Source: https://www.irs.gov/irb/2015-42_IRB
Timestamp: 2019-09-23 20:05:49
Document Index: 648655533

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Internal Revenue Bulletin: 2015-42 | Internal Revenue Service
Internal Revenue Bulletin: 2015-42
T.D. 9740
Rev. Proc. 201550
Rev. Proc. 201551
Rev. Proc. 2015–50 Rev. Proc. 2015–50
Revenue Procedure 2015–50 provides an updated list of countries with which the IRS and Treasury have determined that it is appropriate to have an automatic exchange relationship with respect to the information collected under §§ 1.6049–4(b)(5) and 1.6049–8 of the Income Tax Regulations. Revenue Procedure 2015–50 supplements Revenue Procedure 2014–64, 2014–53 I.R.B. 1022, by adding 16 countries to the list of countries in Section 4 of Rev. Proc. 2014–64.
Rev. Proc. 2015–51 Rev. Proc. 2015–51
This procedure provides specifications for the private printing of red-ink substitutes for the 2015 revisions of Forms W–2 and W–3. This procedure will be reproduced as the next revision of Publication 1141. Rev. Proc. 2014–58 is superseded.
T.D. 9740 T.D. 9740
This Treasury Decision contains final regulations regarding the standards for making a good faith determination that a foreign organization is a qualifying public charity (known as an equivalency determination), grants to which may be qualifying distributions under section 4942 and not taxable expenditures under section 4945. The regulations will affect private foundations seeking to make such good faith determinations. The regulations also include minor changes conforming to legislation.
Applicability date: For the dates of applicability, see §§ 53.4942(a)–3(f) and 53.4945–5(f)(3).
The collection of information in these final regulations is the good faith determination set forth in §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5). The collection of information contained in these regulations is reflected in the collection of information for Form 990–PF, “Return of Private Foundation or Section 4947(a)(1) Trust Treated as Private Foundation,” that has been reviewed and approved by the Office of Management and Budget in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d)), under control number 1545–0052. An agency may not conduct or sponsor, and a person is not required to respond to, a collection of information unless it displays a valid control number assigned by the Office of Management and Budget. Books or records relating to a collection of information must be retained as long as their contents might become material in the administration of any internal revenue law.
This document contains amendments to 26 CFR part 53 under chapter 42, subtitle D of the Internal Revenue Code (Code). To avoid certain excise taxes under chapter 42, a private foundation (referred to in this preamble as a “foundation” or “grantor”)[1] must make a minimum level of “qualifying distributions” (as defined in section 4942 of the Code) each year and must avoid making taxable expenditures (as defined in section 4945). A foundation generally may treat grants made for charitable purposes to certain foreign organizations as qualifying distributions under section 4942 if the foundation makes a good faith determination that the foreign organization is an organization described in sections 501(c)(3) and 509(a)(1), (a)(2), or (a)(3) (a “public charity”) that is not a “disqualified supporting organization” described in section 4942(g)(4)(A)(i) or (ii), or is an organization described in sections 501(c)(3) and 4942(j)(3) (an “operating foundation,” also known as a “private operating foundation”). Similarly, foundations may treat grants for charitable purposes to certain foreign organizations as other than taxable expenditures under section 4945 without having to exercise expenditure responsibility if the foundation makes a good faith determination that the foreign organization is a public charity (other than a disqualified supporting organization) or is an operating foundation described in section 4940(d)(2) (an “exempt operating foundation”). In this preamble, a foreign grantee that is a public charity or operating foundation that may receive a qualifying distribution (or a grant for which expenditure responsibility is not required) is referred to as a “qualifying public charity.”[2] This good faith determination is commonly known as an “equivalency determination.”
Longstanding regulations under both sections 4942 and 4945 provide that a foundation will ordinarily be considered to have made a “good faith determination” if the determination is based on an affidavit of the grantee or on an opinion of counsel of either the grantor or the grantee. The affidavit or opinion must set forth sufficient facts concerning the operations and support of the grantee for the IRS to determine that the grantee would be likely to qualify as a public charity or an operating foundation. See §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5). In this preamble, we refer to this rule, which gives assurance to foundations meeting the rule that their grants to foreign organizations will ordinarily be considered to be qualifying distributions and not taxable expenditures, as the “special rule.”
Revenue Procedure 92–94, 1992–2 CB 507, provides further guidance by providing a “simplified procedure” that foundations may follow, both for making “good faith determinations” under §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5), and for making similar “reasonable judgments” under § 53.4945–6(c)(2)(ii) that a foreign organization is described in section 501(c)(3) (or in section 4947(a)(1), and thus treated under section 4947(a)(1) as described in section 501(c)(3) for purposes of chapter 42 of the Code). Under the revenue procedure, if the grantor’s determination that a foreign organization is described in section 501(c)(3) or section 4947(a)(1) of the Code and is either a public charity or an operating foundation is based on a “currently qualified” affidavit prepared by the grantee containing the information specified in the revenue procedure, then the foundation will be deemed to have made a good faith determination (for purposes of §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5)) and a reasonable judgment (for purposes of § 53.4945–6(c)(2)(ii)). If a foundation possesses information that suggests the affidavit may not be reliable, it must consider that information in determining whether the affidavit is currently qualified.
Revenue Procedure 92–94 provides that an affidavit will be considered currently qualified if: (1) the facts it contains reflect the grantee organization’s latest complete accounting year (or the affidavit is updated to reflect the grantee organization’s current data) and (2) the relevant substantive requirements of sections 501(c)(3) and 4947(a)(1) and sections 509(a)(1), (2), or (3) or section 4942(j)(3) remain unchanged. If a grantee’s status under the relevant Code sections does not depend on financial support, which can change from year to year, an affidavit need be updated only by asking the grantee to amend the description of any facts in the original affidavit that have changed. If the facts have not changed, an attested statement by the grantee to that effect is enough to update an affidavit. However, if a grantee’s status as a public charity or operating foundation depends on financial support, the affidavit must be updated at least every other year by asking the grantee to provide an attested statement containing enough financial data to establish that it continues to meet the requirements of the applicable Code section.
On September 24, 2012, the Department of the Treasury (Treasury Department) and the IRS published a notice of proposed rulemaking (REG–134974–12) in the Federal Register (77 FR 58796) that contained proposed regulations regarding the standards for making a good faith determination that a foreign organization is a qualifying public charity, so that grants made to the foreign organization may be qualifying distributions and not taxable expenditures. The proposed regulations would have modified the special rule in §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5) by generally expanding the class of advisors upon whose advice foundations may ordinarily rely in making good faith determinations beyond the attorneys for the grantor and grantee to “qualified tax practitioners” (including attorneys, CPAs, and enrolled agents subject to the requirements of Circular 230). In addition, the proposed regulations would have clarified that a determination based on written advice is ordinarily considered made in good faith if the foundation’s reliance on the written advice meets the requirements of § 1.6664–4(c)(1), which are the standards for reasonable reliance in good faith on professional tax advice for penalty relief purposes. The proposed regulations also would have updated the regulations to reflect legislative changes regarding qualifying public charities.
The preamble to the proposed regulations specifically requested comments on three issues. First, comments were requested on whether a time limit for reliance on an affidavit or written advice would be appropriate, and if so, the proper length of such a time limit. Second, comments were sought on whether Rev. Proc. 92–94 should be modified to take into account changes to the public support test regulations for public charity qualification that were finalized in 2011 (TD 9549; 76 FR 55745). Third, although the proposed regulations did not change the ability of foundations to rely on grantee affidavits for purposes of the special rule, the Treasury Department and the IRS notified the public that they were considering whether it would be appropriate to remove reliance on affidavits for purposes of the special rule, or to restrict it (for example, by permitting use of affidavits only for grants below a certain dollar amount or by requiring supporting information), and requested comments.
Commenters were generally supportive of the proposed regulations, with several expressing their hope or expectation that the proposed regulations would reduce barriers to, and streamline the process of, international grantmaking. Commenters noted that expanding the class of professionals upon whose written advice a foundation may base its good faith determination would reduce the costs of making equivalency determinations by enabling the sector to take advantage of economies of scale to increase the quality and efficiency of good faith determinations regarding foreign grantees. The majority of comments focused primarily on the three issues for which comments specifically were requested: (1) the circumstances under which it would be appropriate for foundations to rely on grantee affidavits in making equivalency determinations, (2) the permitted reliance period for an affidavit or advisor’s written advice, and (3) modification of Rev. Proc. 92–94.
The final regulations balance two important considerations: (1) removing barriers to international grantmaking by foundations (as well as by entities treated like foundations for these purposes) and (2) ensuring that foundations’ good faith determinations are informed by a sufficient understanding of the applicable law, are based on all relevant factual information, and are likely to be correct. The Treasury Department and IRS take note that, according to publicly available data, foundations (acting in reliance on the proposed regulations, as permitted) now may obtain written advice of a qualified tax practitioner for purposes of making a good faith determination at a substantially lower cost than was previously available, in part due to economies of scale experienced by organizations employing qualified tax practitioners specializing in providing written advice to several grantors.
In accordance with the proposed regulations and public comments, the final regulations modify the special rule to expand the class of advisors providing written advice on which foundations may ordinarily rely to qualified tax practitioners, including CPAs and enrolled agents (as well as attorneys) who are subject to the standards of practice before the IRS set out in Circular 230. A qualified tax practitioner may include an attorney serving as a foundation’s in-house counsel, as well as a foundation’s outside counsel. Because Circular 230 requires that, to practice before the IRS, an attorney or CPA must be licensed in a state, territory, or possession of the U.S., and an enrolled agent must be enrolled by the IRS, the final regulations effectively require that the advisor be authorized to practice in a state, territory, or possession of the U.S. or as an enrolled agent. In addition, like the proposed regulations, the final regulations provide that a determination based on the written advice of a qualified tax practitioner ordinarily will be considered as made in good faith if the foundation’s reliance meets the requirements of § 1.6664–4(c)(1). As noted in the preamble to the proposed regulations, § 1.6664–4(c)(1) provides that all pertinent facts and circumstances must be taken into account in determining whether a taxpayer has reasonably relied in good faith on written advice, but a foundation’s reliance on written advice is not reasonable and in good faith if the foundation knows, or reasonably should have known, that a qualified tax practitioner lacks knowledge of the relevant aspects of U.S. tax law (which, in this context, would include the U.S. tax law of charities). Moreover, a foundation may not rely on written advice if it knows, or has reason to know, that relevant facts were not disclosed to the qualified tax practitioner or that the written advice is based on a representation or assumption that the foundation knows, or has reason to know, is unlikely to be true.
One commenter suggested that the final regulations clarify that foundations and qualified tax practitioners may obtain advice from foreign counsel on questions of foreign law when making good faith determinations. The final regulations, consistent with the proposed regulations, provide that, for purposes of the special rule, if a foundation’s determination is based on the written advice of a qualified tax practitioner, the foundation will ordinarily be considered to have made a good faith determination. The Treasury Department and the IRS are concerned that, standing alone, an opinion of foreign counsel, who may or may not have expertise in U.S. tax law, may not ordinarily be a sufficient basis for a determination of a foreign organization’s status. Thus, under the final regulations, foundations basing their determination on an opinion of counsel of the grantor or grantee will no longer come within the special rule unless the counsel is a qualified tax practitioner. However, neither the proposed regulations nor the final regulations proscribe the use of foreign counsel in otherwise seeking to make a good faith determination, including use of foreign counsel in gathering information relevant to the determination. The standards of practice before the IRS and requirements for written advice address reliance by qualified tax practitioners on foreign counsel for questions of foreign law. Sections 10.22(b), 10.35(a), and 10.37(b) of Circular 230 generally permit a practitioner to consult with and rely on other experts in appropriate circumstances. It follows, therefore, that a foundation may reasonably rely on written advice received from a qualified tax practitioner in accordance with § 1.6664–4(c)(1) that in turn reasonably relies on advice or assistance from foreign counsel as to questions of foreign law or other matters within such counsel’s expertise.
The preamble to the proposed regulations requested comments on whether a foundation’s ability to base a good faith determination on an affidavit should be removed, and if not, whether the use of such affidavits should be restricted. In the preamble, the Treasury Department and the IRS expressed their concern that, for purposes of the special rule, grantee affidavits, standing alone, are not always as reliable a basis for making good faith determinations as written advice from qualified tax practitioners and asked for comments. Several comments were received in response to this request.
Most commenters that addressed the issue recommended that foundations continue to be permitted to base a good faith determination on an affidavit of a foreign organization attested to by a principal officer of the foreign organization. These commenters noted that grantee affidavits are often a reliable means of collecting facts about the organization and operations of the foreign grantee, even if, as one commenter noted, on matters of U.S. tax law a grantmaker cannot ordinarily rely on a foreign organization’s conclusion that the grantee has a particular tax status. Several commenters noted that the current procedures outlined in Rev. Proc. 92–94 require that affidavits include significant detail and specific accompanying information, which, in their experience, ensures that a foundation has a clear picture of the organization and operation of the foreign organization before making a determination based on the affidavit. However, these commenters also noted that, in their experience, it was often necessary for someone at the foundation (presumably with knowledge of U.S. tax law) to work closely with a foreign organization to ensure that the principal officer attesting to the affidavit understands exactly what is called for and that the affidavit is appropriately completed.
Many commenters stated that foundations should not be required to obtain professional tax advice and requested assurance that a foundation could continue to make good faith determinations without having to engage counsel or another qualified tax practitioner, especially if the foundation or the grant is small. One commenter noted that engaging a qualified tax practitioner may impose substantial costs on a foundation, particularly if the foundation makes repeated grants to the same organization. Another commenter stated that it would be excessive for the regulations to suggest that a grantmaker must ordinarily use professional advisors in order for a determination to be in good faith, but noted that if a grantmaker goes without professional advice, it is fair for the IRS to review its conclusions and its process for reaching those conclusions to see if the grantmaker has complied with the good faith determination standard in the regulations.
One commenter favored eliminating the grantee affidavit as a free-standing means for making equivalency determinations. In the commenter’s experience, the staff and volunteers of most, but not all, foreign grantees have neither the training nor the experience with U.S. tax law needed to make determinations called for by Rev. Proc. 92–94. Therefore, the commenter believed it is important to eliminate reliance on the grantee affidavit.
One commenter suggested that to ensure that affidavits of foreign organizations provide a reliable basis for making a good faith determination, the IRS should further clarify what supporting documentation must be provided by a foreign organization and when private foundations may in good faith rely on the responses of foreign organizations. This commenter recommended that the IRS amplify Rev. Proc. 92–94 to state explicitly when the response of the foreign organization is sufficient and when additional supporting documentation (for example, a copy of the relevant law) should be requested from the organization. The Treasury Department and the IRS have concluded, however, that due to the many possible factual differences in foreign organizations’ structures, governance, operations, financial support, and relevant local laws and practices, it would be difficult to provide specific guidance governing affidavits and supporting documentation in various situations.
To mitigate the effects of elimination of reliance on grantee affidavits for purposes of the special rule, the final regulations provide a 90-day transition period similar to that set forth in § 53.4945–5(f)(2) (dealing with the implementation of the expenditure responsibility rules). During this 90-day period, foundations may distribute grants in accordance with the former regulations regarding the use of grantee affidavits and opinions of counsel of the grantor or grantee. In addition, under the final regulations, if a grant is distributed pursuant to a written commitment made prior to the applicability date of the final regulations and the grantor made a determination in good faith based on the prior regulations, the distribution is treated as compliant as long as the grant is paid out to the grantee within five years.
More specifically, commenters recommended that foundations be able to rely on written advice that a foreign organization meets a public support test under § 1.170A–9(f)(4)(vii)(B) or § 1.509(a)–3(c)(1)(i) for periods similar to those in the rules applicable to publicly supported organizations that have been recognized by the IRS as exempt under section 501(c)(3) and described in section 170(b)(1)(A)(vi) or 509(a)(2).[3] For example, one commenter noted that for section 170(b)(1)(A)(vi) and section 509(a)(2) organizations, if an organization meets the public support test for a five-year test period, then for most purposes, including for purposes of sections 4942 and 4945, the organization is treated as publicly supported for the two tax years immediately following the end of the five-year support test period. See § 1.170A–9(f)(4)(vii)(B) and § 1.509(a)–3(c)(1)(i) .Thus, if an organization meets a public support test for a five-year test period ending in 2014, the organization is also considered publicly supported in 2015 and (for most purposes) 2016.
Commenters also noted that Rev. Proc. 92–94, section 4.05, provides a general two-year period for reliance on an affidavit with regard to a foreign grantee’s public support status, such that it is ordinarily necessary to obtain a full update of financial information to determine public support under sections 170(b)(1)(A)(vi) and 509(a)(2) only every other year. Citing these provisions, some commenters requested that the final regulations permit reliance for two tax years after the end of the foreign organization’s last tax year of financial information used to determine the organization’s public support. Thus, for example, commenters suggested that a 2012 equivalency determination based on financial information from 2007–2011 should be sufficient to demonstrate that the organization would be considered a public charity for both 2012 and 2013, resulting in a period of reliance of up to two years, depending on when in 2012 the determination was made. One commenter suggested that reliance should extend only until the 15th day of the fifth month after the end of the first year following the test period – in the example above, until May 15, 2013 – and that a qualified tax practitioner should have to review the foreign grantee’s sources of financial support for 2012 before issuing advice that the organization can be treated as publicly supported for the remainder of 2013.
The Treasury Department and the IRS agree with commenters that providing a specific timeframe for reliance on written advice for purposes of the special rule will provide clarity for foundations seeking to meet the requirements of the rule and will promote determinations that are consistently based on current information. Therefore, the final regulations provide that, for purposes of the special rule, written advice of a qualified tax practitioner serving as the basis for a good faith determination must be “current.” Written advice will be considered current if, as of the date of the distribution, the relevant law on which the advice was based has not changed since the date of the written advice and the factual information on which the advice was based is from the organization’s current or prior year. However, consistent with rules for determinations of public support over a five-year test period for U.S. public charities, written advice that an organization satisfied the public support requirements under section 170(b)(1)(A)(vi) or section 509(a)(2) based on support over a test period of five years will be treated as current for the two years of the grantee immediately following the end of the five-year test period. For purposes of these rules, an organization’s year refers to its taxable year for U.S. tax purposes, or its annual accounting period if it does not have a U.S. taxable year. Additional guidance and examples illustrating the application of these rules may be provided in the update to Rev. Proc. 92–94, discussed further in the next section of this preamble.
Update of Rev. Proc. 92–94
The preamble to the proposed regulations also requested comments on whether Rev. Proc. 92–94 should be modified to take into account changes in the public support test and whether additional guidelines regarding appropriate timeframes for gathering information should be provided. Most commenters recommended updating Rev. Proc. 92–94 and noted that it is frequently used by qualified tax practitioners for gathering factual information on which to base their written advice. Commenters also recommended that an updated revenue procedure address several key issues relating to foreign organizations, including foreign school compliance with Rev. Proc. 75–50, 1975–2 CB 587, the nature of support from foreign governments, and foreign hospital compliance with section 501(r) (subsequently addressed at § 1.501(r)–1(b)(17)).
Written advice relating to the grantee’s status for purposes of an equivalency determination is based on the facts and circumstances of the grantee, and not on the facts and circumstances of the grantor foundation that received the advice. Therefore, it is possible that the conclusions reached in the written advice one foundation received from a qualified tax practitioner could reasonably be used by another foundation to make a good faith determination about the same grantee. This may be the case, for example, if the foundation with whom the written advice is shared knows the qualified tax practitioner well and is familiar with the due diligence practices of the foundation that provided the facts to the qualified tax practitioner and received the written advice. However, when written advice obtained by one foundation is later shared with a second foundation (or shared even further with other foundations), the foundation seeking to base its good faith determination on the written advice may have no knowledge of the qualified tax practitioner that gave the advice or whether all material facts were disclosed to the practitioner. Although reliance on shared advice of a trusted tax practitioner that is based on all the material facts may be economical, and in some cases may be reasonable and appropriate, the Treasury Department and the IRS are concerned that, in other cases, the foundation receiving the advice may not be in a position to appropriately evaluate the reliability of the written advice that was shared. Thus, the final regulations do not prohibit a foundation from using written advice shared with it by another foundation in making a good faith determination if it is reasonable to do so under all the facts and circumstances (including the age of the facts supporting the written advice). However, the final regulations clarify that for a foundation seeking the benefit of the special rule, the written advice a foundation relies on in making its determination must be received from the qualified tax practitioner (rather than from another foundation).
One commenter proposed that the final regulations also allow public charities to make equivalency determinations to avoid the requirements imposed on them by Rev. Rul. 68–489, 1968–2 CB 210, for grants to organizations not exempt under section 501(c)(3). That ruling permits a section 501(c)(3) organization to distribute funds to organizations not exempt under section 501(c)(3) if the grantor organization ensures use of the funds for section 501(c)(3) purposes by limiting distributions to specific projects in furtherance of its own exempt purposes, retains control and discretion as to the use of the funds, and maintains records establishing that the funds were used for section 501(c)(3) purposes. The commenter’s proposal is outside the scope of this regulations project, but it may be considered in future guidance.
One commenter requested that the equivalency determination procedures be made expressly applicable to grantees in the U.S. as well as foreign grantees if the domestic grantee is not required to obtain a determination from the IRS or the determination is pending with the IRS. Another commenter requested clarification that a foundation could use the same procedures to determine the status of grantees that are foreign governments, agencies or instrumentalities of foreign governments, or international organizations (which are treated as section 509(a)(1) organizations under § 53.4945–5(a)(4)(iii), even if they are not described in section 501(c)(3), so long as the grant is made exclusively for charitable purposes). Both of these suggestions are beyond the scope of this regulations project but may be considered in future guidance.
Commenters suggested that the Treasury Department and the IRS make corresponding changes to other regulations that provide for determinations similar to equivalency determinations. Section 53.4945–6(c)(2) requires generally that a grant made to an organization not described in section 501(c)(3) be maintained in a separate charitable fund, unless made to a foreign organization that in the reasonable judgment of a foundation manager is described in section 501(c)(3) (other than section 509(a)(4)). Section 1.1441–9 sets forth exemptions from withholding of tax on exempt income of foreign tax-exempt organizations, and allows a withholding agent to accept an opinion from a U.S. counsel concluding that a foreign organization is described in section 501(c)(3) and is not a private foundation, supported by an affidavit of the organization. For more than 20 years, under Rev. Proc. 92–94, a foundation has been able to make the reasonable judgment required by § 53.4945–6(c)(2) by following the same procedure for making a good faith determination under §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5). The Treasury Department and the IRS anticipate that any revised version of that revenue procedure will continue to provide that foundations may meet the requirements of § 53.4945–6(c)(2) by meeting the requirements of §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5). The suggested changes to § 1.1441–9 are beyond the scope of this regulations project, but may be considered in future guidance.
The final regulations also include several amendments to conform the regulations to prior statutory changes. Specifically, changes were made to §§ 53.4942(a)–3(a)(2)(i), 53.4942(a)–3(a)(6)(i), 53.4945–5(a)(1), 53.4945–5(a)(5)(i), 53.4945–5(a)(6)(ii), and 53.4945–5(b)(5). Section 4945(d)(4) was amended in 1984 to treat exempt operating foundations under section 4940(d)(2) as organizations that may receive grants for which expenditure responsibility is not required. Sections 4942 and 4945(d)(4) were amended in 2006 to eliminate certain section 509(a)(3) supporting organizations from the class of organizations that may receive distributions treated as qualifying distributions and that may receive grants for which expenditure responsibility is not required. Changes to conform the regulations to these statutory changes were made in §§ 53.4942(a)–3(a)(6)(i) and 53.4945–5(a)(5)(i) of the proposed regulations, and the changes to the other parts of §§ 53.4942(a)–3 and 53.4945–5 are being made in the final regulations for consistency. Similarly, for purposes of consistency with the changes in the proposed regulations being implemented in these final regulations, § 53.4945–5(b)(5) is being updated to allow written advice from a qualified tax practitioner for purposes of this provision, as well as grantee affidavits and opinions of counsel of the grantee, which continue to be permitted for the purposes of § 53.4945–5(b)(5).
It is hereby certified that the collection of information in these regulations will not have a significant economic impact on a substantial number of small entities. The collection of information is in §§ 53.4942(a)–3(a)(6) and 53.4945–5(a)(5) and is part of the collection of information for Form 990–PF. The equivalency determination process set forth in these regulations provides foundations with an optional procedure for determining that foreign organizations are qualifying public charities. The Treasury Department and the IRS believe that the economic impact of the proposed regulations on grantors making equivalency determinations has already been a reduction in cost of obtaining written tax advice, by expanding the class of practitioners whose written advice may form the basis of good faith determinations. The final regulations finalize this policy. The final regulations continue to permit grantee affidavits to be used in making good faith determinations under the general rule (although without the same level of reliance as under the special rule) and it is expected that affidavits will continue to be used for such purpose with small grants. Therefore, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required. Pursuant to section 7805(f) of the Internal Revenue Code, 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 businesses, and no comment was received.
Par. 2. Section 53.4942 (a)–3 is amended by:
§ 53.4942(a)–3 Qualifying distributions defined.
(6) Certain foreign organizations—(i) In general. A distribution for purposes described in section 170(c)(2)(B) to a foreign organization, which has not received a ruling or determination letter that it is an organization described in section 509(a)(1), (a)(2), or (a)(3) or in section 4942 (j)(3), will be treated as a distribution made to an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4942(j)(3) if the distributing foundation has made a good faith determination that the donee organization is an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4942(j)(3). A determination ordinarily will be considered a good faith determination if the determination is based on current written advice received from a qualified tax practitioner concluding that the donee is an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4942(j)(3), and if the foundation reasonably relied in good faith on the written advice in accordance with the requirements of § 1.6664–4(c)(1) of this chapter. The written advice must set forth sufficient facts concerning the operations and support of the donee organization for the Internal Revenue Service to determine that the donee organization would be likely to qualify as an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4942(j)(3) as of the date of the written advice. For purposes of this section, except as provided in the next sentence, written advice will be considered current if, as of the date of distribution, the relevant law on which the advice is based has not changed since the date of the written advice and the factual information on which the advice is based is from the donee’s current or prior taxable year (or annual accounting period if the donee does not have a taxable year for United States federal tax purposes). Written advice that a donee met the public support test under section 170(b)(1)(A)(vi) or section 509(a)(2) for a test period of five years will be treated as current for purposes of distributions to the donee during the two taxable years (or, as applicable, annual accounting periods) of the donee immediately following the end of the five-year test period.
(f) Effective/applicability date and transition relief. Paragraphs (a)(2)(i) and (a)(6) of this section are effective on and apply with respect to distributions made after September 25, 2015. However, foundations may continue to rely on the provisions of paragraph (a)(6) of this section as contained in 26 CFR part 53, revised April 1, 2015, with respect to distributions made on or before December 24, 2015, pursuant to a good faith determination made in accordance with such provisions. Also, foundations may continue to rely on the provisions of paragraph (a)(6) of this section as contained in 26 CFR part 53, revised April 1, 2015, with respect to distributions pursuant to a written commitment made on or before September 25, 2015 and pursuant to a good faith determination made on or before such date in accordance with such provisions if the committed amount is distributed within five years of such date.
Par. 3. Section 53.4945–5 is amended by:
§ 53.4945–5 Grants to organizations.
(5) Certain foreign organizations—(i) In general. If a private foundation makes a grant to a foreign organization, which does not have a ruling or determination letter that it is an organization described in section 509(a)(1), (a)(2), or (a)(3) or in section 4940(d)(2), the grant will nonetheless be treated as a grant made to an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4940(d)(2) if the grantor private foundation has made a good faith determination that the grantee organization is an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4940(d)(2). A determination ordinarily will be considered a good faith determination if the determination is based on current written advice received from a qualified tax practitioner concluding that the grantee is an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4940(d)(2), and if the foundation reasonably relied in good faith on the written advice in accordance with the requirements of § 1.6664–4(c)(1) of this chapter. The written advice must set forth sufficient facts concerning the operations and support of the grantee organization for the Internal Revenue Service to determine that the grantee organization would be likely to qualify as an organization described in section 509(a)(1), (a)(2), or (a)(3) (other than an organization described in section 4942(g)(4)(A)(i) or (ii)) or in section 4940(d)(2) as of the date of the written advice. For purposes of these rules, except as provided in the next sentence, written advice will be considered current if, as of the date of the grant payment, the relevant law on which the advice is based has not changed since the date of the written advice and the factual information on which the advice is based is from the grantee’s current or prior taxable year (or annual accounting period if the grantee does not have a taxable year for United States federal tax purposes). Written advice that a grantee met the public support test under section 170(b)(1)(A)(vi) or section 509(a)(2) for a test period of five years will be treated as current for purposes of grant payments to the grantee during the two taxable years (or, as applicable, annual accounting periods) of the grantee immediately following the end of the five-year test period. See paragraphs (b)(5) and (6) of this section for additional rules relating to foreign organizations.
(3) Effective/applicability date of paragraphs (a)(1), (a)(5), (a)(6)(ii), and (b)(5) and transition relief. Paragraphs (a)(1), (a)(5), (a)(6)(ii), and (b)(5) of this section are effective on and apply with respect to grants paid after September 25, 2015. However, foundations may continue to rely on paragraph (a)(5) as contained in 26 CFR part 53, revised April 1, 2015, with respect to grants paid on or before December 24, 2015, pursuant to a good faith determination made in accordance with such provisions. Also, foundations may continue to rely on paragraph (a)(5) as contained in 26 CFR part 53, revised April 1, 2015, with respect to grants paid pursuant to a written commitment made on or before September 25, 2015 and pursuant to a good faith determination made on or before such date in accordance with such provisions if the committed amount is paid out within five years of such date.
(Filed by the Office of the Federal Register on September 23, 2015, 8:45 a.m., and published in the issue of the Federal Register for September 25, 2015, 80 F.R. 24346)
[1] The regulations under section 4942 refer to “distributing foundations” making distributions to “donee organizations,” whereas the regulations under section 4945 refer to “grantor foundations” making or paying grants to “grantee organizations.” For simplicity, this preamble refers to grantors making grants or distributions to grantee organizations, in reference to both Code sections.
[2] The class of qualifying public charities for purposes of section 4945 is a slightly smaller subset of those for purposes of section 4942. Thus, grants to foreign organizations determined to be operating foundations that are not exempt operating foundations, and grants by operating foundations to foreign organizations determined to be disqualified supporting organizations, may be qualifying distributions under section 4942 but the grantor must nevertheless exercise expenditure responsibility to avoid excise taxes under section 4945 on such grants.
[3] These rules provide that a publicly supported organization that fails to meet the applicable public support test for two consecutive years will be treated as a private foundation as of the first day of the second consecutive taxable year only for purposes of sections 507, 4940, and 6033.
[4] This is consistent with the Joint Committee on Taxation, Technical Explanation of H.R. 4, the “Pension Protection Act of 2006” (JCX-38-06, Aug. 3, 2006) at p. 349, which provides:
For purposes of the requirement that a distribution be “to” an organization described in section 170(b)(1)(A), in general, it is intended that rules similar to the rules of Treasury regulation § 53.4945–5(a)(5) apply. Under such regulations, for purposes of determining whether a grant by a private foundation is “to” an organization described in section 509(a)(1), (2), or (3) and so not a taxable expenditure under section 4945, a foreign organization that otherwise is not a section 509(a)(1), (2), or (3) organization is considered as such if the private foundation makes a good faith determination that the grantee is such an organization. Similarly, under the provision, if a sponsoring organization makes a good faith determination (under standards similar to those currently applicable for private foundations) that a distributee organization is an organization described in section 170(b)(1)(A) (other than a disqualified supporting organization), then a distribution to such organization is not considered a taxable distribution.
Rev. Proc. 2015–50
This revenue procedure supplements the listing in Revenue Procedure 2014–64, 2014–53 I.R.B. 1022, of the countries with which the Department of the Treasury (Treasury Department) and the Internal Revenue Service (IRS) have determined that it is appropriate to have an automatic exchange relationship with respect to the information collected under §§ 1.6049–4(b)(5) and 1.6049–8 of the Income Tax Regulations.
Sections 1.6049–4(b)(5) and 1.6049–8(a), as revised by TD 9584, require the reporting of certain deposit interest paid to nonresident alien individuals on or after January 1, 2013. Rev. Proc. 2012–24, 2012–20 I.R.B. 913, was published contemporaneously with the publication of TD 9584. Section 4 of that revenue procedure identified the countries with which the Treasury Department and the IRS had determined that it was appropriate to have an automatic exchange relationship with respect to the information collected under §§ 1.6049–4(b)(5) and 1.6049–8. Rev. Proc. 2012–14 was updated and superseded by Rev. Proc. 2014–64. This revenue procedure supplements Rev. Proc. 2014–64 by adding 16 countries (Brazil, Czech Republic, Estonia, Gibraltar, Hungary, Iceland, India, Latvia, Liechtenstein, Lithuania, Luxembourg, New Zealand, Poland, Slovenia, South Africa, and Sweden) to the list of countries in Section 4.
SECTION 3. SUPPLEMENT TO REV. PROC. 2014–64
Section 4 of Rev. Proc. 2014–64 is supplemented to read as follows:
The following list identifies the countries with which the automatic exchange of the information collected under §§ 1.6049–4(b)(5) and 1.6049–8 has been determined by the Treasury Department and the IRS to be appropriate:
Rev. Proc. 2014–64 is supplemented.
The principal author of this revenue procedure is Jackie Bennett Manasterli of the Office of Associate Chief Counsel (International). For further information regarding this revenue procedure contact Ms. Manasterli at (202) 317-5218 (not a toll-free number).
Rev. Proc. 2015–51
Note. This revenue procedure will be reproduced as the next revision of IRS Publication 1141, General Rules and Specifications for Substitute Forms W–2 and W–3.
Section 1.1 – Purpose. . . . . . . . . . 584
Section 1.2 – What’s New. . . . . . . . . . 586
Section 1.3 – General Rules for Paper Forms W–2 and W–3. . . . . . . . . . 586
Section 1.4 – General Rules for Filing Forms W–2 (Copy A) Electronically. . . . . . . . . . 587
Section 2.1 – Specifications for Red-Ink Substitute Form W–2 (Copy A) and Form W–3 Filed with the SSA. . . . . . . . . . 588
Section 2.2 – Specifications for Substitute Black-and-White Copy A and W–3 Forms Filed with the SSA. . . . . . . . . . 590
Section 2.3 – Requirements for Substitute Forms Furnished to Employees (Copies B, C, and 2 of Form W–2). . . . . . . . . . 592
Section 2.4 – Electronic Delivery of Form W–2 and W–2c Recipient Statements. . . . . . . . . . 595
Section 3.1 – Additional Instructions for Form Printers. . . . . . . . . . 595
Section 3.2 – Instructions for Employers. . . . . . . . . . 596
Section 3.3 – OMB Requirements for Both Red-Ink and Black-and-White Copy A and W–3 Substitute Forms. . . . . . . . . . 596
Section 3.4 – Order Forms and Instructions. . . . . . . . . . 597
Section 3.5 – Effect on Other Documents. . . . . . . . . . 597
Section 3.6 – Exhibits. . . . . . . . . . 597
.01 The purpose of this revenue procedure is to state the requirements of the Internal Revenue Service (IRS) and the Social Security Administration (SSA) regarding the preparation and use of substitute forms for Form W–2, Wage and Tax Statement, and Form W–3, Transmittal of Wage and Tax Statements, for wages paid during the 2015 calendar year.
.02 For purposes of this revenue procedure, substitute Form W–2 (Copy A) and substitute Form W–3 are forms that are not printed by the IRS. Copy A or any other copies of a substitute Form W–2 or a substitute Form W–3 must conform to the specifications in this revenue procedure to be acceptable to the IRS and the SSA. No IRS office is authorized to allow deviations from this revenue procedure. Preparers should also refer to the 2015 General Instructions for Forms W–2 and W–3 for details on how to complete these forms. See Section 3.4, for information on obtaining the official IRS forms and instructions. See Sections 2.3 and 2.4, for requirements for the copies of substitute forms furnished to employees and for electronic delivery of recipient statements.
.03 For purposes of this revenue procedure, the official IRS-printed red dropout ink Forms W–2 (Copy A) and W–3, and their exact substitutes, are referred to as “red-ink.” The SSA-approved black-and-white Forms W–2 (Copy A) and W–3 are referred to as “substitute black-and-white Copy A” and “substitute black-and-white W–3” forms.
Any questions about the red-ink Form W–2 (Copy A) and Form W–3 and the substitute employee statements should be emailed to Substituteforms@irs.gov. Please enter “Substitute Forms” on the subject line. Or send your questions to:
.04 Some Forms W–2 that include logos, slogans, and advertisements (including advertisements for tax preparation software) may be confused with questionable Forms W–2. An employee may not recognize the importance of the employee copy for tax reporting purposes due to the use of logos, slogans, and advertisements. Thus, the IRS has determined that logos, slogans, and advertising will not be allowed on Copy A of Forms W–2, Forms W–3, or any employee copies reporting wages paid during the 2010 calendar year, and thereafter, with the following exceptions:
Presentation may be in any typeface, font, stylized fashion, or print color normally used by the employer or agent, and used in a non-intrusive manner.
Corrected information on information returns and employee copies that was shown on Forms W–2 for amounts paid before January 1, 2011, is an exception.
Logos and slogans, may be used on permissible enclosures, such as a check or account statement, other than information returns and payee copies.
Forms W–2 and W–3 are subject to annual review and possible change. This revenue procedure may be revised to state other requirements of the IRS and the SSA regarding the preparation and use of substitute forms for Form W–2 and Form W–3 for wages paid during the 2015 calendar year, at a future date. If you have comments about the restrictions on including logos, slogans, and advertising on information returns and employee copies, send or email your comments to: Internal Revenue Service, Attn: Substitute Forms Program, SE:W:CAR:MP:P:TP, 5000 Ellin Road, C6-440, Lanham, MD 20706, or Substituteforms@irs.gov.
.05 The Internal Revenue Service/Information Returns Branch (IRS/IRB) maintains a centralized customer service call site to answer questions related to information returns (Forms W–2, W–3, W–2c, W–3c, 1099 series, 1096, etc.). You can reach the call site at 1-866-455-7438 (toll-free) or 304-263-8700 (not a toll-free number). Persons with a hearing or speech disability with access to Telecommunication Device for the Deaf (TDD) can call 304-579-4827 (not a toll-free number). You may also email questions to mccirp@irs.gov. Do not submit employee information via email, because electronic mail is not secure and the information may be compromised.
IRS/IRB does not process information returns which are filed on paper forms. IRS/IRB does not process Forms W–2 (Copy A). Forms W–2 (Copy A) prepared on paper or electronically must be filed with the SSA. IRS/IRB does, however, process waiver requests (Form 8508) and extension of time to file requests (Form 8809) for Forms W–2 (Copy A) and requests for an extension of time to furnish the employee copies of Form W–2. See Publication 1220, Specifications for Electronic Filing of Forms 1097, 1098, 1099, 3921, 3922, 5498, and W–2G, for information on waivers and extensions of time.
.01 Employers not filing electronically must file paper Forms W–2 (Copy A) along with Form W–3 with the SSA by using either the official IRS form or a substitute form that exactly meets the specifications shown in Parts 2 and 3 of this revenue procedure.
Note. www.cnmidof.net http//www.hacienda.gobierno.pr. Substitute territorial forms (W–2AS, W–2GU, W–2VI, W–3SS) should also conform to the specifications as outlined in this revenue procedure. These forms require the form designation (“W–2AS,” “W–2GU,” “W–2VI”) on Copy A to be in black ink. If you are an employer in the Commonwealth of the Northern Mariana Islands, you must contact Department of Finance, Division of Revenue and Taxation, Commonwealth of the Northern Mariana Islands, P.O. Box 5234 CHRB, Saipan, MP 96950 or www.cnmidof.net to get Form W–2CM and instructions for completing and filing the form. For information on Forms 499R–2/W–2PR, use this website: http://www.hacienda.gobierno.pr.
Employers who file with the SSA electronically or on paper may design their own statements to furnish to employees. These employee statements designed by employers must comply with the requirements shown in Parts 2 and 3.
.02 Red-ink substitute forms that completely conform to the specifications contained in this revenue procedure may be privately printed without prior approval from the IRS or the SSA. Only the substitute black-and-white Copy A and W–3 forms need to be submitted to the SSA for approval, prior to their use (see Section 2.2).
.03 As in the past, SSA-approved black-and-white Copy A and Form W–3 may be generated using a printer by following all guidelines and specifications (also see Section 2.2). In general, regardless of the method of entering data, using black ink on Forms W–2 and W–3 provides better readability for processing by scanning equipment. Colors other than black are not easily read by the scanner and may result in delays or errors in the processing of Forms W–2 (Copy A) and W–3. The printing of the data should be centered within the boxes. The size of the variable data must be printed in a font no smaller than 10-point.
Note. With the exception of the identifying number, the year, the form number for Form W–3, and the corner register marks, the preprinted form layout for the red-ink Forms W–2 (Copy A) and W–3 must be in Flint J–6983 red OCR dropout ink or an exact match.
.04 Substitute forms filed with the SSA and substitute copies furnished to employees that do not conform to these specifications are unacceptable. Forms W–2 (Copy A) and W–3 filed with the SSA that do not conform may be returned. In addition, penalties may be assessed for not complying with the form specifications.
.06 Any questions about the specifications, especially those for the red-ink Form W–2 (Copy A) and Form W–3, should be emailed to: Substituteforms@irs.gov. Please enter “Substitute Forms” on the subject line. Or send your questions to:
.07 Forms W–2 and W–3 are subject to annual review and possible change. Therefore, employers are cautioned against overstocking supplies of privately-printed substitutes.
.08 Separate instructions for Forms W–2 and W–3 are provided in the 2015 General Instructions for Forms W–2 and W–3. Form W–3 should be used only to transmit paper Forms W–2 (Copy A). Form W–3 is a single sheet including only essential filing information. Be sure to make a copy of your completed Form W–3 for your records. You can order current year official IRS Forms W–2, W–2AS, W–2GU, W–2VI, W–3, and W–3SS, and the 2015 General Instructions for Forms W–2 and W–3, online at http://www.IRS.gov/Businesses. Click on the Online Ordering for Information Returns and Employer Returns link. The IRS provides only cutsheet sets of Forms W–2 and cutsheets of Form W–3.
.09 Because substitute Forms W–2 (Copy A) and W–3 are machine-imaged and scanned by the SSA, the forms must meet the same specifications as the official IRS Forms W–2 and W–3 (as shown in the exhibits).
.01 Employers must file Forms W–2 (Copy A) with the SSA electronically if they are required to file 250 or more for a calendar year unless the IRS grants a waiver. For details, get the 2015 General Instructions for Forms W–2 and W–3. The SSA publication EFW2, Specifications for Filing Forms W–2 Electronically, contains specifications and procedures for electronic filing of Form W–2 information with the SSA. Employers are cautioned to obtain the most recent revision of EFW2 (and supplements) due to any subsequent changes in specifications and procedures.
.03 Electronic filers do not file a paper Form W–3. See the SSA publication EFW2 for guidance on transmitting Form W–2 (Copy A) information to SSA electronically.
.04 Employers filing fewer than 250 Forms W–2 are encouraged to electronically file Forms W–2 (Copy A) with the SSA. Doing so will enhance the timeliness and accuracy of forms processing. You may visit the SSA’s employer website at www.socialsecurity.gov/employer. This helpful site has links to Business Services Online (BSO) and tutorials on registering and using BSO to file your Forms W–2.
.05 Employers who do not comply with the electronic filing requirements for Form W–2 (Copy A) and who are not granted a waiver by the IRS may be subject to penalties. Employers who file Form W–2 information with the SSA electronically must not send the same data to the SSA on paper Forms W–2 (Copy A). Any duplicate reporting may subject filers to unnecessary contacts by the SSA or the IRS.
.01 The official IRS-printed red dropout ink Form W–2 (Copy A) and W–3 and their exact substitutes are referred to as red-ink in this revenue procedure. Employers may file substitute Forms W–2 (Copy A) and W–3 with the SSA. The substitute forms must be exact replicas of the official IRS forms with respect to layout and content because they will be read by scanner equipment.
.02 Paper used for cutsheets and continuous-pinfed forms for substitute Form W–2 (Copy A) and Form W–3 that are to be filed with the SSA must be white 100% bleached chemical wood, 18–20 pound paper only, optical character recognition (OCR) bond produced in accordance with the following specifications:
• Basis weight: 17 x 22 inch 500 cut sheets, pound 18–20
• Metric equivalent—gm./sq. meter (a tolerance of +5 pct. is allowed) 68–75
• Cross direction 50
• Machine direction 80
• Metric equivalent—mm 0.097
• (a tolerance of +0.0005 inch (0.0127 mm) is allowed) Paper cannot vary more than 0.0004 inch (0.0102 mm) from one edge to the other.
• Finish (smoothness): Average, each side—seconds 20–55
• (for information only) the Sheffield equivalent— units 170–d200
.03 All printing of red-ink substitute Forms W–2 (Copy A) and W–3 must be in Flint red OCR dropout ink except as specified below. The following must be printed in nonreflective black ink:
.04 The vertical and horizontal spacing for all federal payment and data boxes on Forms W–2 and W–3 must meet specifications. On Form W–3 and Form W–2 (Copy A), all the perimeter rules must be 1-point (0.014-inch), while all other rules must be one-half point (0.007-inch). Vertical rules must be parallel to the left edge of the form; horizontal rules parallel to the top edge.
.05 The official red-ink Form W–3 and Form W–2 (Copy A) are 7.5 inches wide. Employers filing Forms W–2 (Copy A) with the SSA on paper must also file a Form W–3. Form W–3 must be the same width (7.5 inches) as the Form W–2. One Form W–3 is printed on a standard-size, 8.5 x 11-inch page. Two official Forms W–2 (Copy A) are contained on a single 8.5 x 11-inch page (exclusive of any snap-stubs).
.06 The top, left, and right margins for the Form W–2 (Copy A) and Form W–3 are .5 inches (½ inch). All margins must be free of printing except for the words “DO NOT STAPLE” on red-ink Form W–3. The space between the two Forms W–2 (Copy A) is 1.33 inches.
.07 The identifying numbers are “22222” for Form W–2 (Copies A (and 1)) and “33333” for Form W–3. No printing should appear anywhere near the identifying numbers.
.08 The depth of the individual scannable image on a page must be the same as that on the official IRS forms. The depth from the top line to the bottom line of an individual Form W–2 (Copy A) must be 4.17 inches and the depth from the top line to the bottom line of Form W–3 must be 4.67 inches.
.09 Continuous-pinfed Forms W–2 (Copy A) must be separated into 11-inch deep pages. The pinfed strips must be removed when Forms W–2 (Copy A) are filed with the SSA. The two Forms W–2 (Copy A) on the 11-inch page must not be separated (only the pages are to be separated (burst)). The words “Do Not Cut, Fold, or Staple Forms on This Page” must be printed twice between the two Forms W–2 (Copy A) in Flint red OCR dropout ink. All other copies (Copies 1, B, C, 2, and D) must be able to be distinguished and separated into individual forms.
.10 Box 12 of Form W–2 (Copy A) contains four entry boxes – 12a, 12b, 12c, and 12d. Do not make more than one entry per box. Enter your first code in box 12a (for example, enter Code D in box 12a, not 12d, if it is your first entry). If more than four items need to be reported in box 12, use a second Form W–2 to report the additional items (see “Multiple forms” in the 2015 General Instructions for Forms W–2 and W–3). Do not report the same federal tax data to the SSA on more than one Form W–2 (Copy A). However, repeat the identifying information (employee’s name, address, and SSN; employer’s name, address, and EIN) on each additional form.
.11 The checkboxes in box 13 of Form W–2 (Copy A) must be .14 inches each; the space before the first checkbox is .20 inches; the spacing on each remaining side of the 3 checkboxes is .36 inches (see Exhibit A). The checkboxes in box b of Form W–3 must also be .14 inches.
.12 All substitute Forms W–2 (Copy A) and W–3 in the red-ink format must have the tax year, form number, and form title printed on the bottom face of each form using type identical to that of the official IRS form. The red-ink substitute Form W–2 (Copy A) and Form W–3 must have the form producer’s EIN entered directly to the left of “Department of the Treasury,” in red.
.13 The words “For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions.” must be printed in Flint red OCR dropout ink in the same location as on the official Form W–2 (Copy A). The words “For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions.” must be printed at the bottom of the page of Form W–3 in black ink.
.14 The Office of Management and Budget (OMB) Number must be printed on substitute Forms W–3 and W–2 (on each ply) in the same location as on the official IRS forms.
Only chemically-backed paper is acceptable for Form W–2 (Copy A). Front and back chemically-treated paper cannot be processed properly by scanning equipment.
.19 The Government Printing Office (GPO) symbol and the Catalog Number (Cat. No.) must be deleted from substitute Form W–2 (Copy A) and Form W–3.
.01 The SSA-approved substitute black-and-white Forms W–2 (Copy A) and W–3 are referred to as substitute black-and-white Copy A and W–3. Specifications for the substitute black-and-white Copy A and W–3 are similar to the red-ink forms (Section 2.1) except for the items that follow (see Exhibits E and F). Exhibits are samples only and must not be downloaded to meet tax obligations.
1. Forms must be printed on 8.5 x 11-inch single-sheet paper only. There must be two Forms W–2 (Copy A) printed on a page. There must be no horizontal perforations between the two Forms W–2 (Copy A) on each page.
6. Identifying numbers on both Form W–2 (“22222”) and Form W–3 (“33333”) must be preprinted in 14-point Arial bold font or a close approximation.
7. The form numbers (“W–2” and “W–3”) must be in 18-point Arial font or a close approximation. The tax year (for example, “2015”) on Forms W–2 (Copy A) and W–3 must be in 20-point Arial font or a close approximation.
8. No part of the box titles or the data printed on the forms may touch any of the vertical or horizontal lines, nor should any of the data intermingle with the box titles. The data should be centered in the boxes.
9. Do not print any information in the margins of the substitute black-and-white Copy A and W–3 forms (for example, do not print “DO NOT STAPLE” in the top margin of Form W–3).
11. A 4-digit vendor code preceded by four zeros and a slash (for example, 0000/9876) must appear in 12-point Arial font, or a close approximation, under the tax year in place of the Cat. No. on Form W–2 (Copy A) and in the bottom right corner of the “For Official Use Only” box at the bottom of Form W–3. Do not display the form producer’s EIN to the left of “Department of the Treasury.” The vendor code will be used to identify the form producer.
.02 You must submit samples of your substitute black-and-white Copy A and W–3 forms to the SSA. Only black-and-white substitute Forms W–2 (Copy A) and W–3 for tax year 2015 will be accepted for approval by the SSA. Questions regarding other red-ink forms (that is, red-ink Forms W–2c, W–3c, 1099 series, 1096, etc.) must be directed to the IRS only.
.03 You will be required to send one set of blank and one set of dummy-data substitute black-and-white Copy A and W–3 forms for approval. Sample data entries should be filled in to the maximum length for each box entry, preferably using numeric data or alpha data, depending upon the type required to be entered. Include in your submission the name, telephone number, fax number, and email address of a contact person who can answer questions regarding your sample forms.
.04 To receive approval, you may first contact the SSA at copy.a.forms@ssa.gov to obtain a template and further instructions in PDF or Excel format. You may also send your 2015 sample substitute black-and-white Copy A and W–3 forms to:
.05 The 4-digit vendor code preceded by four zeros and a slash (0000/9876) must be preprinted on the sample substitute black-and-white Copy A and W–3 forms. Forms not containing a vendor code will be rejected and will not be submitted for testing or approval. If you have a valid vendor code provided to you through the National Association of Computerized Tax Processors, you should use that code. If you do not have a valid vendor code, contact the Social Security Administration at copy.a.forms@ssa.gov to obtain an SSA-issued code. (Additional information on vendor codes may be obtained from the SSA or the National Association of Computerized Tax Processors (NACTP) via email at president@nactp.org.)
Note. Vendor codes from the NACTP are required by those companies producing the W–2 family of forms as part of a product for resale to be used by multiple employers and payroll professionals. Employers developing Forms W–2 or W–3 to be used only for their individual company require a vendor code issued by Social Security Administration.
.07 In response to feedback from the user community, the SSA (and the IRS) have added a 2-D barcoded version for the substitute Form W–2 and Form W–3 to the list of acceptable submission formats. This version is an optional alternative to the non-barcoded substitute Forms W–2 and W–3. Both versions are fully supported by the SSA. At this time, neither the IRS nor the SSA mandates the use of 2-D barcoded substitute forms.
Note. Rules in Section 2.3 apply only to employee copies of Form W–2 (Copies B, C, and 2). Printers are cautioned that the paper filers who send Forms W–2 (Copy A) to the SSA must follow the requirements in Sections 2.1 and/or 2.2 above.
.01 All employers (including those who file electronically) must furnish employees with at least two copies of Form W–2 (three or more for employees required to file a state, city, or local income tax return). The following rules are guidelines for preparing employee copies.
The dimensions of these copies (Copies B, C, and 2), but not Copy A, may differ from the dimensions of the official IRS form to allow space for reporting additional information, including additional entries such as withholding for health insurance, union dues, bonds, or charity in box 14. The limitation of a maximum of four items in box 12 of Form W–2 applies only to Copy A, which is filed with the SSA.
Note. Payee statements (Copies B, C, and 2 of Form W–2) may be furnished electronically if employees give their consent (as described in Treasury Regulations Section 31.6051–1(j)). See also Publication 15–A, Employer’s Supplemental Tax Guide.
.02 The minimum dimensions for employee copies only (not Copy A) of Form W–2 should be 2.67 inches deep by 4.25 inches wide. The maximum dimensions should be no more than 6.5 inches deep by no more than 8.5 inches wide.
.05 Employee copies of Form W–2 (Copies B, C, and 2), including those that are printed on a single sheet of paper, must be easily separated. The best method of separation is to provide perforations between the individual copies. Each copy should be easily distinguished whatever method of separation is used.
Note. Perforation does not apply to printouts of copies of Forms W–2 that are furnished electronically to employees (as described in Treasury Regulations Section 31.6051–1(j)). However, these employees should be cautioned to carefully separate the copies of Form W–2. See Publication 15–A, Employer’s Supplemental Tax Guide, for information on electronically furnishing Forms W–2 to employees.
.07 The electronic tax logo on the IRS official employee copies is not required on any of the substitute form copies. To avoid confusion and questions by employees, employers are encouraged to delete the identifying number (“22222”) from the employee copies of Form W–2.
.08 All substitute employee copies must contain boxes, box numbers, and box titles that match the official IRS Form W–2. Boxes that do not apply can be deleted. However, certain core boxes must be included. The placement, numbering, and size of this information is specified as follows:
The core data boxes (1 through 6) must be placed in the upper right of the form. Substitute vertical-format copies may have the core data across the top of the form. Boxes or other information will definitely not be permitted to the right of the core data.
Identifying items must be present on the form and be in boxes similar to those on the official IRS form. However, they may be placed in any location other than the top or upper right. You do not need to use the lettering system (a–c, e–f) used on the official IRS form. The employer identification number (EIN) may be included with the employer’s name and address and not in a separate box.
.09 All copies of Form W–2 furnished to employees must clearly show the form number, the form title, and the tax year prominently displayed together in one area of the form. The title of Form W–2 is “Wage and Tax Statement.” It is recommended (but not required) that this be located on the bottom left of substitute Forms W–2. The reference to the “Department of the Treasury — Internal Revenue Service” must be on all copies of substitute Forms W–2 furnished to employees. It is recommended (but not required) that this be located on the bottom right of Form W–2.
It is recommended (but not required) that these be located on the lower left of Form W–2. If the substitute employee copies are not labeled as to the disposition of the copies, then written notification using similar wording must be provided to each employee.
.11 The tax year (for example, 2015) must be clearly printed on all copies of substitute Form W–2. It is recommended (but not required) that this information be in the middle at the bottom of the Form W–2. The use of 24-pt. OCR–A font is recommended (but not required).
.15 Employers may enter more than four codes in box 12 of substitute Copies B, C, and 2 (and 1 and D) of Form W–2, but each entry must use Codes A–EE (see the 2015 General Instructions for Forms W–2 and W–3).
.17 Employers may use box 14 for any other information that they wish to give to their employees. Each item must be labeled. (See the instructions for box 14 in the 2015 General Instructions for Forms W–2 and W–3.)
.18 The front of Copy C of a substitute Form W–2 must contain the note “This information is being furnished to the Internal Revenue Service. If you are required to file a tax return, a negligence penalty or other sanction may be imposed on you if this income is taxable and you fail to report it.”
.19 Instructions similar to those contained on the back of Copies B, C, and 2 of the official IRS Form W–2 must be provided to each employee. An employer may modify or delete instructions that do not apply to its employees. (For example, remove Railroad Retirement Tier 1 and Tier 2 compensation information for nonrailroad employees or information about dependent care benefits that the employer does not provide.)
.20 Employers must notify their employees who have no income tax withheld that they may be able to claim a tax refund because of the earned income credit (EIC). They will meet this notification requirement if they furnish a substitute Form W–2 with the EIC notice on the back of Copy B, IRS Notice 797, Possible Federal Tax Refund Due to the Earned Income Credit (EIC), or on their own statement containing the same wording. They may also change the font on Copies B, C, and 2 so that the EIC notification and Form W–2 instructions fit differently. For more information about notification requirements, see Notice 1015, “Have You Told Your Employees About the Earned Income Credit (EIC)?”
Note. An employer does not have to notify any employee who claimed exemption from withholding on Form W–4, Employee’s Withholding Allowance Certificate, for the calendar year.
.01 If you are required to furnish a written statement (Copy B or an acceptable substitute) to a recipient, then you may furnish the statement electronically instead of on paper. This includes furnishing the statement to recipients of Forms W–2 and W–2c.
Prior to furnishing the statement electronically, the employer must provide to the employee a clear and conspicuous disclosure statement containing each of the disclosures described in Regulations Section 31.6051–1 or Publication 15–A.
The scope and duration of the consent. For example, whether the consent applies to every year the statement is furnished or only until January 31 immediately following the date of the consent.
.01 If electronic media is not used for filing with the SSA, the substitute copies of Forms W–2 (either red–ink or substitute black–and–white forms) should be assembled in the same order as the official IRS Forms W–2. Copy A should be first, followed sequentially by perforated sets (Copies 1, B, C, 2, and D).
.03 Substitute forms (red-ink or substitute black-and-white Copy A or W–3) do not require a copy to be retained by employers (Copy D of Form W–2). However, employers must retain copies of the Forms W–2 filed with SSA or have the ability to reconstruct the data for at least four years. Employers must be able to generate a facsimile of Form W–2 (Copy A), in case of loss.
.04 Except for copies in the official assembly, no additional copies that may be prepared by employers should be placed ahead of Form W–2 (Copy C) “For EMPLOYEE’S RECORDS.”
.05 You must provide instructions similar to those contained on the back of Copies B, C, and 2 of the official IRS Form W–2 to each employee. You may print them on the back of the substitute Copies B, C, and 2 or provide them to employees on a separate statement. You do not need to use the back of Copy 2. If you do not use Copy 2, you may include all the information that appears on the back of the official Copies B, C, and 2 on the back of your substitute Copies B and C only. As an example, you may use the “Note” on the back of the official Copy C as the dividing point between the text for your substitute Copies B and C. Do not print these instructions on the back of Copy 1. Any Forms W–2 (Copy A) and W–3 that are filed with the SSA must have no printing on the reverse side.
.03 Form W–2 (Copy A) requires decimal entries for wage data. Dollar signs should not be printed with money amounts on the Forms W–2 (Copy A) and W–3.
.04 The employer must provide a machine-scannable Form W–2 (Copy A). The employer must also provide employee copies (Copies B, C, and 2) that are legible and able to be photocopied (by the employee). Do not print any data in the top margin of the payee copies of the forms.
.05 Any printing in box d (Control number) on Form W–2 or box a on Form W–3 may not touch any vertical or horizontal lines and should be centered in the box.
.06 The filer’s employer identification number (EIN) must be entered in box b of Form W–2 and box e of Form W–3. The EIN entered on Form(s) W–2 (box b) and Form W–3 (box e) must be the same as on Forms 941, 941–SS, 943, 944, CT–1, Schedule H (Form 1040), or any other corresponding forms filed with the IRS. Be sure to use EIN format (00–0000000) rather than SSN format (000–00–0000).
.04 Any substitute Form W–2 (Copy A only) and Form W–3 must state “For Privacy Act and Paperwork Reduction Act Notice, see the separate instructions.” If no instructions are provided to users of your forms, you must furnish them with the exact text of the Privacy Act and Paperwork Reduction Act Notice.
.01 You can order IRS Forms W–2, Forms W–3, the General Instructions for Forms W–2 and W–3, and other tax material, online at IRS.gov. Click on the Forms and Pubs link and then the Order Forms and Pubs link or by clicking on www.IRS.gov/Businesses and then the Online Ordering for Information Returns and Employer Returns link.
.02 Copies of Form W–2 (Copy A) and Form W–3 downloaded from IRS.gov cannot be used for filing with the SSA. These copies of Forms W–2 and W–3 are for information purposes only.
Bulletins 2015–27 through 2015–42
2015-44 2015-38 I.R.B. 2015-38 374