[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