Final Regs on Magnetic Media Filing Requirements

 [4830-01-u]

[2] ACTION: Final and temporary regulations.

[3] SUMMARY: This document contains final and temporary regulations relating to the requirements for filing information returns on magnetic media or in other machine-readable form under section 6011(e) of the Internal Revenue Code (Code). These regulations affect persons filing information returns. These regulations prescribe magnetic media filing requirements for employers filing wage and tax statements for employees in Puerto Rico, U.S. Virgin Islands, Guam, and American Samoa. In addition, these regulations provide taxpayers with the guidance to comply with the changes made to the Code and to the administrative practices with respect to filing on magnetic media or in other machine-readable form.

[4] DATES: Effective date: These regulations are effective June 30, 1998.

[5] APPLICABILITY DATE: These regulations apply to information returns required to be filed on or after January 1, 1997.

[6] FOR FURTHER INFORMATION CONTACT: Donna Joy Welch, (202) 622-4910 (not a toll-free call), if the inquiry relates to provisions of these regulations. For further information, see the telephone numbers listed at the beginning of SUPPLEMENTARY INFORMATION.

 [7] SUPPLEMENTARY INFORMATION: If the inquiry relates to magnetic media filing and magnetic media specifications for Form W-2, Form 499R-2/W-2PR, Form W-2VI, Form W-2GU, and Form W-2AS, persons residing in the following locations should contact the corresponding Social Security Administration office (not a toll-free call):

BACKGROUND

[9] Section 6011(e) authorizes the Secretary to prescribe regulations providing the standards for determining which returns must be filed on magnetic media or in other machine-readable form. Section 6011(e) was added to the Internal Revenue Code (Code) by section 319 of the Tax Equity and Fiscal Responsibility Act of 1982, Public Law 97-248, 96 Stat. 610; and was amended by section 109 of the Interest and Dividend Tax Compliance Act of 1983, Public Law 98-67, 97 Stat. 383; and section 7713 of the Revenue Reconciliation Act of 1989 (1989 Act), Public Law 101-239, 103 Stat. 2394. As amended by the 1989 Act, section 6011(e)(2)(A) provides that the Secretary shall not require any person to file returns on magnetic media unless the person is required to file at least 250 returns during the calendar year.

[10] On October 10, 1996, final and temporary regulations (TD 8683) amending the existing regulations relating to the requirements for filing information returns on magnetic media or in other machine- readable form under section 6011(e) were published in the Federal Register (61 FR 53056). A notice of proposed rulemaking (REG-209803-95) cross-referencing the temporary regulations was published in the Federal Register for the same day (61 FR 53161). These regulations were issued at the request of the Social Security Administration (the SSA) that regulations be issued to require employers required to file 250 or more Forms 499R-2/W-2PR (Withholding Statement (Puerto Rico)), Forms W-2VI (U.S. Virgin Islands Wage and Tax Statement), Forms W-2GU (Guam Wage and Tax Statement), and Forms W-2AS (American Samoa Wage and Tax Statement) to file these forms with the SSA on magnetic media. Filing these forms on magnetic media will reduce administrative burdens and will increase accurate processing of information. These regulations also reflect the changes made to the Code and to the administrative practices with respect to filing on magnetic media or in other machine-readable form.

[11] One written comment responding to this notice was received. No public hearing was requested or held. After consideration of the comment, the proposed regulations are adopted as modified and the corresponding temporary regulations are removed. The comment is discussed below.

SUMMARY OF COMMENT

[12] The commentator suggests that the definition of magnetic media is too restrictive and that it does not encompass the use of additional technology that would facilitate the underlying reporting requirements. The commentator suggests that the definition is not broad enough to include the use of digital filing, specifically 2D barcode. Neither the IRS nor the SSA utilize digital filing technology at this time. However, the IRS and the SSA are committed to utilizing available technology that would facilitate the purpose of information reporting. Therefore, the regulations make clear that the use of other media may be permitted in the future as provided in applicable regulations, revenue procedures, or publications.

RELATIONSHIP TO TREASURY DECISION 8734

[13] Treasury Decision 8734 was published in the Federal Register on October 14, 1997 (62 FR 53387) and removed sections 1.6045-1T and 1.6045-2T effective January 1, 1999. This document removes sections 1.6045-1T and 1.6045-2T effective June 30, 1998. Because this document removes these sections at an earlier date, a document will be published later to amend TD 8734 to take this into account.

SPECIAL ANALYSES

[14] It is hereby certified that the regulations in this document will not have a significant economic impact on a substantial number of small entities. This certification is based on a determination that these regulations impose no additional reporting or recordkeeping requirement and prescribe only the method of filing information returns that are already required to be filed. Further, these regulations are consistent with the requirements imposed by statute. Section 6011(e)(2)(A) provides that, in prescribing regulations providing standards for determining which returns must be filed on magnetic media or in other machine-readable form, the Secretary shall not require any person to file returns on magnetic media unless the person is required to file at least 250 returns during the calendar year. Consistent with the statutory provision, these regulations do not require information returns to be filed on magnetic media unless 250 or more returns are required to be filed. Further, the economic impact caused by filing on magnetic media should be minimal. If a taxpayer's operations are computerized, reporting in accordance with the regulations should be less costly than filing on paper. If the taxpayer's operations are not computerized, the incremental cost of magnetic media reporting should be minimal in most cases because of the availability of computer service bureaus. In addition, the regulations provide that the IRS may waive the magnetic media filing requirements upon a showing of hardship. It is anticipated that the waiver authority will be exercised so as not to unduly burden taxpayers lacking both the necessary data processing facilities and access at a reasonable cost to computer service bureaus. Accordingly, a Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.

[15] It has been determined that this Treasury decision is not a significant regulatory action as defined in EO 12866. Therefore, a regulatory assessment is not required.

[16] Pursuant to section 7805(f) of the Internal Revenue Code, the notice of proposed rulemaking preceding these regulations was submitted to the Chief Counsel for Advocacy of the Small Business Administration for comment on its impact on small business.

DRAFTING INFORMATION

[17] The principal author of these regulations is Donna Joy Welch, Office of Assistant Chief Counsel (Income Tax and Accounting). However, other personnel from the IRS and the Treasury Department participated in the development of the regulations.

LIST OF SUBJECTS

26 CFR Part 1

[18] Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

[19] Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income taxes, Penalties, Reporting and recordkeeping requirements.

ADOPTION OF AMENDMENTS TO THE REGULATIONS

[20] Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1 -- INCOME TAXES

Paragraph 1. The authority citation for part 1 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

SECTIONS 1.6045-1T AND 1.6045-2T [REMOVED]

Par. 2. Sections 1.6045-1T and 1.6045-2T, currently in effect, are removed.

Par. 3. Section 1.6045-1, currently in effect, is amended by:

1. Revising paragraph (1).

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

The revision reads as follows:

SECTION 1.6045-1 RETURNS OF INFORMATION OF BROKERS AND BARTER EXCHANGES.

* * * * *

(1) USE OF MAGNETIC MEDIA. For information returns filed after December 31, 1996, see section 301.6011-2 of this chapter for rules relating to filing information returns on magnetic media and for rules relating to waivers granted for undue hardship. A broker or barter exchange that fails to file a Form 1099 on magnetic media, when required, may be subject to a penalty under section 6721 for each such failure. See paragraph (j) of this section.

* * * * *

Par. 4. Section 1.6045-2, currently in effect, is amended by:

1. Revising paragraph (g)(2).

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

The revision reads as follows:

SECTION 1.6045-2 FURNISHING STATEMENT REQUIRED WITH RESPECT TO CERTAIN SUBSTITUTE PAYMENTS.

* * * * *

(g) * * *

(2) USE OF MAGNETIC MEDIA. For information returns filed after December 31, 1996, see section 301.6011-2 of this chapter for rules relating to filing information returns on magnetic media and for rules relating to waivers granted for undue hardship. A broker or barter exchange that fails to file a Form 1099 on magnetic media, when required, may be subject to a penalty under section 6721 for each such failure. See paragraph (g)(4) of this section.

* * * * *

PART 301 -- PROCEDURE AND ADMINISTRATION

Par. 5. The authority citation for part 301 continues to read in part as follows:

Authority: 26 U.S.C. 7805 * * *

Par. 6. Section 301.6011-2 is amended by:

1. Revising paragraphs (a)(1), (b)(1), (b)(2), (c)(1) heading, (c)(1)(i), (c)(1)(iii), (c)(2), (d), (f), (g) heading, and (g)(2).

2. Adding paragraph (c)(1)(iv).

3. Removing paragraphs (c)(3) and (c)(4) and the last sentence of paragraph (e).

The revisions and addition read as follows:

SECTION 301.6011-2 REQUIRED USE OF MAGNETIC MEDIA.

(a) * * *

(1) MAGNETIC MEDIA. The term magnetic media means any media permitted under applicable regulations, revenue procedures or publications, or, in the case of returns filed with the Social Security Administration, Social Security Administration publications. These generally include magnetic tape, tape cartridge, and diskette, as well as other media (such as electronic filing) specifically permitted under the applicable regulations, procedures, or publications.

* * * * *

(b) RETURNS REQUIRED ON MAGNETIC MEDIA. (1) If the use of Form 1042-S, 1098, 1099 series, 5498, 8027, W-2G, or other form treated as a form specified in this paragraph (b)(1) is required by the applicable regulations or revenue procedures for the purpose of making an information return, the information required by the form must be submitted on magnetic media, except as otherwise provided in paragraph (c) of this section. Returns on magnetic media must be made in accordance with applicable revenue procedures or publications (see section 601.601(d)(2)(ii)(b) of this chapter). Pursuant to these procedures, the consent of the Commissioner of Internal Revenue (or other authorized officer or employee of the Internal Revenue Service) to a magnetic medium must be obtained by submitting Form 4419 (Application for Filing Information Returns Magnetically/Electronically) prior to submitting a return described in this paragraph (b)(1) on the magnetic medium.

(2) If the use of Form W-2 (Wage and Tax Statement), Form 499R- 2/W-2PR (Withholding Statement (Puerto Rico)), Form W-2VI (U.S. Virgin Islands Wage and Tax Statement), Form W-2GU (Guam Wage and Tax Statement), Form W-2AS (American Samoa Wage and Tax Statement), or other form treated as a form specified in this paragraph (b)(2) is required for the purpose of making an information return, the information required by the form must be submitted on magnetic media, except as otherwise provided in paragraph (c) of this section. Returns described in this paragraph (b)(2) must be made in accordance with applicable Social Security Administration procedures or publications (which may be obtained from the local office of the Social Security Administration).

* * * * *

(c) EXCEPTIONS -- (1) LOW-VOLUME FILERS/250-THRESHOLD -- (i) IN GENERAL. No person is required to file information returns on magnetic media unless the person is required to file 250 or more returns during the calendar year. Persons filing fewer than 250 returns during the calendar year may make the returns on the prescribed paper form, or, alternatively, such persons may make returns on magnetic media in accordance with paragraph (b) of this section.

* * * * *

(iii) NO AGGREGATION. Each type of information return described in paragraphs (b)(1) and (2) of this section is considered a separate return for purposes of this paragraph (c)(1). Therefore, the 250-threshold applies separately to each type of form required to be filed.

(iv) EXAMPLES. The provisions of paragraph (c)(1)(iii) of this section are illustrated by the following examples:

 EXAMPLE 1. For the calendar year ending December 31, 1998,

(ii) The Commissioner may prescribe rules that supplement the provisions of paragraph (c)(2)(i) of this section.

(d) PAPER FORM RETURNS. Returns submitted on paper forms (whether or not machine-readable) permitted under paragraph (c) of this section shall be in accordance with applicable Internal Revenue Service or Social Security Administration procedures.

* * * * *

(f) FAILURE TO FILE. If a person fails to file an information return on magnetic media when required to do so by this section, the person is deemed to have failed to file the return. In addition, if a person making returns on a paper form under paragraph (c) of this section fails to file a return on machine-readable paper form when required to do so by this section, the person is deemed to have failed to file the return. See sections 6652, 6693, and 6721 for penalties for failure to file certain returns. See also section 6724 and the regulations under section 6721 for the specific rules and limitations regarding the penalty imposed under section 6721 for failure to file on magnetic media.

(g) EFFECTIVE DATES. * * *

(2) Paragraphs (a)(1), (b)(1), (b)(2), (c)(1)(i), (c)(1)(iii), (c)(1)(iv), (c)(2), (d), (e), and (f) of this section are effective for information returns required to be filed after December 31, 1996. For information returns required to be filed after December 31, 1989, and before January 1, 1997, see section 6011(e).

SECTION 301.6011-2T [REMOVED].

Par. 7. Section 301.6011-2T is removed.