECT DEBIT. Taxpayers
may authorize the Service to debit their
checking or savings account for the
amount of the balance due;
(2) PAY BY CHECK. Taxpayers
may pay any balance due by sending a
check, along with Form 1040–V, Payment
Voucher, to the Service. The Form 1040–
V is contained in all software approved
for use in the Form 1040 On-Line Filing
Program (see section 5.10(6) of this revenue procedure); and
(3) INSTALLMENT AGREEMENT. Taxpayers who cannot pay the
balance due with the return may request
an installment payment arrangement by
filing Form 9465, Installment Agreement
Request, with their return.
SECTION 11. ADVERTISING
STANDARDS FOR ON-LINE FILERS
.01 An On-Line Filer must comply with
the advertising and solicitation provisions
of 31 C.F.R. Part 10 (Treasury Department
Circular No. 230). This circular prohibits
the use or participation in the use of any
form of public communication containing
a false, fraudulent, misleading, deceptive,
unduly influencing, coercive, or unfair
statement or claim. Any claims concerning
faster refunds by virtue of electronic filing
must be consistent with the language in official Service publications.
.02 An On-Line Filer must adhere to
all relevant federal, state, and local consumer protection laws that relate to advertising and soliciting.
.03 An On-Line Filer must not use the
Service’s name, “Internal Revenue Service” or “IRS”, within a firm’s name.
.04 An On-Line Filer must not use improper or misleading advertising in relation to the Form 1040 On-Line Filing Program (including the time frames for
refunds).
1998–38 I.R.B.
.05 An On-Line Filer using electronic
filing promotional materials or logos provided by the Service must comply with all
Service instructions pertaining to the promotional materials or logos.
.06 An On-Line Filer using the Direct
Deposit name and logo must comply with
the following:
(1) The name “Direct Deposit” will
be used with initial capital letters or all
capital letters;
(2) The logo/graphic for Direct Deposit will be used whenever feasible in
advertising copy; and
(3) The color or size of the Direct
Deposit logo/graphic may be changed
when used in advertising pieces.
.07 Advertising materials must not
carry the FMS, IRS, or other Treasury
Seals.
.08 Advertising for a cooperative electronic return filing project (public/private
sector) must clearly state the names of all
cooperating parties.
.09 If an On-Line Filer uses radio or
television broadcasting to advertise, the
broadcast must be pre-recorded. The OnLine Filer must keep a copy of the prerecorded advertisement for a period of at
least 36 months from the date of the last
transmission or use.
.10 If an On-Line Filer uses direct mail
or fax communications to advertise, the
On-Line Filer must retain a copy of the
actual mailing or fax, along with a list or
other description of firms, organizations,
or individuals to whom the communication was mailed, faxed, or otherwise distributed for a period of at least 36 months
from the date of the last mailing, fax, or
distribution.
.11 Acceptance to participate in the
Form 1040 On-Line Filing Program does
not imply endorsement by the Service,
FMS, or the Treasury Department of the
software or quality of services provided.
SECTION 12. MONITORING AND
SUSPENSION OF AN ON-LINE FILER
.01 The Service will monitor an OnLine Filer for conformity with this revenue procedure. Before suspending an
On-Line Filer, the Service may issue a
warning letter that describes specific corrective action for deviations from this revenue procedure. However, the Service
can immediately suspend, without notice,
an On-Line Filer from the Form 1040 On-
27
Line Filing Program. In most circumstances, a suspension from participation
in the Form 1040 On-Line Filing Program
is effective as of the date of the letter informing the On-Line Filer of the suspension.
.02 If a Principal or Responsible Official is suspended from the Form 1040 OnLine Filing Program, every entity that
listed the suspended Principal or Responsible Official on its Form 8633 may also
be suspended.
.03 The Service will monitor the
timely receipt of Forms 8453–OL.
.04 The Service will monitor the quality of an On-Line Filer’s transmissions
throughout the filing season. The Service
will also monitor the electronic portion of
returns and tabulate rejections, errors, and
other defects. If quality deteriorates, the
On-Line Filer will receive a warning from
the Service.
.05 The Service will monitor complaints about an On-Line Filer and issue a
warning or suspension letter as appropriate.
.06 The Service reserves the right to
suspend an On-Line Filer from participation in the Form 1040 On-Line Filing Program for violating any provision of this
revenue procedure. Generally, the Service will advise a suspended On-Line
Filer concerning the requirements for
reacceptance into the Form 1040 On-Line
Filing Program. The following reasons
may lead to a warning letter and/or suspension of an On-Line Filer from the
Form 1040 On-Line Filing Program (this
list is not all-inclusive):
(1) the reasons listed in section 4.16
of this revenue procedure;
(2) deterioration in the format of individual transmissions;
(3) unacceptable cumulative error or
rejection rate;
(4) stockpiling returns at any time
while participating in the Form 1040 OnLine Filing Program;
(5) failure on the part of a Transmitter to retrieve acknowledgement files
within two work days of transmission by
the Service;
(6) failure on the part of a Transmitter to notify the taxpayer, as prescribed in
section 5.19 of this revenue procedure, of
the status of a transmitted return within
two work days of receipt of the acknowledgement files from the Service;
September 21, 1998
IRB 1998-38
9/16/98 11:49 AM
Page 28
(7) failure on the part of an On-Line
Service Provider to ensure that no more
than five tax returns are filed electronically by one subscriber;
(8) failure on the part of a Transmitter to ensure that it does not transmit or
accept for transmission more than five
electronic returns originating from one
software package or one e-mail address;
(9) significant complaints about an
On-Line Filer;
(10) failure on the part of an On-Line
Filer to ensure against the unauthorized
use of its EFIN and/or ETIN;
(11) failure on the part of an On-Line
Filer to cooperate with the Service’s efforts to investigate electronic filing abuse;
(12) violation of the advertising standards described in section 11 of this revenue procedure;
(13) failure to maintain and make
available records as described in section
5.20 of this revenue procedure;
(14) failure to supply a taxpayer with
an accurate DCN;
(15) failure to give effective instructions to a taxpayer concerning the entry of
the DCN on Form 8453–OL;
(16) failure to timely submit a revised Form 8633 (or a letter containing
the same information contained in a revised Form 8633) notifying the Service of
changes described in section 4.03 or 4.04
of this revenue procedure; or
(17) failure to comply with a provision of an implementing document for
any pilot program in which the On-Line
Filer is a participant (see section 15 of this
revenue procedure).
.07 The Service may list in the Internal Revenue Bulletin, district office listings, district office newsletters, and on the
EFS Bulletin Board the name and
owner(s) of any entity suspended from the
Form 1040 On-Line Filing Program and
the effective date of the suspension.
.08 If a participant is suspended from
participating in the Form 1040 On-Line
Filing Program, the period of suspension
includes the remainder of the calendar
year in which the suspension occurs plus
the next two calendar years. A suspended
participant may submit a new application
for the application period immediately
preceding the end of the suspension.
September 21, 1998
SECTION 13. ADMINISTRATIVE
REVIEW PROCESS FOR DENIAL OF
PARTICIPATION IN THE FORM 1040
ON-LINE FILING PROGRAM
.01 An applicant that has been denied
participation in the Form 1040 On-Line
Filing Program has the right to an administrative review. During the administrative review process, the denial of participation remains in effect.
.02 In response to the submission of a
Form 8633, the Application Processing
Center will either (1) accept an applicant
into the Form 1040 On-Line Filing Program, or (2) issue a proposed letter of denial that explains to the applicant why the
Application Processing Center proposes
to reject the application to participate in
the Form 1040 On-Line Filing Program.
.03 An applicant who receives a proposed letter of denial may mail or deliver,
within 30 calendar days of the date of the
proposed letter of denial, a written response to the Application Processing Center. The applicant’s response must address the Application Processing Center’s
reason(s) for proposing the denial to participate.
.04 Upon receipt of an applicant’s
written response, the Application Processing Center will reconsider its proposed
letter of denial. The Application Processing Center may either (1) withdraw its
proposed letter of denial and accept the
applicant into the Form 1040 On-Line Filing Program, or (2) finalize the proposed
denial letter.
.05 If an applicant receives a final denial letter from the Application Processing Center, the applicant is entitled to an
appeal, in writing, to the Director of Practice.
.06 The appeal must be mailed or delivered to the Application Processing
Center within 30 calendar days of the date
of the final denial letter. An applicant’s
written appeal must contain a detailed explanation, with supporting documentation, of why the denial should be reversed.
.07 The Application Processing Center
will, upon receipt of a written appeal to
the Director of Practice, forward to the
Director of Practice its file on the appli-
28
cant and the material described in section
13.06 of this revenue procedure. The Application Processing Center will forward
these materials to the Director of Practice
within 15 calendar days of receipt of the
applicant’s written appeal.
.08 Failure to respond within either of
the 30-day periods described in sections
13.03 and 13.06 of this revenue procedure
irrevocably terminates an applicant’s right
to an administrative review or appeal.
.09 If an application for participation in
the Form 1040 On-Line Filing Program is
denied, the applicant is ineligible to submit a new application for two years from
the application date of the denied application.
SECTION 14. ADMINISTRATIVE
REVIEW PROCESS FOR
SUSPENSION FROM THE FORM 1040
ON-LINE FILING PROGRAM
.01 An On-Line Filer that has been
suspended from participation in the Form
1040 On-Line Filing Program
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.