Magnetic Media Filing Requirements for Information Returns

DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 8683]

RIN 1545-AU48

Magnetic Media Filing Requirements for Information Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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SUMMARY: This document contains regulations relating to the

requirements for filing information returns on magnetic media or in

other machine-readable form under section 6011(e) of the Internal

Revenue Code (Code). These regulations affect persons filing

information returns. These regulations prescribe new magnetic media

filing requirements for employers filing wage and tax statements for

employees in Puerto Rico, U.S. Virgin Islands, Guam, and American

Samoa. In addition, these

[[Page 53059]]

regulations provide taxpayers with the guidance to comply with the

changes made to the Code and to the administrative practices with

respect to filing on magnetic media or in other machine-readable form.

The text of these temporary regulations also serves as the text of the

proposed regulations set forth in the notice of proposed rulemaking on

this subject in the Proposed Rules section of this issue of the Federal

Register.

EFFECTIVE DATE: These regulations are effective on January 1, 1997.

FOR FURTHER INFORMATION CONTACT: Donna Welch, Internal Revenue Service,

1111 Constitution Ave., NW., Washington, DC 20224; telephone (202) 622-

4910 (not a toll-free call), if the inquiry relates to provisions of

these regulations. For further information, see telephone numbers

listed at the beginning of SUPPLEMENTARY INFORMATION.

SUPPLEMENTARY INFORMATION: For persons residing in the following

locations, contact the following offices of the Social Security

Administration (not a toll-free call), if the inquiry relates to

magnetic media filing and magnetic media specifications for Form W-2,

Form 499R-2/W-2PR, Form W-2VI, Form W-2GU, and Form W-2AS:

Alabama (404) 331-2587 (Atlanta)

Alaska (206) 615-2125 (Seattle)

American Samoa (415) 744-4559 (San Francisco)

Arizona (415) 744-4559 (San Francisco)

Arkansas (501) 324-5466 (Little Rock)

California (415) 744-4559 (San Francisco)

Colorado (303) 844-2364 (Denver)

Connecticut (617) 565-2895 (Boston)

Delaware (215) 597-4632 (Philadelphia)

District of Columbia (215) 597-4632 (Philadelphia)

Florida (404) 331-2587 (Atlanta)

Georgia (404) 331-2587 (Atlanta)

Guam (415) 744-4559 (San Francisco)

Hawaii (415) 744-4559 (San Francisco)

Idaho (206) 615-2125 (Seattle)

Illinois (312) 353-6717 (Chicago)

Indiana (312) 353-6717 (Chicago)

Iowa (816) 426-2095 (Kansas City)

Kansas (816) 426-2095 (Kansas City)

Kentucky (404) 331-2587 (Atlanta)

Louisiana (504) 389-0426 (Baton Rouge)

Maine (617) 565-2895 (Boston)

Maryland (215) 597-4632 (Philadelphia)

Massachusetts (617) 565-2895 (Boston)

Michigan (312) 353-6717 (Chicago)

Minnesota (312) 353-6717 (Chicago)

Mississippi (404) 331-2587 (Atlanta)

Missouri (816) 426-2095 (Kansas City)

Montana (303) 844-2364 (Denver)

Nebraska (816) 426-2095 (Kansas City)

Nevada (415) 744-4559 (San Francisco)

New Hampshire (617) 565-2895 (Boston)

New Jersey (212) 264-0258 (New York)

New Mexico (505) 262-6048 (Albuquerque)

New York (212) 264-0258 (New York)

North Carolina (404) 331-2587 (Atlanta)

North Dakota (303) 844-2364 (Denver)

Ohio (312) 353-6717 (Chicago)

Oklahoma (405) 951-3007 (Oklahoma City)

Oregon (206) 615-2125 (Seattle)

Pennsylvania (215) 597-4632 (Philadelphia)

Puerto Rico (809) 766-5574 (San Juan)

Rhode Island (617) 565-2895 (Boston)

South Carolina (404) 331-2587 (Atlanta)

South Dakota (303) 844-2364 (Denver)

Tennessee (404) 331-2587 (Atlanta)

Texas-Central/South (210) 229-6433 (San Antonio)

Texas-Dallas County (214) 767-6777 (Dallas)

Texas-North (817) 334-3123 (Forth Worth)

Texas-Southeast (713) 653-4722 (Houston)

Texas-West (505) 262-6048 (Albuquerque)

Utah (303) 844-2364 (Denver)

Vermont (617) 565-2895 (Boston)

Virgin Islands (809) 766-5574 (San Juan)

Virginia (215) 597-4632 (Philadelphia)

Washington (206) 615-2125 (Seattle)

West Virginia (215) 597-4632 (Philadelphia)

Wisconsin (312) 353-6717 (Chicago)

Wyoming (303) 844-2364 (Denver)

Magnetic Media Reporting, Internal Revenue Service, Martinsburg

Computing Center, P.O. Box 1359, Martinsburg, West Virginia 25401-1359;

telephone (304) 263-8700 (not a toll-free call), if the inquiry relates

to either the waiver procedure for all forms described in these

regulations or to the magnetic media specifications for Forms 1042-S,

1098, 1099 series, 5498, 8027, or W-2G.

Background

This document contains amendments to the Procedure and

Administration Regulations (26 CFR Part 301) relating to the

requirement under section 6011(e) to file information returns on

magnetic media or in other machine-readable form. Section 6011(e)

authorizes the Secretary to prescribe regulations providing the

standards for determining which returns must be filed on magnetic media

or in other machine-readable form. Section 6011(e) of the Internal

Revenue Code (Code) was added to the Code by section 319 of the Tax

Equity and Fiscal Responsibility Act of 1982, Public Law 97-248, 96

Stat. 610; and was amended by section 109 of the Interest and Dividend

Tax Compliance Act of 1983, Public Law 98-67, 97 Stat. 383; and section

7713 of the Revenue Reconciliation Act of 1989 (1989 Act), Public Law

101-239, 103 Stat. 2394.

This document also contains conforming amendments to the Income Tax

Regulations (26 CFR Part 1) relating to returns of information of

brokers and barter exchanges required under section 6045.

Explanation of Provisions

In order to reduce its administrative burden and increase accurate

processing of information, the Social Security Administration (the SSA)

requested that regulations be issued to require Forms 499R-2/W-2PR

(Withholding Statement), Forms W-2VI (U.S. Virgin Islands Wage and Tax

Statement), Forms W-2GU (Guam Wage and Tax Statement), and Forms W-2AS

(American Samoa Wage and Tax Statement) to be filed on magnetic media.

In Notice 95-64 (1995-2 C.B. 342), the IRS informed taxpayers of its

intention to issue regulations requiring these forms to be filed on

magnetic media with the SSA and invited public comment on the matter.

The Notice stated that the requirement would be effective for wage and

tax statements required to be filed after December 31, 1996. No

comments were received in response to the Notice. These regulations

expand the wage and tax statements required to be filed on magnetic

media with the SSA to include Form 499R-2/W-2PR, Form W-2VI, Form W-

2GU, and Form W-2AS.

In addition, these regulations reflect the current provisions of

section 6011(e). As amended by the 1989 Act, section 6011(e)(2)(A)

provides that the Secretary shall not require any person to file

returns on magnetic media unless the person is required to file at

least 250 returns during the calendar year (250-threshold). Consistent

with the provisions of section 6011(e)(2)(A), these regulations provide

that no person is required to file on magnetic media unless the person

is required to file 250 or more returns during the calendar year.

Further, these regulations clarify that each type of information return

is considered a separate return, and the 250-threshold applies

separately to each type of form required to be filed.

In addition, these regulations reflect the current administrative

practices with respect to filing information returns on magnetic media

or in other machine-readable form. The IRS and the SSA now permit

filing on tape cartridge but no longer permit filing on cassette.

Further, the IRS currently permits electronic filing as an alternative

method of filing, and the SSA is considering permitting electronic

filing in the future. Thus, under these regulations, magnetic media

generally include magnetic tape, tape cartridge, diskette, and other

media (such as electronic filing) specifically permitted under the

applicable regulations, procedures, or publications.

Further, these regulations reflect the current procedures for

obtaining consent and authorization from the IRS before filing on

magnetic media. These regulations refer to Form 4419 (Application for

Filing Information Returns Magnetically/Electronically), which must be

filed by a transmitter with the IRS before filing Forms 1042-

[[Page 53060]]

S, 1098, 1099 series, 5498, 8027, and W-2G on magnetic media or

electronically. These regulations also remove any reference to

obtaining consent from the SSA because it no longer requires consent or

authorization before filing on magnetic media.

Under the existing regulations, a taxpayer may request a hardship

waiver from the magnetic media filing requirements. The principal

factor for demonstrating hardship is the amount, if any, by which the

cost of filing on magnetic media exceeds the cost of filing on paper.

The existing regulations provide that, if an employer is required to

make a final return on Form 941, or a variation thereof, and expedited

filing of Form W-2 is required, the unavailability of the

specifications for magnetic media filing will be treated as creating a

hardship, and a waiver of the magnetic media filing requirements for

the expedited Forms W-2 may be granted. This document extends this

waiver provision to expedited filing of Forms 499R-2/W-2PR, Forms W-

2VI, Forms W-2GU, and Forms W-2AS.

Special Analyses

It has been determined that this Treasury decision is not a

significant regulatory action as defined in EO 12866. Therefore, a

regulatory assessment is not required.

It is hereby certified that the regulations in this document will

not have a significant economic impact on a substantial number of small

entities. This certification is based on a determination that these

regulations impose no additional reporting or recordkeeping requirement

and only prescribe the method of filing information returns that are

already required to be filed. Further, these regulations are consistent

with the requirements imposed by statute. Section 6011(e)(2)(A)

provides that, in prescribing regulations providing standards for

determining which returns must be filed on magnetic media or in other

machine-readable form, the Secretary shall not require any person to

file returns on magnetic media unless the person is required to file at

least 250 returns during the calendar year. Consistent with the

statutory provision, these regulations do not require information

returns to be filed on magnetic media unless 250 or more returns are

required to be filed. Further, the economic impact caused by filing on

magnetic media should be minimal. If a taxpayer's operations are

computerized, reporting in accordance with the regulations should be

less costly than filing on paper. If the taxpayer's operations are not

computerized, the incremental cost of magnetic media reporting should

be minimal in most cases because of the availability of computer

service bureaus. In addition, the existing regulations provide that the

IRS may waive the magnetic media filing requirements upon a showing of

hardship. It is anticipated that the waiver authority will be exercised

so as not to unduly burden taxpayers lacking both the necessary data

processing facilities and access at a reasonable cost to computer

service bureaus. Accordingly, a Regulatory Flexibility Analysis under

the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.

Pursuant to section 7805(f) of the Internal Revenue Code, these

regulations will be submitted to the Chief Counsel for Advocacy of the

Small Business Administration for comment on their impact on small

business.

Drafting Information

The principal author of these regulations is Donna Welch, Office of

Assistant Chief Counsel (Income Tax and Accounting). However, other

personnel from the IRS and the Treasury Department participated in the

development of the regulations.

List of Subjects

26 CFR Part 1

Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income

taxes, Penalties, Reporting and recordkeeping requirements.

Adoption of Amendments to the Regulations

Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1--INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in

part as follows:

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

Par. 2. Section 1.6045-1 is amended by adding a sentence at the end

of paragraph (q) to read as follows:

Sec. 1.6045-1 Returns of information of brokers and barter exchanges.

* * * * *

(q) * * * With regard to paragraph (l) of this section, see section

6011(e) of the Internal Revenue Code for information returns required

to be filed after December 31, 1989, and before January 1, 1997; and

see Sec. 1.6045-1T(l) for information returns required to be filed

after December 31, 1996.

Par. 3. Section 1.6045-1T is added to read as follows:

Sec. 1.6045-1T Returns of information of brokers and barter exchanges

(temporary).

(a) through (k) [Reserved] For further guidance, see Sec. 1.6045-1

(a) through (k).

(l) Use of magnetic media. For information returns filed after

December 31, 1996, see Sec. 301.6011-2T of this chapter for rules

relating to filing information returns on magnetic media and for rules

relating to waivers granted for undue hardship. For information returns

filed prior to January 1, 1997, see Sec. 1.6045-1(l).

Par. 4. Section 1.6045-2 is amended by adding a sentence at the end

of paragraph (i) to read as follows:

Sec. 1.6045-2 Furnishing statement required with respect to certain

substitute payments.

* * * * *

(i) * * * With regard to paragraph (g)(2) of this section, see

section 6011(e) of the Internal Revenue Code for information returns

required to be filed after December 31, 1989, and before January 1,

1997; and see Sec. 1.6045-2T(g)(2) for information returns required to

be filed after December 31, 1996.

Par. 5. Section 1.6045-2T is added to read as follows:

Sec. 1.6045-2T Furnishing statement required with respect to certain

substitute payments (temporary).

(a) through (g)(1) [Reserved] For further guidance, see

Sec. 1.6045-2 (a) through (g)(1).

(g)(2) Use of magnetic media. For information returns filed after

December 31, 1996, see Sec. 301.6011-2T of this chapter for rules

relating to filing information returns on magnetic media and for rules

relating to waivers granted for undue hardship. For information returns

filed prior to January 1, 1997, see Sec. 1.6045-2(g)(2).

PART 301--PROCEDURE AND ADMINISTRATION

Par. 4. The authority citation for part 301 continues to read in

part as follows:

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

Par. 5. Section 301.6011-2T is added to read as follows:

Sec. 301.6011-2T Required use of magnetic media (temporary).

This section applies to information returns required to be filed

after December 31, 1996. For information returns required to be filed

after December 31, 1989, and before January 1, 1997, see section

6011(e) of the

[[Page 53061]]

Internal Revenue Code and Sec. 301.6011-2.

(a) Meaning of terms. The following definitions apply for purposes

of this section:

(1) Magnetic media. The term magnetic media means any magnetic

media permitted under applicable regulations, revenue procedures, or,

in the case of returns filed with the Social Security Administration,

Social Security Administration publications. These generally include

magnetic tape, tape cartridge, and diskette, as well as other media

(such as electronic filing) specifically permitted under the applicable

regulations, procedures, or publications.

(2) and (3) [Reserved] For further guidance, see Sec. 301.6011-2(a)

(2) and (3).

(b) Returns required on magnetic media. (1) If the use of Form

1042-S, 1098, 1099 series, 5498, 8027, W-2G, or other form treated as a

form specified in this paragraph (b)(1) is required by the applicable

regulations or revenue procedures for the purpose of making an

information return, the information required by the form must be

submitted on magnetic media, except as otherwise provided in paragraph

(c) of this section. Returns on magnetic media must be made in

accordance with applicable revenue procedures or publications. See

Sec. 601.601(d)(2)(ii)(b) of this chapter. Pursuant to these

procedures, the consent of the Commissioner of Internal Revenue (or

other authorized officer or employee of the Internal Revenue Service)

to a magnetic medium must be obtained by submitting Form 4419

(Application for Filing Information Returns Magnetically/

Electronically) prior to submitting a return described in this

paragraph (b)(1) on the magnetic medium.

(2) If the use of Form W-2 (Wage and Tax Statement), Form 499R-2/W-

2PR (Withholding Statement), Form W-2VI (U.S. Virgin Islands Wage and

Tax Statement), Form W-2GU (Guam Wage and Tax Statement), Form W-2AS

(American Samoa Wage and Tax Statement), or other form treated as a

form specified in this paragraph (b)(2) is required for the purpose of

making an information return, the information required by the form must

be submitted on magnetic media, except as otherwise provided in

paragraph (c) of this section. Returns described in this paragraph

(b)(2) must be made in accordance with applicable Social Security

Administration procedures or publications (which may be obtained from

the local office of the Social Security Administration).

(3) [Reserved] For further guidance, see Sec. 301.6011-2(b)(3).

(c) Exceptions--(1) Low-volume filers/250-threshold--(i) In

general. No person is required to file information returns on magnetic

media unless the person is required to file 250 or more returns during

the calendar year. Persons filing fewer than 250 returns during the

calendar year may make the returns on the prescribed paper form, or,

alternatively, such persons may make returns on magnetic media in

accordance with paragraph (b) of this section.

(ii) [Reserved] For further guidance, see Sec. 301.6011-

2(c)(1)(ii).

(iii) No aggregation. Each type of information return described in

paragraphs (b) (1) and (2) of this section is considered a separate

return for purposes of this paragraph (c)(1). Therefore, the 250-

threshold applies separately to each type of form required to be filed.

(iv) Examples. The provisions of paragraph (c)(1)(iii) of this

section are illustrated by the following examples:

Example 1. For the calendar year ending December 31, 1996,

Company X is required to file 200 returns on Form 1099-INT and 350

returns on Form 1099-MISC. Company X is not required to file Forms

1099-INT on magnetic media but is required to file Forms 1099-MISC

on magnetic media.

Example 2. During the calendar year ending December 31, 1996,

Company Y has 275 employees in Puerto Rico and 50 employees in

American Samoa. Company Y is required to file Forms 499R-2/W-2PR on

magnetic media but is not required to file Forms W-2AS on magnetic

media.

Example 3. For the calendar year ending December 31, 1996,

Company Z files 300 original returns on Form 1099-DIV and later

files 70 corrected returns on Form 1099-DIV. Company Z is required

to file the original returns on magnetic media. However, Company Z

is not required to file the corrected returns on magnetic media

because the corrected returns fall under the 250-threshold. See

Sec. 301.6721-1(a)(2)(ii).

(2) Waiver. (i) The Commissioner may waive the requirements of this

section if hardship is shown in a request for waiver filed in

accordance with this paragraph (c)(2)(i). The principal factor in

determining hardship will be the amount, if any, by which the cost of

filing the information returns in accordance with this section exceeds

the cost of filing the returns on other media. Notwithstanding the

foregoing, if an employer is required to make a final return on Form

941, or a variation thereof, and expedited filing of Forms W-2, Forms

499R-2/W-2PR, Forms W-2VI, Forms W-2GU, or Form W-2AS is required, the

unavailability of the specifications for magnetic media filing will be

treated as creating a hardship. See Sec. 31.6071(a)-1(a)(3)(ii). A

request for waiver must be made in accordance with applicable revenue

procedures or publications. See Sec. 601.601(d)(2)(ii)(b) of this

chapter. Pursuant to these procedures, a request for waiver should be

filed at least 45 days before the due date of the information return in

order for the Service to have adequate time to respond to the request

for waiver. The waiver will specify the type of information return and

the period to which it applies and will be subject to such terms and

conditions regarding the method of reporting as may be prescribed by

the Commissioner.

(ii) The Commissioner may prescribe rules that supplement the

provisions of paragraph (c)(2)(i) of this section.

(c) (3) and (4) [Reserved]. For further guidance, see

Sec. 301.6011-2(c) (3) and (4).

(d) and (e) [Reserved] For further guidance, see Sec. 301.6011-2

(d) and (e).

(f) Failure to file. If a person fails to file an information

return on magnetic media when required to do so by this section, the

person is deemed to have failed to file the return. In addition, if a

person making returns on a paper form under paragraph (c) of this

section fails to file a return on machine-readable paper form when

required to do so by this section, the person is deemed to have failed

to file the return. See sections 6652, 6693, and 6721 for penalties for

failure to file certain returns. See also section 6724 and the

regulations under section 6721 for the specific rules and limitations

regarding the penalty imposed under section 6721 for failure to file on

magnetic media.

(g) Effective date. (1) [Reserved] For further guidance, see

Sec. 301.6011-2(g)(1).

(2) Paragraphs (a)(1), (b) (1) and (2), (c)(1) (i), (iii), and

(iv), (c)(2), and (f) of this section are effective for information

returns required to be filed after December 31, 1996. For information

returns required to be filed after December 31, 1989, and before

January 1, 1997, see section 6011(e) of the Internal Revenue Code and

Sec. 301.6011-2.

Margaret Milner Richardson,

Commissioner of Internal Revenue.

Approved: September 10, 1996.

Donald C. Lubick,

Acting Assistant Secretary of the Treasury.

[FR Doc. 96-25542 Filed 10-9-96; 8:45 am]

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