[Federal Register Volume 61, Number 198 (Thursday, October 10, 1996)]
[Rules and Regulations]
[Pages 53058-53061]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-25542]


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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]
BILLING CODE 4830-01-U