Source: https://www.irs.gov/irb/2007-11_IRB
Timestamp: 2019-04-21 00:32:00+00:00

Document:
Payroll taxes on deferred compensation. This ruling provides guidance on when a taxpayer using an accrual method of accounting incurs a liability under section 461 of the Code for payroll taxes on deferred compensation. Rev. Rul. 69-587 revoked. Rev. Rul. 96-51 amplified.
Investor control and general public; taxation of variable contracts; insurance and annuities. This ruling treats the grantor of a grantor trust as the owner of a life insurance contract that is owned by the trust for purposes of determining whether a transfer of a contract (a) is a transfer for valuable consideration, and (b) if so, is a transfer to the insured within the meaning of section 101(a)(2)(B) of the Code.
Federal rates; adjusted federal rates; adjusted federal long-term rate and the long-term exempt rate. For purposes of sections 382, 642, 1274, 1288, and other sections of the Code, tables set forth the rates for March 2007.
This notice provides interim rules, pending the issuance of regulations under sections 932(c) and 7654(e), concerning the statute of limitations on assessment with respect to taxpayers claiming to be bona fide residents of the U.S. Virgin Islands (USVI). The notice also provides a new annual information reporting requirement for U.S. citizens and resident aliens with $75,000 or more of gross income who claim bona fide residency status in the USVI. Taxpayers may rely on this notice until regulations are issued.
Low-income housing tax credit; private activity bonds. Resident populations of the 50 states, the District of Columbia, Puerto Rico, and the insular areas are provided for purposes of determining the 2007 calendar year (1) state housing credit ceiling under section 42(h) of the Code, (2) private activity bond volume cap under section 146, and (3) private activity bond volume limit under section 142(k).
Substitute tax forms and schedules. Requirements are set forth for privately designed and printed federal tax forms and conditions under which the Service will accept computer prepared and computer-generated tax forms and schedules. Rev. Proc. 2005-74 superseded.
This document provides notice of a public hearing on proposed regulations (REG-103043-05, 2006-49 I.R.B. 1063) relating to the obligation of material advisors to prepare and maintain lists with respect to reportable transactions under section 6112 of the Code.
This document provides notice of a public hearing on proposed regulations (REG-103038-05, 2006-49 I.R.B. 1049) relating to the disclosure of reportable transactions by taxpayers under section 6011 of the Code.
This document provides notice of a public hearing on proposed regulations (REG-103039-05, 2006-49 I.R.B. 1057) relating to the disclosure of reportable transactions by material advisors under section 6111 of the Code.
This document contains corrections to final regulations (T.D. 9298, 2007-6 I.R.B. 434) that governs the provisions prohibiting discrimination based on a health factor for group health plans and issuers of health insurance coverage offered in connection with a group health plan.
Is the grantor who is treated for federal income tax purposes as the owner of a trust that owns a life insurance contract on the grantor’s life treated as the owner of the contract for purposes of determining whether a transfer of the contract (a) is a transfer for a valuable consideration within the meaning of § 101(a)(2) of the Internal Revenue Code, and (b) if so, is a transfer to the insured within the meaning of § 101(a)(2)(B)?
Situation 1. TR1 and TR2 are grantor trusts, both of which are treated as wholly owned by G under subpart E of Part I of subchapter J of the Internal Revenue Code. TR2 owns a life insurance contract upon the life of G. TR2 transfers the life insurance contract to TR1 in exchange for cash.
Situation 2. The facts are the same as in Situation 1, except that TR2 is not a grantor trust.
Section 61 defines gross income as all income from whatever source derived, including gains derived from dealings in property.
Section 101(a)(1) provides that, except as otherwise provided in §§ 101(a)(2), 101(d), and 101(f), gross income does not include amounts received under a life insurance contract if such amounts are received by reason of the death of the insured.
Section 101(a)(2) provides, generally, that if a life insurance contract, or any interest therein, is transferred for a valuable consideration, the exclusion from gross income provided by § 101(a)(1) shall not exceed an amount equal to the sum of the actual value of the consideration and the premiums and other amounts subsequently paid by the transferee.
The term “transfer for a valuable consideration” is defined for purposes of § 101(a)(2) in § 1.101-1(b)(4) of the Income Tax Regulations as any absolute transfer for value of a right to receive all or a part of the proceeds of a life insurance policy.
Section 101(a)(2)(B) provides that § 101(a)(2) does not apply to a transfer of a life insurance contract or any interest therein to the insured, to a partner of the insured, to a partnership in which the insured is a partner, or to a corporation in which the insured is a shareholder or officer.
In Rev. Rul. 85-13, 1985-1 C.B. 184, a grantor acquired the corpus of a trust in exchange for the grantor’s unsecured promissory note. The ruling concludes that the grantor is considered to have borrowed the corpus of the trust and, as a result, is treated as the owner of the trust under § 675(3). Because the grantor is treated as the owner of the trust, the grantor is deemed the owner of the trust assets for federal income tax purposes. In addition, because the grantor is therefore considered to own the purported consideration both before and after the transaction, the exchange of a promissory note for the trust assets is not recognized as a sale for federal income tax purposes.
In Situation 1, because G is treated as the owner of both TR1 and TR2 for federal income tax purposes, G is treated as the owner of all the assets of both trusts, including both the life insurance contract and the cash received for it, both before and after the exchange. Accordingly, in Situation 1 there has been no transfer of the contract within the meaning of § 101(a)(2).
In Situation 2, because G is treated as the owner of all the assets of TR1 but not of TR2 for federal income tax purposes, G is treated as the owner of the cash (but not the life insurance contract) before the exchange, and as the owner of the life insurance contract (but not the cash) after the exchange. Accordingly, in Situation 2 there has been a transfer of the life insurance contract for a valuable consideration within the meaning of § 101(a)(2). Nevertheless, the transfer for value limitations of § 101(a)(2) do not apply, because the transfer to TR1 is treated as a transfer to G, the insured, within the meaning of § 101(a)(2)(B).
The grantor who is treated for federal income tax purposes as the owner of a trust that owns a life insurance contract on the grantor’s life is treated as the owner of the contract for purposes of applying the transfer for value limitations of § 101(a)(2). Accordingly, in Situation 1, the transfer of a life insurance contract between two grantor trusts that are treated as wholly owned by the same grantor is not a transfer for a valuable consideration within the meaning of § 101(a)(2); in Situation 2, the transfer of a life insurance contract to a grantor trust that is treated as wholly owned by the insured is a transfer to the insured within the meaning of § 101(a)(2)(B) and is therefore excepted from the transfer for value limitations under § 101(a)(2).
The principal author of this revenue ruling is Chris Lieu of the Office of Associate Chief Counsel (Financial Institutions & Products). For further information regarding this revenue ruling, contact Chris Lieu at (202) 622-3970 (not a toll-free call).
If the all events test and recurring item exception of § 461 of the Internal Revenue Code are otherwise met, may an accrual method taxpayer treat its Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) tax liability as incurred in Year 1 if the compensation to which the tax liability relates is deferred compensation that is deductible under § 404 in Year 2?
X, a corporation, uses an accrual method of accounting and files its federal income tax returns on a calendar year basis. As of the end of Year 1, X has a fixed liability to pay compensation for services provided by X’s employees during Year 1. As of the end of Year 1, all events have occurred to establish the fact of X’s liability for the taxes (“payroll taxes”) owed under §§ 3111 (the employer’s share of FICA taxes) and 3301 (FUTA taxes) related to the compensation, and the amount of the payroll tax liability can be determined with reasonable accuracy. X properly adopted the recurring item exception under § 1.461-5 of the Income Tax Regulations as a method of accounting with respect to the payroll taxes. X pays the payroll taxes either (1) in Year 1 or (2) before the earlier of September 15 of Year 2 or the date X files a timely (including extensions) federal income tax return for Year 1. Therefore, under § 461, the payroll taxes generally would be treated as incurred by X in Year 1. However, the compensation to which the payroll taxes relate is deferred compensation that is properly deductible under § 404 in Year 2.
Section 404(a) provides, in relevant part, that if compensation is paid or accrued by an employer on account of any employee under a plan deferring the receipt of such compensation, and is otherwise deductible under Chapter 1, the compensation is deductible pursuant to the rules, and subject to the limitations, of § 404.
Section 404(a)(5) provides, in part, that if the plan of compensation is not described in § 404(a)(1), (2), or (3), the compensation deductible under § 404 is deductible in the taxable year in which an amount attributable to the compensation is includible in the gross income of the employee participating in the plan. Furthermore, § 404(a)(5) provides that for purposes of § 404, any vacation pay that is treated as deferred compensation is deductible in the employer’s taxable year that it is paid to the employee.
Section 1.404(b)-1T Q&A 2 provides, in part, that for purposes of § 404(a), a plan, or method or arrangement, defers the receipt of compensation or benefits to the extent it is one under which an employee receives compensation or benefits more than a brief period of time after the end of the employer’s taxable year in which the services creating the right to such compensation or benefits are performed. A plan, or method or arrangement shall be presumed to be one deferring the receipt of compensation for more than a brief period of time after the end of an employer’s taxable year to the extent that compensation is received after the 15th day of the 3rd calendar month after the end of the employer’s taxable year in which the related services are rendered.
Section 461(a) provides that the amount of any deduction or credit must be taken for the taxable year that is the proper taxable year under the method of accounting used in computing taxable income.
Section § 1.461-1(a)(2)(i) provides that, under an accrual method of accounting, a liability is incurred, and is generally taken into account for federal income tax purposes, in the taxable year in which (1) all the events have occurred that establish the fact of the liability, (2) the amount of the liability can be determined with reasonable accuracy, and (3) economic performance has occurred with respect to the liability (the “all events test”). See also § 1.446-1(c)(1)(ii)(A).
Section 1.461-4(d)(2)(i) provides that in general, if the liability of a taxpayer arises out of the providing of services to the taxpayer by another person, economic performance occurs as the services are provided. Section 1.461-4(d)(2)(iii) provides that with respect to employee benefits which arise out of the provision of services to the taxpayer, the economic performance requirement is satisfied to the extent that any amount is otherwise deductible under § 404. Section 1.461-4(g)(6) provides generally that, if a taxpayer is liable to pay a tax, economic performance occurs as the tax is paid to the governmental authority that imposed it.
Section 1.461-5(b)(1) provides a recurring item exception to the general rule of economic performance. Under the recurring item exception, a liability is treated as incurred for a taxable year if: (i) at the end of the taxable year, all events have occurred that establish the fact of the liability and the amount can be determined with reasonable accuracy; (ii) economic performance occurs on or before the earlier of (a) the date that the taxpayer files a return (including extensions) for the taxable year, or (b) the 15th day of the 9th calendar month after the close of the taxable year; (iii) the liability is recurring in nature; and (iv) either the amount of the liability is not material or accrual of the liability in the taxable year results in better matching of the liability against the income to which it relates than would result from accrual of the liability in the taxable year in which economic performance occurs. Section 1.461-5(b)(5)(ii) provides that, in the case of a liability for taxes, the matching requirement of the recurring item exception is deemed satisfied.
Rev. Rul. 69-587, 1969-2 C.B. 108, concludes that, under the all events test of § 461, an accrual method employer generally may not deduct payroll taxes payable with respect to bonuses and vacation pay accrued but unpaid at year-end until the taxable year in which the bonuses and vacation pay are paid.
Rev. Rul. 96-51, 1996-2 C.B. 36, concludes that, under the all events test, an accrual method employer may deduct in Year 1 its otherwise deductible payroll taxes imposed on year-end wages properly accrued in Year 1 but paid in Year 2, provided the employer satisfies the requirements of the recurring item exception in § 1.461-5 with respect to those taxes. However, Rev. Rul. 96-51 does not address the application of § 404 because the year-end wages were paid before the 15th day of the 3rd calendar month after the end of Year 1.
In general, § 404 applies to compensation paid or accrued by an employer on account of any employee under a plan deferring the receipt of such compensation. An employer’s liability for payroll taxes does not represent compensation paid or accrued by an employer on account of any employee. Therefore, § 404 does not control the deductibility of an employer’s liability for payroll taxes, even if the payroll tax liability relates to a deferred compensation liability subject to the deduction rules of § 404. Accordingly, § 404 does not alter the timing of the accrual of X’s payroll tax liability under § 461.
If the all events test and recurring item exception of § 461 are otherwise met, an accrual basis taxpayer may treat its payroll tax liability as incurred in Year 1, regardless of whether the compensation to which the liability relates is deferred compensation that is deductible under § 404 in Year 2.
Rev. Rul. 96-51 is amplified. Rev. Rul. 69-587 is revoked.
A change in treatment of payroll tax liabilities associated with deferred compensation to comply with this revenue ruling is a change in method of accounting within the meaning of §§ 446 and 481 and the regulations issued thereunder. Accordingly, a taxpayer that wants to change its treatment of payroll taxes associated with deferred compensation to comply with this revenue ruling must obtain the consent of the Commissioner under § 446(e) and § 1.446-1(e)(2)(i).
The principal author of this revenue ruling is Martin L. Osborne of the Office of Associate Chief Counsel (Income Tax and Accounting). For further information regarding this revenue ruling, contact Mr. Osborne at (202) 622-7900 (not a toll-free call).
This revenue ruling provides various prescribed rates for federal income tax purposes for March 2007 (the current month). Table 1 contains the short-term, mid-term, and long-term applicable federal rates (AFR) for the current month for purposes of section 1274(d) of the Internal Revenue Code. Table 2 contains the short-term, mid-term, and long-term adjusted applicable federal rates (adjusted AFR) for the current month for purposes of section 1288(b). Table 3 sets forth the adjusted federal long-term rate and the long-term tax-exempt rate described in section 382(f). Table 4 contains the appropriate percentages for determining the low-income housing credit described in section 42(b)(2) for buildings placed in service during the current month. Finally, Table 5 contains the federal rate for determining the present value of an annuity, an interest for life or for a term of years, or a remainder or a reversionary interest for purposes of section 7520.
This notice provides interim rules under sections 932(c) and 7654(e) concerning the statute of limitations on assessment of the U.S. income tax liability (if any) of a U.S. citizen or resident alien who takes the position that he or she is a bona fide resident of the U.S. Virgin Islands and the U.S. filing obligations of such an individual. This notice also announces that the Treasury Department and Internal Revenue Service (IRS) intend to issue regulations under sections 932(c) and 7654(e). Finally, this notice announces that the Treasury Department and the IRS are studying the feasibility of an automatic exchange of information program with the U.S. Virgin Islands Bureau of Internal Revenue concerning income tax information of individual taxpayers. Such a program for the timely exchange of equivalent data in a form compatible with IRS systems may eliminate the reporting requirements set forth in the interim rules. Until the regulations are issued, taxpayers may rely on this notice.
Under the authority of section 7654(e), an income tax return filed with the U.S. Virgin Islands by a U.S. citizen or resident alien (USVI Form 1040) will be deemed to be a U.S. income tax return of that individual for purposes of section 6501(a), provided that the individual is a covered person. The term “covered person” means a U.S. citizen or resident alien who takes the position that he or she is a bona fide resident of the U.S. Virgin Islands, files USVI Form 1040 with the U.S. Virgin Islands, and has less than $75,000 of gross income for the taxable year. For purposes of this notice, gross income means the total amount of income from whatever source derived, before any exclusions or deductions (for example, disregarding any applicable U.S. Virgin Islands tax benefits authorized under section 934(b)). Gross income does not include income of the individual’s spouse.
For example, assume that C, a U.S. citizen and calendar year taxpayer who has less than $75,000 of gross income for 2006, takes the position that he is a bona fide resident of the U.S. Virgin Islands and files USVI Form 1040 for 2006 on March 12, 2007 with the U.S. Virgin Islands. C does not file Form 1040, U.S. Individual Income Tax Return (U.S. Form 1040), with the IRS. C is a covered person. Under these circumstances, the 3-year period of limitations under section 6501(a) will expire on April 15, 2010, and the IRS will make no further assessment of income tax for A’s 2006 taxable year after that date except as otherwise authorized by section 6501.
With respect to a U.S. citizen or resident alien who takes the position that he or she is a bona fide resident of the U.S. Virgin Islands for a taxable year but who has gross income of $75,000 or more (referred to as a non-covered person), a U.S. Form 1040 filed by the non-covered person with the IRS, on which the non-covered person reports no gross income and no taxable income, will be treated as an income tax return described in section 6501(a).
This notice imposes a new annual information reporting requirement under section 7654 for non-covered persons. The Treasury Department and the IRS intend to issue a new form titled Bona Fide Residence-Based Return Position for purposes of this new information reporting requirement. Until this form is issued, a non-covered person will meet the information reporting requirement by attaching a statement to U.S. Form 1040 reporting no gross income and no taxable income. The statement should be titled “Bona Fide Residence-Based Return Position” and must set forth the following information.
1. The non-covered person’s name, social security number, and address as reported on U.S. Form 1040.
2. A statement affirming the non-covered person’s bona fide residence in the U.S. Virgin Islands as defined in Treas. Reg. § 1.937-1(b) and a brief summary of the facts on which it is based.
3. An affirmation that the non-covered person has properly filed a U.S. Virgin Islands individual income tax return, a statement of the total tax liability reported on USVI Form 1040, and the amount of gross income reported on such return (adding back any applicable territorial tax benefits authorized under section 934(b)).
For example, assume that on March 12, 2007, N, a U.S. citizen and calendar year taxpayer with at least $75,000 of gross income for 2006, files U.S. Form 1040 (2006) with the IRS, taking the position that he does not have any gross income or taxable income for U.S. income tax purposes (as reported on lines 22 and 43, respectively) under section 932(c)(4). N attaches a Bona Fide Residence-Based Return Position statement. As a result of filing U.S. Form 1040, the 3-year period of limitations under section 6501(a) will expire on April 15, 2010, and the IRS will make no further assessment of income tax for N’s 2006 taxable year after that date except as otherwise authorized by section 6501.
U.S. Forms 1040 with attached Bona Fide Residence-Based Return Position statements must be filed with the Internal Revenue Service Center, P.O. Box 331 Drop Point S-607, Bensalem, PA 19020-8517. Failure to file the Bona Fide Residence-Based Position statement is subject to a penalty under section 6688. If a non-covered person and his or her spouse filed a joint USVI Form 1040, then they may file a jointly executed U.S. Form 1040 but must attach a separate Bona Fide Residence-Based Return Position statement for each spouse who is a non-covered person.
This notice applies for taxable years ending on or after December 31, 2006. Taxpayers also may choose to apply this notice to a taxable year ending before December 31, 2006 as specified in this section 3.
A non-covered person may choose to apply this notice to a taxable year ending before December 31, 2006 by filing U.S. Form 1040 with the IRS at the address provided in section 2, reporting no gross income and no taxable income for that taxable year. Although a Bona Fide Residence-Based Position statement need not be filed for a taxable year ending before December 31, 2006, the non-covered person should clearly note on the first page of U.S. Form 1040 the applicable taxable year and that U.S. Form 1040 is being filed in accordance with this notice.
For example, assume that on March 16, 2007, J, a U.S. citizen and calendar year taxpayer with at least $75,000 of gross income for taxable year 2003, files U.S. Form 1040 with the IRS, taking the position that for taxable year 2003 she does not have any gross income or taxable income for U.S. income tax purposes under section 932(c)(4). J clearly marks U.S. Form 1040 as applying to her taxable year ending December 31, 2003 and as being filed in accordance with Notice 2007-19. Under these circumstances, the 3-year period of limitations under section 6501(a) for taxable year 2003 will expire on March 16, 2010, and the IRS will make no further assessment of income tax for J’s 2003 taxable year after that date except as otherwise authorized by section 6501.
A covered person may choose to apply this notice to a taxable year ending before December 31, 2006 by providing documentation upon examination that establishes to the satisfaction of the Commissioner that the taxpayer is a covered person. Because the USVI Form 1040 filed with the U.S. Virgin Islands is deemed to be a covered person’s U.S. Form 1040, the covered person’s statute of limitations under section 6501(a) will begin to run on the date USVI Form 1040 is filed with the U.S. Virgin Islands.
The collection of information contained in this notice has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) under control number 1545-2063.
The collection of information in this notice is in section 2. This information is required to determine if a taxpayer satisfies the requirements of bona fide residence in the U.S. Virgin Islands under section 937(a). The information will be used to determine if a taxpayer satisfies his or her U.S. income tax filing requirements. The collection of information is voluntary. The likely respondents are individuals.
The estimated total annual reporting burden is 42,500 hours.
The estimated annual burden per respondent varies from 4 to 6 hours, depending on individual circumstances, with an estimated average of 5 hours. The estimated number of respondents is 8,500.
The estimated frequency of responses: annually.
The principal author of this notice is J. David Varley of the Office of Associate Chief Counsel (International). For further information regarding this notice, contact Mr. Varley at (202) 435-5262 (not a toll-free call).
This notice informs (1) state and local housing credit agencies that allocate low-income housing tax credits under § 42 of the Internal Revenue Code and (2) states and other issuers of tax-exempt private activity bonds under § 141, of the proper population figures to be used for calculating the 2007 calendar year population-based component of the state housing credit ceiling (Credit Ceiling) under § 42(h)(3)(C)(ii), the 2007 calendar year volume cap (Volume Cap) under § 146, and the 2007 volume limit (Volume Limit) under § 142(k)(5).
The population figures both for the population-based component of the Credit Ceiling and for the Volume Cap are determined by reference to § 146(j). That section provides generally that determinations of population for any calendar year are made on the basis of the most recent census estimate of the resident population of a state (or issuing authority) released by the U.S. Census Bureau before the beginning of such calendar year. Section 142(k)(5) provides that the Volume Limit is based on the State population.
The population-based component of the Credit Ceiling and the Volume Cap are adjusted for inflation pursuant to §§ 42(h)(3)(H) and 146(d)(2), respectively. The adjustments for the 2007 calendar year were published in Rev. Proc. 2006-53, 2006-48 I.R.B. 996. Section 3.08 of Rev. Proc. 2006-53 provides that, for calendar year 2007, the amounts used under § 42(h)(3)(C)(ii) to calculate the Credit Ceiling is the greater of $1.95 multiplied by the State population (see the resident population figures provided below) or $2,275,000. Further, section 3.16 of Rev. Proc. 2006-53 provides that the amounts used under § 146(d)(1) to calculate the Volume Cap for calendar year 2007 is the greater of $85 multiplied by the State population (see the resident population figures provided below) or $256,235,000.
The proper population figures for calculating the Credit Ceiling, the Volume Cap, and the Volume Limit for the 2007 calendar year are the estimates of the resident population of the 50 states, the District of Columbia, and Puerto Rico released by the U.S. Census Bureau on December 22, 2006, in Press Release CB06-187. The proper population figures for calculating the Credit Ceiling, the Volume Cap, and the Volume Limit for the 2007 calendar year for the insular areas (American Samoa, Guam, Northern Mariana Islands, and U.S. Virgin Islands) are the figures released electronically by the U.S. Census Bureau on July 17, 2003, and referenced in Census Bureau Tip Sheet TP03-16, dated August 8, 2003. For convenience, these estimates are reprinted below.
The principal authors of this notice are Christopher J. Wilson, Office of the Associate Chief Counsel (Passthroughs and Special Industries) and Timothy L. Jones, Office of the Division Counsel/Associate Chief Counsel (Tax-Exempt and Government Entities). For further information regarding this notice, contact Mr. Wilson at (202) 622-3040 (not a toll-free call).
The purpose of this revenue procedure is to provide guidelines and general requirements for the development, printing, and approval of substitute tax forms. Approval will be based on these guidelines. After review and approval, submitted forms will be accepted as substitutes for official IRS forms.
The IRS accepts quality substitute tax forms that are consistent with the official forms and do not have an adverse impact on our processing. The IRS Substitute Forms Unit administers the formal acceptance and processing of these forms nationwide. While this program deals primarily with paper documents, it also reviews for approval other processing and filing forms such as those used in electronic filing.
Only those substitute forms that comply fully with the requirements are acceptable. This revenue procedure is updated as required to reflect pertinent tax year form changes and to meet processing and/or legislative requirements.
General Instructions and Specific Instructions (not reviewed by the Substitute Forms Program Unit).
In addition, the Substitute Forms Program Unit can be contacted via email at *taxforms@irs.gov (the asterisk must be included in the address). Please enter “Substitute Forms” on the subject line.
For questions about Forms W-2 and W-3, refer to IRS Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3. For Forms W-2c and W-3c, refer to IRS Publication 1223, General Rules and Specifications for Substitute Forms W-2c and W-3c. For Forms 941 and Schedule B (Form 941), refer to IRS Publication 4436, General Rules and Specifications for Substitute Form 941 and Schedule B (Form 941). For Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S, refer to IRS Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S.
The following changes have been made to the Revenue Procedure for tax year 2006.
We combined Sections 4.1 and 4.2 in order to reduce duplication.
Because Forms 8717 and 8905 now contain bar coding, substitutes of these forms must be forwarded to Joanna.H.Weber@irs.gov.
The Exhibits section has been changed and updated.
A form produced using conventional printing processes, or a printed form which has been reproduced by photocopying or a similar process.
A preprinted form in which the taxpayer’s tax entry information has been inserted by a computer, computer printer, or other computer-type equipment such as word processing equipment.
A tax return or form that is entirely designed and printed using a computer printer such as a laser printer, etc., on plain white paper. This return or form must conform to the physical layout of the corresponding IRS form, although the typeface may differ. The text should match the text on the officially printed form as closely as possible. Condensed text and abbreviations will be considered on a case-by-case basis.
A legible photocopy of an original form.
Sequence is an integral part of the total format requirement. The substitute form should show the same numeric and logical placement order of data, as shown on the official form.
Designated areas for the entry of data such as dollar amounts, quantities, responses and checkboxes.
A draft version of a new or revised form may be posted to the IRS website for information purposes. Substitute forms may be submitted based on these advance drafts, but any company that receives forms approval based on these early drafts is responsible for monitoring and revising forms to mirror any revisions in the final forms provided by the IRS.
The person or company agrees to work with the IRS in correcting noted deficiencies. Notification of deficiencies may be made by any combination of fax, letter, email, or phone contact and may include the return of unacceptable forms for the re-submission of acceptable forms.
If you produce any tax forms using IRS guidelines on permitted changes, you can generate your own substitutes without further approval. If your changes are more extensive, you must get IRS approval before using substitute forms. More extensive changes can include the use of typefaces and sizes other than those found on the official form and the condensing of line item descriptions to save space.
The Substitute Forms Program now accepts substitute forms submissions via email. The email address is *taxforms@irs.gov (the asterisk must be included in the address). Please include “PDF Submissions” on the subject line.
Your submission should include all the forms you wish to submit in one attached pdf file. Do not email each form individually.
An approval check sheet listing the forms you are submitting should always be included in the pdf file along with the forms.
Small (fewer than 15 forms), rather than large, submissions should expedite processing. The optimal submission should contain 15 forms.
Emailing pdf submissions will not expedite review and approval. The pdf submissions will be assigned a control number and put in queue along with mailed-in paper submissions.
The Substitute Forms Unit accepts zip files.
Always include a check sheet for the Substitute Forms Unit’s response.
Follow Publication 1167 for general substitute form guidelines. Follow the specialized publications produced by the Substitute Forms Unit for other specific forms.
Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is an example of this situation. Its Schedules A through U have pages numbered as part of the basic return. For Form 706 to be approved, the entire form including Schedules A through U must be submitted.
However, Schedules 1, 2, and 3 of Form 1040A are examples of schedules that can be submitted separately. Although printed by the IRS as a supplement to Form 1040A, none of these schedules are required to be filed with Form 1040A. These schedules may be separated from Form 1040A and submitted as substitute forms.
Official IRS tax forms are supplied by the IRS. These forms may be provided in the taxpayer’s tax package or over-the-counter. Forms can also be picked up at many IRS offices, post offices, or libraries, and are available on CD-ROM and online at www.irs.gov.
You can reproduce a form that requires a signature as a valid substitute form. Many tax forms (including returns) have a taxpayer signature requirement as part of the form layout. The jurat/perjury statement/signature line areas must be retained and worded exactly as on the official form. The requirement for a signature, by itself, does not prohibit a tax form from being properly computer-generated.
All payment vouchers (Forms 940-V, 940-EZ(V), 941-V, 943-V, 945-V, 1040-V, and 2290-V) must be reproduced in conjunction with their forms. Substitute vouchers must be the same size as the officially printed vouchers. Vouchers that are prepared for printing on a laser printer may include a scan line.
A. Social Security Number/Employer Identification Number (SSN/EIN) has 9 numeric spaces.
B. Check Digits have 2 alpha spaces.
C. Name Control has 4 alphanumeric spaces.
D. Master File Tax (MFT) Code has 2 numeric spaces (see below).
E. Taxpayer Identification Number (TIN) Type has 1 numeric space (see below).
F. Tax Period has 6 numeric spaces in year/month format (YYYYMM).
G. Transaction Code has 3 numeric spaces.
Forms 940, 940-EZ, 941, 943, 945, and 2290 - 2.
The voucher size must be exactly 8.0′′ x 3.25′′ (Forms 1040-ES and 1041-ES must be 7.625′′ x 3.0′′). The document scan line must be vertically positioned 0.25 inches from the bottom of the scan line to the bottom of the voucher. The last character on the right of the scan line must be placed 3.5 inches from the right leading edge of the document. The minimum required horizontal clear space between characters is .014 inches. The line to be scanned must have a clear band 0.25 inches in height from top to bottom of the scan line, and from border to border of the document. “Clear band” means no printing except for dropout ink.
Certain vouchers may be reproduced for use in the IRS lockbox system. These include the 1040-V, 1040-ES, the 940 family, and 2290 vouchers. Software developers must follow these specific guidelines to produce scannable vouchers strictly for lockbox purposes. Also see Exhibit C.
The scan line must be .5 inches from the bottom edge and 1.75 inches from the left edge of the voucher and left-justified.
The 4-digt NACTP ID code should be placed under the payment indicator arrow.
To receive approval, please send 50 voucher samples yearly, by December 8, for testing to the following address.
For further information, contact Doris Bethea, Doris.E.Bethea@irs.gov, at 202-283-0218.
You cannot, without prior IRS approval, change any IRS tax form or use your own (non-approved) versions including graphics, unless specifically permitted by this revenue procedure.
You cannot adjust any of the graphics on Forms 1040, 1040A, and 1040EZ (except in those areas specified in Part 5 of this revenue procedure) without prior approval from the IRS Substitute Forms Unit.
You cannot use your own preprinted label on tax returns filed with the IRS unless you fully comply with the criteria specified in Section 3.6.3 on the use of pre-addressed IRS labels.
Preparers who submit substitute privately designed, privately printed, computer generated, or computer prepared tax forms must develop these substitutes using the guidelines established in this part. These forms, unless excepted by the revenue procedure, must be approved by the IRS before being filed.
We encourage submission of proposed substitutes of these advance draft forms and will grant conditional approval based solely on these early drafts. These advance drafts are subject to significant change before forms are finalized. If these advance drafts are used as the basis for your substitute forms, you will be responsible for subsequently updating your final forms to agree with the final official version. These revisions need not be submitted for further approval.
When specific approval of any substitute form (other than those specified in Part 1, Section 1.2 - IRS Contacts) is desired, a sample of the proposed substitute form should be forwarded for consideration via email or by letter to the Substitute Forms Unit at the address shown in Section 1.2.
Schedules and forms (for example, Forms 3468, 4136, etc.) that can be used with more than one type of return (for example, 1040, 1041, 1120, etc.) should be submitted only once for approval, regardless of the number of different tax returns with which they may be associated. Also, all pages of multi-page forms or returns should be submitted in the same package.
Because only the Substitute Forms Unit is authorized to approve substitute forms, unnecessary delays may occur if forms are sent to the wrong office. The Substitute Forms Unit may then coordinate the response with the initiator responsible for revising that particular form. Such coordination may include allowing the initiator to officially approve the form. No IRS office is authorized to allow deviations from this revenue procedure.
The Substitute Forms Unit is primarily concerned with the pre-filing quality review of the final forms that are expected to be processed by IRS field offices. For this purpose, you should submit forms without including any taxpayer information such as names, addresses, monetary amounts, etc.
When requesting approval, please include a check sheet. Check sheets expedite the approval process. The check sheet may look like the example in Exhibit D displayed in the back of this procedure or may be one of your own design. Please include your fax number on the check sheet.
Notice of approval may impose qualifications before using the substitutes. Notices of unapproved forms may specify the changes required for approval and require re-submission of the form(s) in question. Telephone contact is used when appropriate.
Most signature tax returns and many of their schedules and related forms have the tax (liability) year printed in the upper right corner. Approvals for these annual forms are usually good for one calendar year (January through December of the year of filing). Quarterly tax forms in the 940 series and Form 720 require approval for any quarter in which the form has been revised.
Because changes are usually made to an annual form every year, each new filing season generally requires a new submission of a substitute form. Very rarely is updating the preprinted year the only change made to an annual form.
If substantial changes are made to the form, new substitutes must be submitted for approval. If only minor editorial changes are made to the form, it is not subject to review. It is the responsibility of each vendor who has been granted permission to use substitute forms to monitor and revise forms to mirror any revisions to official forms made by the Service. If there are any questions, please contact the Substitute Forms Unit.
If you received written approval for a specific change on a form last year, you may make the same change this year if the item is still present on the official form.
The new substitute form does not have to be submitted to the IRS and written approval is not required.
The new substitute must also comply with changes to this revenue procedure. The procedure may have eliminated, added to, or otherwise changed the guideline(s) that affected the change approved in the prior year.
Forms without preprinted tax years are called “continuous-use” forms. Continuous-use forms are revised when a legislative change affects the form or a change will facilitate processing. These forms may have revision dates that are valid for longer than one year.
A schedule of print dates (for annual and quarterly forms) and most current revision dates (for continuous-use forms) are maintained on the IRS website. The Tax Products Posting Schedule can be found at www.irs.gov/formspubs/article/0,,id=103641,00.html. See Section 4.2.2.
Generally, you must send us one copy of each form being submitted for approval. However, if you are producing forms for different computer systems (for example, IBM compatible vs. Macintosh) or different types of printers (for example, laser vs. inkjet), and these forms differ significantly in appearance, submit one copy for each type of system or printer.
The Substitute Forms Unit will assign a unique source code to each firm that submits substitute paper forms for approval. This source code will be a permanent identifier that should be used on every submission by a particular firm.
The source code consists of three alpha characters and should generally be printed at the bottom left margin area on the first page of every approved substitute form.
The OMB number and the Paperwork Reduction Act Notice, or references to it, may be found printed on an official form (or its instructions). The number and the notice are included on the official paper format and in other formats produced by the IRS (for example, compact disc (CD) or Internet download).
The official form is the standard. Because a substitute form is a variation from the official form, you should know the requirements of the official form for the year of use before you modify it to meet your needs. The IRS provides several means of obtaining the most frequently used tax forms. These include the Internet and CD-ROM (see Part 4).
Manually prepared 1. The entry column must have a vertical line or some type of indicator in the amount field to separate dollars from cents.
2. The cents column must be at least 3/10′′ wide.
Computer generated 1. Vertically align the amount entry fields where possible.
Computer prepared 1. You may remove the vertical line in the amount field that separates dollars from cents.
The following applies to computer prepared forms.
The sequence number may also be placed following the year designation for the tax form and separated with an asterisk.
If developing software or forms for use by others, please inform your customers/clients that the order in which the forms are arranged may affect the processing of the package. A return must be arranged in the order indicated below.
1040 • Form 1040, and • Schedules and forms in attachment sequence number order.
Any other tax return (Form 1120, 1120S, 1065, 1041, etc.) • The tax returns, • Directly associated schedules (Schedule D, etc.), • Directly associated forms, • Additional schedules in alphabetical order, and • Additional forms in numerical order.
In this way, the forms are received in the order in which they must be processed. If you do not send returns to us in order, processing may be delayed.
On Forms 1040EZ, 1040A, 1040, and 1120, etc., the “Paid Preparer’s Use Only” area may not be rearranged or relocated. You may, however, add three extra lines to the paid preparer’s address area without prior approval. This applies to other tax forms as well.
Failing to preprint certain amounts in entry spaces.
Including line references or entry spaces that don’t match the official form.
At least 50 pound offset book (25′′ x 38′′, 500 sheets).
b. Only the top ply (ply one and white in color), the one that contains chemical on the back only (coated back), may be filed with the IRS.
Do not attach any carbon paper to any return you file with the IRS.
We prefer that the color and opacity of paper substantially duplicates that of the original form. This means that your substitute must be printed in black ink and may be on white or on the colored paper the IRS form is printed on. Forms 1040A and 1040 substitute reproductions may be in black ink without the colored shading. The only exception to this rule is Form 1041-ES, which should always be printed with a very light gray shading in the color screened area. This is necessary to assist us in expeditiously separating this form from the very similar Form 1040-ES.
Substitute or reproduced forms and computer prepared/generated substitutes may be the same size as the official form or they may be the standard commercial size (81/2′′ x 11′′). The thickness of the stock cannot be less than .003 inches.
Many federal tax forms are printed using “Helvetica” as the basic type font. We request that you use this type font when composing substitute forms.
Substitute forms should be printed using a 6 lines/inch vertical print option. They should also be printed horizontally in 10 pitch pica (that is, 10 print characters per inch) or 12 pitch elite (that is, 12 print positions per inch).
The image size of a printed substitute form should be as close as possible to that of the official form. You may omit any text on both computer prepared and computer generated forms that is solely instructional.
To allow a large top margin for marginal printing and more lines per page, the title line(s) for all substitute forms (not including the form’s year designation and sequence number, when present), may be photographically reduced by 40 percent or reset as one line of type. When reset as one line, the type size may be no smaller than 14-point. You may omit “Department of the Treasury, Internal Revenue Service” and all reference to instructions in the form’s title area.
When privately printing substitute tax forms, the Government Printing Office (GPO) symbol and/or jacket number must be removed. In the same place using the same type size, print the Employer Identification Number (EIN) of the printer or designer or the IRS assigned source code. (We prefer this last number be printed in the lower left area of the first page of each form.) Also, remove the IRS Catalog Number (Cat. No.) and the recycle symbol if the substitute is not produced on recycled paper.
While it is preferred that both sides of the paper be used for substitutes and reproduced forms, resulting in the same page arrangement as that of the official form or schedule, the IRS will accept your forms if only one side of the paper is used.
Reproductions of official forms and substitute forms that do not meet the requirements of this revenue procedure may not be filed instead of the official forms. Illegible photocopies are subject to being returned to the filer for re-submission of legible copies.
You may remove references to instructions. No prior approval is needed.
Exception. The words “For Paperwork Reduction Act Notice, see instructions” must be retained or a similar statement indicating the location of the Notice must be provided on each form.
A 1/2-inch to 1/4-inch margin must be maintained across the top, bottom, and both sides of all substitute forms.
With the exception of the actual tax forms (for example, Forms 1040, 1040A, 1040EZ, 1120, 940, 941, etc.), you may print in the left vertical margin and in the left half of the bottom margin.
Printing is never allowed in the top right margin of the tax form (for example, Forms 1040, 1040A, 1040EZ, 1120, 940, 941, etc.). The Service uses this area to imprint a Document Locator Number for each return. There are no exceptions to this requirement.
Two sets of exhibits (Exhibits A-1 and 2; B-1 and 2) at the end of this revenue procedure are examples of how these guidelines may be used. Vertical spacing is six (6) lines to the inch. A combination of upper-case and lower-case print font is acceptable in producing substitute forms.
To be acceptable for filing, a substitute form must print out in a format that will allow the filer to follow the same instructions as for filing official forms. These instructions are in the taxpayer’s tax package or in the related form instructions. The form must be legible, must be on the appropriately sized paper, and must include a jurat where one appears on the published form.
If you are a practitioner filling out a return for a client or a software publisher who prints instruction manuals, stress the use of the pre-addressed label provided in the tax package the IRS sent to the taxpayer, when available. The use of this label (or its precisely duplicated label information) is extremely important for the efficient, accurate, and economical processing of a taxpayer’s return. Labeled returns indicate that a taxpayer is an established filer and permits the IRS to automatically accelerate processing of those returns. This results in quicker refunds, less manual review by IRS functions, and greater accuracy in names, addresses, and postal deliveries.
If you are producing a software package that generates name and address data onto the tax return, do not under any circumstances program either the IRS preprinted check digits or a practitioner derived name control to appear on any return prepared and filed with the IRS.
The IRS publications listed below provide guidance for substitute tax forms not covered in this revenue procedure. The publications are available only on the IRS website. Identify the requested document by the IRS publication number.
Publication 1141, General Rules and Specifications for Substitute Forms W-2 and W-3.
Publication 1179, General Rules and Specifications for Substitute Forms 1096, 1098, 1099, 5498, W-2G, and 1042-S.
Publication 1187, Specifications for Filing Forms 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding, Electronically or Magnetically.
Publication 1220, Specifications for Filing Forms 1098, 1099, 5498, and W-2G Electronically or Magnetically.
Publication 1239, Specifications for Filing Form 8027, Employer’s Annual Information Return of Tip Income and Allocated Tips, Electronically or Magnetically.
Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns.
Publication 1345-A, Filing Season Supplement for Authorized IRS e-file Providers.
Publication 4436, General Rules and Specifications for Substitute Form 941 and Schedule B (Form 941).
Copies of tax forms with instructions, publications, draft forms, fillable forms, prior year forms and publications, and other tax-related information may be found on the IRS website at www.irs.gov.
The IRS website provides a Tax Products Posting Schedule for the official forms released for use by taxpayers. The schedule has three parts.
Anticipated print dates of annual returns.
Anticipated print dates of quarterly returns.
Last revision dates and target print dates for continuous-use forms.
The site address is www.irs.gov/formspubs/article/0,,id=103641,00.html. The site will be updated weekly during peak printing periods and as necessary at other times. The planned dates are subject to change.
The CD-ROM contains over 3,000 tax forms and publications for small businesses, return preparers, and others who frequently need current or prior year tax products. Most current tax forms on the CD-ROM may be filled in electronically, then printed out for submission and saved for recordkeeping. Other products on the CD-ROM include the Internal Revenue Bulletins, Tax Supplements, and Internet resources for the tax professional with links to the World Wide Web.
For system requirements, contact the National Technical Information Service (NTIS) help desk at 703-487-4608. Prices are subject to change.
The cost of the CD if purchased via the Internet at http://www.irs.gov/cdorders from NTIS, is $35 (with no handling fee).
Tax forms (such as Forms 1040, 1040A, and 1120) require a signature and establish tax liability. Computer generated versions are acceptable under the following conditions.
Substitute forms must conform to the physical layout of the corresponding IRS form although the typeface may differ. The text should match the text on the officially published form as closely as possible. Condensed text and abbreviations will be considered on a case-by-case basis.
Caution. All jurats (perjury statements) must be reproduced verbatim. No text can be added, deleted, or changed in meaning.
The substitute form must be the same number of pages and contain the same line text as the official form.
All substitute forms must be submitted for approval prior to their original use. You do not need approval for a substitute form if its only change is the preprinted year and you had received a prior year approval letter.
Exception. If the approval letter specifies a one time exception for your form, the next year’s form must be approved.
Computer generated tax forms (for example, Form 1040, etc.) on lined or color barred paper.
Tax forms that differ from the official IRS forms in a manner that makes them not standard or unable to process.
Certain changes (listed in Sections 5.2 through 5.4) are permitted to the graphics of the form without prior approval, but these changes apply to only acceptable preprinted forms. Changes not requiring prior approval are good only for the annual filing period, which is the current tax year. Such changes are valid in subsequent years only if the official form does not change.
All changes not listed in Sections 5.2 through 5.4 require approval from the IRS before the form can be filed.
The horizontal rules and instructions within the name and address area may be removed and the entire area left blank. No line or instruction can remain in the area. However, the statement regarding use of the IRS label should be retained. The heavy ruled border (when present) that outlines the name, address area, and social security number must not be removed, relocated, expanded, or contracted.
When the name and address area is left blank, the following format must be used when printing the taxpayer’s name and address. Otherwise, unless the taxpayer’s preprinted label is affixed over the information entered in this area, the lines must be filled in as shown below.
The vertical lines separating the format arrangement of the SSN/EIN may be removed. When the vertical lines are removed, the SSN and EIN formats must be 000-00-0000 or 00-0000000, respectively.
When printing money amounts, you must use one of the following formats: (a) 0,000,000.; (b) 0,000,000.00.
On all forms, the paid preparer’s information area may not be rearranged or relocated. You may add three lines and remove the horizontal rules in the preparer’s address area.
No prior approval is needed for the following changes (for use with computer prepared forms only).
This line may be compressed horizontally (to allow for same line entry for the name of the qualifying child) by using the following caption: “Head of household; child’s name” (name field).
Any line with text that takes up two or more vertical lines may be compressed to one line by using contractions, etc., and by removing instructional references.
All lines must be present and numbered in the order shown on the official form. These lines may also be compressed.
It is not necessary to duplicate the color screening used on the official form. A substitute Form 1040A may be printed in black and white only with no color screening.
No other changes to the Form 1040A graphics are allowed without prior approval except for the removal of instructions and references to instructions.
No prior approval is needed for the following changes (for use with computer prepared forms only). Specific line numbers in the following headings may have changed due to tax law changes.
This line may be compressed horizontally (to allow for a larger entry area for the name of the qualifying child) by using the following caption: “Head of household; child’s name” (name field).
The vertical lines separating columns (1) through (4) may be removed. The captions may be shortened to allow a one line caption for each column.
The fill-in portion of this line may be expanded vertically to three lines. The amount entry box must remain a single entry.
You may change the line caption to read “Tax” and computer print the words “Total includes tax from” and either “Form(s) 8814” or “Form 4972.” If both forms are used, print both form numbers. This specific line number may have changed.
You may change the caption to read: “Other credits from Form” and computer print only the form(s) that apply.
Exhibits of acceptable formats for Schedule A, usually attached to the Form 1040, and Form 2106-EZ are shown in the exhibits section of this revenue procedure.
If your computer generated forms appear exactly like the exhibits, no prior authorization is needed.
You may computer generate forms not shown here, but you must design them by following the manner and style of those in the exhibits section.
A decimal point (that is, a period) should be used for each money amount regardless of whether the amount is reported in dollars and cents or in whole dollars, or whether or not the vertical line that separates the dollars from the cents is present. The decimal points must be vertically aligned when possible.
6 REAL ESTATE TAXES............................ 6.
When submitting a multi-page form, send all its pages in the same package.
Exception. If you will not be producing certain pages, please note that in your cover letter.
You may show the computer prepared internal control numbers and identifying symbols on the substitute if using such numbers or symbols is acceptable to the taxpayer and the taxpayer’s representative. Such information must not be printed in the top 1/2 inch clear area of any form or schedule requiring a signature. Except for the actual tax return form (Forms 1040, 1120, 940, 941, etc.), you may print in the left vertical and bottom left margins. The bottom left margin you may use extends 31/2 inches from the left edge of the form.
Descriptions for captions, lines, etc., appearing on the substitute forms may be limited to one print line by using abbreviations and contractions, and by omitting articles, prepositions, etc. However, sufficient key words must be retained to permit ready identification of the caption, line, or item.
Explanatory detail and/or intermediate calculations for determining final line totals may be included on the substitute. We prefer that such calculations be submitted in the form of a supporting statement. If intermediate calculations are included on the substitute, the line on which they appear may not be numbered or lettered. Intermediate calculations may not be printed in the right column. This column is reserved only for official numbered and lettered lines that correspond to the ones on the official form. Generally, you may choose the format for intermediate calculations or subtotals on supporting statements to be submitted.
You may not show more than one form or schedule on the same printout page. Both sides of the paper may be printed for multi-page official forms, but it is unacceptable to intermix single page schedules of forms except for Schedules A and B (Form 1040), which are printed back to back by the IRS.
For instance, Schedule E can be printed on both sides of the paper because the official form is multi-page, with page 2 continued on the back. However, do not print Schedule E on the front page and Schedule SE on the back, or Schedule A on the front and Form 8615 on the back, etc. Both pages of a substitute form must match the official form. The back page may be left blank if the back page of the official form contains only the instructions.
Identify all computer prepared substitutes clearly. Print the form designation 1/2 inch from the top margin and 11/2 inches from the left margin. Print the title centered on the first line of print. Print the taxable year and, where applicable, the sequence number on the same line 1/2 inch to 1 inch from the right margin. Include the taxpayer’s name and SSN on all forms and attachments. Also, print the OMB number as reflected on the official form.
Negative (or loss) amount entries should be enclosed in brackets or parentheses or include a minus sign. This assists in accurate computation and input of form data. The IRS pre-prints parentheses in negative data fields on many official forms. These parentheses should be retained or inserted on printouts of affected substitute forms.
Because of significant changes to improve processing, prior approval is now required for substitute Schedules K-1 that accompany Form 1041 (for estates and trusts), Form 1065 (for partnerships), Form 1065-B (for electing large partnerships), or Form 1120S (for S corporations). Substitute Schedules K-1 should be as close as possible to exact replicas of copies of the official IRS schedules and follow the same process for submitting other substitute forms and schedules. Before releasing their substitute forms, software vendors are responsible for making any subsequent changes that have been made to the final official IRS forms after the draft forms have been posted.
Include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and 1120S.
Please allow white space around the 6-digit code.
Schedules K-1 that accompany Forms 1041, 1065, 1065-B, or 1120S must meet all specifications. The specifications include, but are not limited to, the following requirements.
The words “*See attached statement for additional information.” must be preprinted in the lower right hand side on Schedules K-1 of Forms 1041, 1065, and 1120S.
All K-1s that are filed with the IRS should be printed on standard 8.5” x 11” paper (the international standard (A4) of 8.27” x 11.69” may be substituted).
The amount of each recipient’s share of each item must be shown. Furnishing a total amount of each item and a percentage (or decimal equivalent) to be applied to such total amount by the recipient does not satisfy the law and the specifications of this revenue procedure.
Additionally, the IRS may consider the Schedules K-1 that do not conform to specifications as not being able to process and may return Forms 1041, 1065, 1065-B, or 1120S to the entity to be filed correctly.
Standardization for reporting information is required for recipient copies of substitute Schedules K-1 of Forms 1041, 1065, 1065-B, and 1120S. Uniform visual standards are provided to increase compliance by allowing recipients and practitioners to more easily recognize a substitute Schedule K-1. The entity must furnish to each recipient a copy of Schedule K-1 that meets the following requirements.
Both pages 1 and 2 of Schedules K-1 of Forms 1065 and 1120S must be provided to each recipient.
The amount of each recipient’s share of each item must be shown. Furnishing a total amount of each line item and a percentage (or decimal equivalent) to be applied to such total amount by the recipient does not satisfy the law and the specifications of this revenue procedure.
Instructions to the recipient that are substantially similar to those on or accompanying the official IRS schedule must be provided to aid in the proper reporting of the items on the recipient’s income tax return. Where items are not reported to a recipient because they do not apply, the related instructions may be omitted.
The paper weight, paper color, font type, font size, font color, and page layout must be such that the average recipient can easily decipher the information on each page.
In an effort to reduce the burden of manually transcribing tax documents, improve quality, and increase government efficiency, the IRS is pleased to provide specifications for 2-D bar-coded substitute Schedules K-1 for Forms 1041, 1065, and 1120S. The IRS encourages voluntary participation in adding 2-D barcoding.
Note. If software vendors do not want to produce bar-coded Schedules K-1, they may produce the official IRS Schedules K-1 but cannot use the expedited process for approving bar-coded K-1s and their parent returns as outlined in Section 7.1.5.
The bar code should print in the space labeled “For IRS Use Only” on each Schedule K-1. The entire bar code must print within the “For IRS Use Only” box surrounded by a white space of at least 1/4 inch.
Be sure to include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and 1120S.
Prior to releasing commercially available tax software that creates bar-coded Schedules K-1, the printed schedule and the bar code must both be tested. Bar code testing must be done using the final official IRS Schedule K-1. Bar code approval requests must be resubmitted for any subsequent changes to the official IRS form that would affect the bar code. Below are instructions and a sequence of events that will comprise the testing process.
The IRS has released the final Schedule K-1 bar-code specifications by publishing them on the IRS.gov website (see http://www.irs.gov/efile/article/0,,id=129859,00.html ).
Software developers will submit two identical copies of the test documents - one to the IRS and one to a contracted testing vendor.
Organizations are permitted to produce substitute tax return envelopes. Use of substitute return envelopes that comply with the requirements set forth in this section will assist in delivery of mail by the U.S. Postal Service and facilitate internal sorting at the Internal Revenue Service Centers.
Sorting returns by form type is accomplished by the preprinted bar codes on return envelopes included in each specific type of form or package mailed to the taxpayers. The 32 bit bar code on the left of the address on each envelope identifies the type of form the taxpayer is filing, and it assists in consolidating like returns for processing. Failure to use the envelopes furnished by the IRS results in additional processing time and effort, and possibly delays the timely deposit of funds, processing of returns, and issuance of refund checks.
The IRS will not furnish or sell bulk quantities of preprinted tax return envelopes to taxpayers or tax practitioners. A suitable alternative has been developed that will accommodate the sorting needs of both the IRS and the United States Postal Service (USPS). The alternative is based on the use of ZIP+4, or 9-digit ZIP codes, for mailing various types of tax returns to the IRS Service Centers. The IRS uses the last four digits to identify and sort the various form types into separate groups for processing. The list of 4-digit extensions with the related form designations is provided below.
You may use the preparers’ company names, addresses, and logos as long as you do not interfere with the clear areas. The government recommends that the envelope stocks have an average opacity of not less than 89 percent and contain a minimum of 50 percent waste paper. Use of carbon based ink is essential for effective address and bar-code reading. Envelope construction can be of side seam or diagonal seam design. The government recommends that the size of the envelope should be 53/4 inches by 9 inches. Continuous pin-fed construction is not desirable, but is permissible, if the glued edge is at the top. This requirement is firm because mail opening equipment is designed to open the bottom edge of each envelope.
The above procedures or guidelines are written for the user having envelopes preprinted. Many practitioners may not wish to have large quantities of envelopes with differing ZIP codes/form designations preprinted due to low volume, warehousing, waste, etc. In this case, the practitioner can type or machine print the addresses with the appropriate ZIP codes to accommodate sorting. If the requirements/guidelines outlined in this section cannot be met, then use only the appropriate 5-digit service center ZIP code.
Increased standardization for reporting information on substitute Forms 8655 is now required to aid in processing and for compliance purposes. Please follow the guidelines in Section 7.3.2.
The jurat must be identical with the exception of references to line numbers.
Line 17, or the equivalent line, must include two checkboxes.
All substitute Forms 8655 must be approved by the Substitute Forms Unit as outlined in the Form 8655 specifications in Publication 1167.
If you have not already been assigned a 3-letter source code, you will be given one when your substitute form is approved. This source code should be included in the lower left corner of the form.
Electronic filing is a method by which qualified filers transmit tax return information directly to an IRS Service Center in the format of the official IRS forms. The IRS accepts both refund and balance-due individual tax returns that are filed electronically.
Anyone wishing to participate in IRS e-file of tax returns must submit an e-file application. The application can be completed and submitted electronically on the IRS website at www.irs.gov or by filing Form 8633, Application to Participate in the IRS e-file Program.
Form 8453, U.S. Individual Income Tax Declaration for an IRS e-file Return, is the signature document for an electronically filed 1040, 1040A, or 1040EZ return not filed with an electronic signature. Form 8453, which serves as a transmittal for associated nonelectronic (paper) documents such as Forms 3115, 5713, 8283, and 8332, is a one-page form and can only be approved through the Substitute Forms Program in that format. Form 8453-OL serves the same purpose for taxpayers filing through online services. For specific information about electronic filing, refer to Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns.
A participant in the electronic filing program, who wants to develop a substitute form should follow the guidelines throughout this publication and send a sample form for approval to the Substitute Forms Unit at the address in Part 1. If you do not prepare Substitute Form 8453 using a font in which all IRS wording fits on a single page, the form will not be accepted.
This revenue procedure supersedes Revenue Procedure 2005-74, 2005-2 C.B. 1098.
This exhibit shows a copy of the 2006 Schedule A (Form 1040) as representative of a preferred format for substitute forms.
This exhibit shows an edited copy of the 2006 Schedule A (Form 1040) as representative of an acceptable format for substitute forms. It shows the deletion of the vertical rule that divides dollars and cents.
This exhibit shows a copy of the IRS official 2006 Form 2106-EZ as representative of a preferred format for substitute forms.
This exhibit shows an edited copy of the IRS official 2006 Form 2106-EZ as representative of an acceptable format for substitute forms. It shows the deletion of the vertical rule that divides dollars and cents.
This exhibit shows an example of the format for vouchers that software developers can produce for IRS lockbox purposes.
This exhibit shows a sample check sheet for software developers and form producers to include when they submit substitute forms for approval.
This document provides notice of a public hearing on proposed rulemaking (REG-103043-05, 2006-49 I.R.B. 1063) relating to the obligation of material advisors to prepare and maintain lists with respect to reportable transactions under section 6112.
The public hearing is being held on Tuesday, March 20, 2007, at 10:00 a.m. The IRS must receive outlines of the topics to be discussed at the public hearing by March 6, 2007.
The public hearing is being held in the IRS Auditorium, Internal Revenue Service Building, 1111 Constitution Avenue, NW, Washington, DC 20224. Due to building security procedures, visitors must enter at the Constitution Avenue entrance. In addition, all visitors must present photo identification to enter the building.
Mail outlines to CC:PA:LPD:PR (REG-103043-05), room 5205, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (REG-103043-05), Couriers Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC or sent electronically via the Federal erulemaking Portal at www.regulations.gov (IRS-REG-103043-05).
Concerning submissions of comments, the hearing and/or to be placed on the building access list to attend the hearing Kelly Banks at (202) 622-7180 (not a toll-free number).
The subject of the public hearing is the notice of proposed rulemaking (REG-103043-05) that was published in the Federal Register on Thursday, November 2, 2006 (71 FR 64501). The notice also announced that a hearing will be scheduled if requested by the public in writing by January 31, 2007.
The rules of 26 CFR 601.601 apply to the hearing. A period of 10 minutes is allotted to each person for presenting oral comments. After the deadline has passed, persons who have submitted written comments and wish to present oral comments at the hearing must submit an outline of the topics to be discussed and the amount of time to be devoted to each topic (a signed original and eight (8) copies) by March 6, 2007.
The IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available free of charge, at the hearing. Because of access restrictions, the IRS will not admit visitors beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this document.
This document provides notice of a public hearing on proposed rulemaking (REG-103038-05, 2006-49 I.R.B. 1049) relating to the disclosure of reportable transactions under section 6011.
Mail outlines to CC:PA:LPD:PR (REG-103038-05), room 5205, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (REG-103038-05), Couriers Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC or sent electronically via the Federal erulemaking Portal at www.regulations.gov (IRS-REG-103038-05).
The subject of the public hearing is the notice of proposed rulemaking (REG-103038-05) that was published in the Federal Register on Thursday, November 2, 2006 (71 FR 64488).
A period of 10 minutes is allotted to each person for presenting oral comments. After the deadline has passed, persons who have submitted written comments and wish to present oral comments at the hearing must submit an outline of the topics to be discussed and the amount of time to be devoted to each topic (a signed original and eight (8) copies) by March 6, 2007.
The IRS will prepare an agenda containing the schedule of speakers. Copies of the agenda will be made available free of charge at the hearing. Because of access restrictions, the IRS will not admit visitors beyond the immediate entrance area more than 30 minutes before the hearing starts. For information about having your name placed on the building access list to attend the hearing, see the “FOR FURTHER INFORMATION CONTACT” section of this document.
This document provides notice of a public hearing on proposed rulemaking (REG-103039-05, 2006-49 I.R.B. 1057) relating to the disclosure of reportable transactions by material advisors under section 6111.
Mail outlines to CC:PA:LPD:PR (REG-103039-05), room 5205, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044. Submissions may be hand-delivered Monday through Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR (REG-103039-05), Couriers Desk, Internal Revenue Service, 1111 Constitution Avenue, NW, Washington, DC or sent electronically via the Federal erulemaking Portal at www.regulations.gov (IRS-REG-103039-05).
The subject of the public hearing is the notice of proposed rulemaking (REG-103039-05) that was published in the Federal Register on Thursday, November 2, 2006 (71 FR 64496). The notice also announced that a hearing will be scheduled if requested by the public in writing by January 31, 2007.
The rules of 26 CFR 601.601 apply to the hearing.
This document contains correction to final regulations (T.D. 9298, 2007-6 I.R.B. 434) that were published in the Federal Register on Wednesday, December 13, 2006 (71 FR 75014) governing the provisions prohibiting discrimination based on a health factor for group health plans and issuers of health insurance coverage offered in connection with a group health plan.
The correction is effective February 12, 2007.
Russ Weinheimer, (202) 622-6080 (not a toll-free number).
The correction notice that is the subject of this document is under section 9802 of the Internal Revenue Code.
As published, final regulations (T.D. 9298) contain errors that may prove to be misleading and are in need of clarification.
Par. 2. Section 54.9802-1(b)(2)(i)(D) is amended by revising paragraph (ii) of Example 4.
§ 54.9802-1 Prohibiting discrimination against participants and beneficiaries based on a health factor.

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