For Tax Professionals  
T.D. 8772 June 29, 1998

Magnetic Media Filing Requirements for
Information Returns

DEPARTMENT OF THE TREASURY
Internal Revenue Service 26 CFR Parts 1 and 301 [TD 8772] RIN 1545-
AU08

TITLE: Magnetic Media Filing Requirements for Information Returns

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final and temporary regulations.

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 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, 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. 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 1.6045-1T and 1.6045-2T
effective January 1, 1999. This document removes 1.6045-1T amd
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 * * *

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 "1.6045-1T(l)" and adding "paragraph (l)
of this section" in its place in paragraph (q).

The revision reads as follows:

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 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 "1.6045-2T(g)(2)" and adding "paragraph
(g)(2) of this section" in its place in paragraph (i).

The revision reads as follows:

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 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:

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 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 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 31.6071(a)-1(a)(3)(ii) of this chapter). A request for waiver
must be made in accordance with applicable revenue procedures or
publications (see 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).

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


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