[Federal Register Volume 63, Number 125 (Tuesday, June 30, 1998)]
[Rules and Regulations]
[Pages 35517-35520]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-16411]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 8772]
RIN 1545-AU08
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 final and temporary 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 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 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.
DATES: Effective date: These regulations are effective June 30, 1998.
Applicability date: These regulations apply to information returns
required to be filed on or after January 1, 1997.
FOR FURTHER INFORMATION CONTACT: Donna Joy Welch, (202) 622-4910 (not a
toll-free call), if the inquiry relates to provisions of these
regulations. For further information, see the telephone numbers listed
at the beginning of SUPPLEMENTARY INFORMATION
SUPPLEMENTARY INFORMATION: 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, persons residing in the
following locations should contact the corresponding Social Security
Administration office (not a toll-free call):
Alabama (404) 562-1314 (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) 562-1314 (Atlanta),
Georgia (404) 562-1314 (Atlanta),
Guam (415) 744-4559 (San Francisco),
Hawaii (415) 744-4559 (San Francisco),
Idaho (206) 615-2125 (Seattle),
Illinois (312) 575-4244 (Chicago),
Indiana (312) 575-4244 (Chicago),
Iowa (816) 936-5649 (Kansas City),
Kansas (816) 936-5649 (Kansas City),
Kentucky (404) 562-1314 (Atlanta),
Louisiana (504) 389-0426 (Baton Rouge),
Maine (617) 565-2895 (Boston),
Maryland (215) 597-4632 (Philadelphia),
Massachusetts (617) 565-2895 (Boston),
Michigan (312) 575-4244 (Chicago),
Minnesota (312) 575-4244 (Chicago),
Mississippi (404) 562-1314 (Atlanta),
Missouri (816) 936-5649 (Kansas City),
Montana (303) 844-2364 (Denver),
Nebraska (816) 936-5649 (Kansas City),
Nevada (415) 744-4559 (San Francisco),
New Hampshire (617) 565-2895 (Boston),
New Jersey (212) 264-5643 (New York),
New Mexico (505) 262-6048 (Albuquerque),
New York (212) 264-5643 (New York),
North Carolina (404) 562-1314 (Atlanta),
North Dakota (303) 844-2364 (Denver),
Ohio (312) 575-4244 (Chicago),
Oklahoma (405) 951-3007 (Oklahoma City),
Oregon (206) 615-2125 (Seattle),
Pennsylvania (215) 597-4632 (Philadelphia),
Puerto Rico (787) 766-5574 (San Juan),
Rhode Island (617) 565-2895 (Boston),
South Carolina (404) 562-1314 (Atlanta),
South Dakota (303) 844-2364 (Denver),
Tennessee (404) 562-1314 (Atlanta),
Texas-Central/South (210) 229-6433 (San Antonio),
Texas-Dallas County (214) 767-6777 (Dallas),
Texas-North (817) 978-3123 (Forth Worth),
Texas-Southeast (713) 718-3015 (Houston),
Texas-West (505) 262-6048 (Albuquerque),
Utah (303) 844-2364 (Denver),
Vermont (617) 565-2895 (Boston),
Virgin Islands (787) 766-5574 (San Juan),
Virginia (215) 597-4632 (Philadelphia),
Washington (206) 615-2125 (Seattle),
West Virginia (215) 597-4632 (Philadelphia),
Wisconsin (312) 575-4244 (Chicago), and
Wyoming (303) 844-2364 (Denver).
If the inquiry relates to either the waiver procedure for all forms
described
[[Page 35518]]
in these regulations or the magnetic media specifications for Forms
1042-S, 1098, 1099 series, 5498, 8027, or W-2G, persons should contact
the Internal Revenue Service, Martinsburg Computing Center, P.O. Box
1359, Martinsburg, West Virginia 25402-1359; telephone (304) 263-8700
(not a toll-free call).
Background
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) was
added to the Internal Revenue Code (Code) by section 319 of the Tax
Equity and Fiscal Responsibility Act of 1982, Pub. L. 97-248, 96 Stat.
610; and was amended by section 109 of the Interest and Dividend Tax
Compliance Act of 1983, Pub. L. 98-67, 97 Stat. 383; and section 7713
of the Revenue Reconciliation Act of 1989 (1989 Act), Pub. L. 101-239,
103 Stat. 2394. 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.
On October 10, 1996, final and temporary regulations (TD 8683)
amending the existing regulations relating to the requirements for
filing information returns on magnetic media or in other machine-
readable form under section 6011(e) were published in the Federal
Register (61 FR 53056). A notice of proposed rulemaking (REG-209803-95)
cross-referencing the temporary regulations was published in the
Federal Register for the same day (61 FR 53161). These regulations were
issued at the request of the Social Security Administration (the SSA)
that regulations be issued to require employers required to file 250 or
more Forms 499R-2/W-2PR (Withholding Statement (Puerto Rico)), 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 file these forms with the SSA on magnetic media. Filing
these forms on magnetic media will reduce administrative burdens and
will increase accurate processing of information. These regulations
also reflect the changes made to the Code and to the administrative
practices with respect to filing on magnetic media or in other machine-
readable form.
One written comment responding to this notice was received. No
public hearing was requested or held. After consideration of the
comment, the proposed regulations are adopted as modified and the
corresponding temporary regulations are removed. The comment is
discussed below.
Summary of Comment
The commentator suggests that the definition of magnetic media is
too restrictive and that it does not encompass the use of additional
technology that would facilitate the underlying reporting requirements.
The commentator suggests that the definition is not broad enough to
include the use of digital filing, specifically 2D barcode. Neither the
IRS nor the SSA utilize digital filing technology at this time.
However, the IRS and the SSA are committed to utilizing available
technology that would facilitate the purpose of information reporting.
Therefore, the regulations make clear that the use of other media
may be permitted in the future as provided in applicable regulations,
revenue procedures, or publications.
Relationship to Treasury Decision 8734
Treasury Decision 8734 was published in the Federal Register on
October 14, 1997 (62 FR 53387) and removed Secs. 1.6045-1T and 1.6045-
2T effective January 1, 1999. This document removes Secs. 1.6045-1T and
1.6045-2T effective June 30, 1998. Because this document removes these
sections at an earlier date, a document will be published later to
amend TD 8734 to take this into account.
Special Analyses
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 prescribe only 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 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.
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.
Pursuant to section 7805(f) of the Internal Revenue Code, the
notice of proposed rulemaking preceding these regulations was submitted
to the Chief Counsel for Advocacy of the Small Business Administration
for comment on its impact on small business.
Drafting Information: The principal author of these regulations is
Donna Joy 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 * * *
[[Page 35519]]
Secs. 1.6045-1T and 1.6045-2T [Removed]
Par. 2. Sections 1.6045-1T and 1.6045-2T, currently in effect, are
removed.
Par. 3. Section 1.6045-1, currently in effect, is amended by:
1. Revising paragraph (l).
2. Removing the language ``Sec. 1.6045-1T(l)'' and adding
``paragraph (l) of this section'' in its place in paragraph (q).
The revision reads as follows:
Sec. 1.6045-1 Returns of information of brokers and barter exchanges.
* * * * *
(l) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2 of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. A broker or barter
exchange that fails to file a Form 1099 on magnetic media, when
required, may be subject to a penalty under section 6721 for each such
failure. See paragraph (j) of this section.
* * * * *
Par. 4. Section 1.6045-2, currently in effect, is amended by:
1. Revising paragraph (g)(2).
2. Removing the language ``Sec. 1.6045-2T(g)(2)'' and adding
``paragraph (g)(2) of this section'' in its place in paragraph (i).
The revision reads as follows:
Sec. 1.6045-2 Furnishing statement required with respect to certain
substitute payments.
* * * * *
(g) * * *
(2) Use of magnetic media. For information returns filed after
December 31, 1996, see Sec. 301.6011-2 of this chapter for rules
relating to filing information returns on magnetic media and for rules
relating to waivers granted for undue hardship. A broker or barter
exchange that fails to file a Form 1099 on magnetic media, when
required, may be subject to a penalty under section 6721 for each such
failure. See paragraph (g)(4) of this section.
* * * * *
PART 301--PROCEDURE AND ADMINISTRATION
Par. 5. The authority citation for part 301 continues to read in
part as follows:
Authority: 26 U.S.C. 7805 * * *
Par. 6. Section 301.6011-2 is amended by:
1. Revising paragraphs (a)(1), (b)(1), (b)(2), (c)(1) heading,
(c)(1)(i), (c)(1)(iii), (c)(2), (d), (f), (g) heading, and (g)(2).
2. Adding paragraph (c)(1)(iv).
3. Removing paragraphs (c)(3) and (c)(4) and the last sentence of
paragraph (e).
The revisions and addition read as follows:
Sec. 301.6011-2 Required use of magnetic media.
(a) * * *
(1) Magnetic media. The term magnetic media means any media
permitted under applicable regulations, revenue procedures or
publications, 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.
* * * * *
(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 (Puerto Rico)), 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).
* * * * *
(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.
* * * * *
(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, 1998,
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, 1998,
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, 1998,
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) of this
chapter). A request for waiver must be
[[Page 35520]]
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.
(d) Paper form returns. Returns submitted on paper forms (whether
or not machine-readable) permitted under paragraph (c) of this section
shall be in accordance with applicable Internal Revenue Service or
Social Security Administration procedures.
* * * * *
(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 dates. * * *
(2) Paragraphs (a)(1), (b)(1), (b)(2), (c)(1)(i), (c)(1)(iii),
(c)(1)(iv), (c)(2), (d), (e), 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).
Sec. 301.6011-2T [Removed].
Par. 7. Section 301.6011-2T is removed.
Michael P. Dolan,
Deputy Commissioner of Internal Revenue.
Approved: May 22, 1998.
Donald C. Lubick,
Assistant Secretary of the Treasury.
[FR Doc. 98-16411 Filed 6-29-98; 8:45 am]
BILLING CODE 4830-01-P