Part III. Administrative, Procedural, and Miscellaneous

agreement under the § 467 regulations (and therefore subject to constant rental accrual).

EFFECT OF REFINANCING

In response to the concerns of commentators, the final regulations under § 467 will provide that the refinancing of any indebtedness incurred by the lessor to acquire the property subject to a rental agreement and secured by the property, together with any corresponding changes in the rights or obligations of the lessee under the rental agreement, will not be treated as a substantial modification of the rental agreement if all of the following conditions are met:

(a) Neither the amount, nor the time for payment, of the principal amount of the new indebtedness differs from the amount and time for payment of the principal amount of the refinanced indebtedness, except for de minimis changes;

(b) For each of the remaining rental periods, the rent allocation schedule, the payments of rent and interest, and the amount accrued under § 467 are changed only as necessary to take into account the change in financing costs, and such changes are made pursuant to the terms of the rental agreement;

(c) The lessor and the lessee are not related persons (as defined in § 1.467– 1(h)(7) of the proposed regulations) to each other or to any lender to the lessor with respect to the property (whether under the refinanced indebtedness or the new indebtedness); and

(d) The lessor has a unilateral option (within the meaning of § 1.1001–3(c)(3)), with or without the consent of the lessee, to repay the refinanced indebtedness.

DRAFTING INFORMATION

The principal author of this notice is Stephen J. Toomey of the Office of Assistant Chief Counsel (Income Tax and Accounting). For further information regarding this notice, contact Mr. Toomey at (202) 622-4960 (not a toll-free call).

Substantial Modification of Rental Agreements

Notice 97–72

PURPOSE

This notice informs taxpayers of certain conditions under which changes in rental payment terms resulting from a refinancing of indebtedness incurred by a lessor to acquire property that is the subject of a rental agreement will not be a substantial modification of the rental agreement for purposes of § 467 of the Internal Revenue Code. The Treasury Department intends to issue final regulations under § 467 that will incorporate these conditions.

BACKGROUND

On June 3, 1996, the Internal Revenue Service and Treasury issued proposed Income Tax Regulations under § 467, published in a Notice of Proposed Rulemaking (61 Fed. Reg. 27834). The regulations provide that, if a rental agreement is a § 467 rental agreement, the lessor and lessee must take into account for a taxable year the § 467 rent and the § 467 interest for that year. The proposed regulations provide that a rental agreement is a § 467 rental agreement if it has increasing or decreasing rent, or deferred or prepaid rent, and the aggregate rental payments and other consideration to be received for the use of the property exceed $250,000.

Under § 1.467–3 of the proposed regulations, if a § 467 rental agreement is a leaseback or long-term agreement that provides for increases or decreases in rent that have a principal purpose of Federal income tax avoidance (a disqualified leaseback or long-term agreement), the Commissioner may require the lessor and lessee to use constant rental accrual. Section 467(e)(1) provides that the “constant rental amount” is an amount that, if paid at the close of each lease period under the agreement, would result in an aggregate present value equal to the present value of

the aggregate payments required under the agreement. Section 467(b)(5) and the § 467 proposed regulations provide certain safe harbor exceptions to the application of constant rental accrual.

The regulations are proposed to be effective for (1) disqualified leasebacks and long-term agreements entered into after June 3, 1996, and (2) all other rental agreements entered into after the date on which final § 467 regulations are published.

Under § 1.467–1(f) of the proposed regulations, if, after the lease term begins, the lessor and lessee agree to a substantial modification of the terms of the lease, the remaining portion of the rental agreement, as modified, is treated as a new rental agreement for purposes of § 467 and the regulations thereunder, including the effective date provisions. Thus, for example, such a rental agreement must be retested to determine whether increases or decreases in rent were motivated by Federal income tax avoidance, or whether a safe harbor exception to constant rental accrual applies.

The proposed regulations provide no guidance regarding whether a substantial modification has occurred. Consequently, commentators have expressed concern that a refinancing of indebtedness incurred to acquire property that is the subject of a rental agreement entered into prior to the effective date of the § 467 regulations will result in a substantial modification of the rental agreement. This treatment may occur because, even though the lessee is not directly obligated to pay the principal of, or interest on, such indebtedness, in many leases, the rent paid by the lessee is affected by the lessor’s debt service costs. Thus, the concern of the commentators is that a refinancing of the lessor’s indebtedness after June 3, 1996, will cause a change in rental payments that will constitute a substantial modification of the rental agreement and may cause the remaining portion of the rental agreement to be treated as a disqualified leaseback or long-term

1997–50 I.R.B. 7 December 15, 1997

CHAPTER ONE—INTRODUCTION TO SUBSTITUTE FORMS

Overview of Revenue Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 IRS Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Nature of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

CHAPTER TWO—GENERAL GUIDELINES FOR SUBMISSIONS AND APPROVALS

General Specificiations for Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Highlights of Permitted Changes and Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 Vouchers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Restrictions on Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Guidelines for Obtaining IRS Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 Office of Management and Budget (OMB) Requirements for All Substitute Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

CHAPTER THREE—PHYSICAL ASPECTS AND REQUIREMENTS

General Guidelines for Substitute Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Printing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Margins . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Examples of Approved Formats . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Miscellaneous Information for Substitute Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

CHAPTER FOUR—ADDITIONAL RESOURCES

Guidance From Other Revenue Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Ordering Publications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Electronic Tax Products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Federal Tax Forms on CD-ROM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

CHAPTER FIVE—REQUIREMENTS FOR SPECIFIC TAX RETURNS

Tax Returns (Form 1040, 1040A, 1120, Etc.) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Changes Permitted to Graphics (Forms 1040A and 1040) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Changes Permitted to Form 1040A Graphics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Changes Permitted to Form 1040 Graphics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

CHAPTER SIX—FORMAT AND CONTENT OF SUBSTITUTE RETURNS

Acceptable Formats for Computer-Generated Forms and Schedules . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Additional Instructions for All Forms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

CHAPTER SEVEN—OCR FORMS

Special Form 1040EZ Optical Character Recognition/Image Character Recognition (OCR/ICR) Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Computer-Generated Alternative Returns, Form 1040PC Format Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Form 941 Requirements—OCR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Specifications for OCR Scannable Application Forms for Employee Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

December 15, 1997 8 1997–50 I.R.B.

CHAPTER EIGHT—MISCELLANEOUS FORMS AND PROGRAMS

Paper Substitutes for Form 1042–S . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Specifications for Filing Substitute Schedules K–1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Procedures for Printing Internal Revenue Service Envelopes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Procedures for Substitute Form 5471 and Form 5472 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

CHAPTER NINE—ALTERNATIVE METHODS OF FILING

Forms for Electronically Filed Returns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 FTD Magnetic Tape Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 Effect on Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51

EXHIBITS

Exhibit A–1. Schedule A (Preferred) Exhibit A–2. Schedule A (Acceptable) Exhibit B–1. Schedule B (Preferred) Exhibit B–2. Schedule B (Acceptable) Exhibit CG–A. Schedule A (Computer Generated) Exhibit CG–B. Schedule B (Computer Generated) Exhibit C. Sample Checklist Exhibit L–1. List of Forms Referred to in Revenue Procedure

1997–50 I.R.B. 9 December 15, 1997

Where To Send Send your substitute forms to the following offices: Substitute Forms

In addition, the Substitute Forms Program can be contacted via email at steves@publish.no.irs.gov. DO NOT attach graphic files for approval with email.

1997–50 I.R.B. 11 December 15, 1997

Changes to - Information on IRS Contact offices has been consolidated. the Revenue Procedure - Payment vouchers size requirements have been revised and specifications moved from exhibits to text.

• Graphics changes revised for Form 1040, Page 2.

• A sample exhibit of a checklist of forms for use in submitting substitute forms has been included.

• Instructions for machine reading (scanning) Form 941 OCR or Schedule B (Form 941) have been deleted.

• Previous instructions labeled “Special Form 941 Requirements” have been removed from this revenue

procedure.

• The office phone number and address for 1040PC Project Office has been updated.

• A paragraph has been added on Tax Fax and CD-ROM ordering instructions have been updated.

• Various editorial changes have been made.

December 15, 1997 12 1997–50 I.R.B.

Substitute Form A tax form (or related schedule) that differs in any way from the official version and is intended to replace the entire form that is printed and distributed by the Service. This term also covers those approved substitute forms exhibited in this revenue procedure.

Printed A form produced using conventional printing processes. Also, a printed form which has been reproduced (or Preprinted) by photocopying or similar processes. Form

Preprinted Pin- A printed form that has marginal perforations for use with automated and high-speed printing equipment. Fed Form

Computer-Prepared A preprinted form in which the taxpayer’s tax entry information has been inserted by a computer, computerSubstitute Form printer, or other computer type equipment, such as word-processing equipment.

Computer-Generated A tax return or form that is entirely designed and printed by the use of a computer printer, such as a laser Substitute Tax printer, etc., on plain white paper. This return or form must conform to the physical layout of the correReturn or Form sponding Service form although the typeface may differ. The text should match the text on the officially printed form as closely as possible; condensed text and abbreviations will be considered on a case-by-case basis. Exception: All jurats (perjury statements) must be reproduced verbatim.

Manually-Prepared A preprinted reproduced form in which the taxpayer’s tax entry information is entered by an individual Form using a pen, pencil, typewriter, or other non-automated equipment.

Computer- A tax return that contains only the taxpayer’s significant line entries, and is formatted three columns per Generated Answer page with tax form headings, a summary, and jurat. This return is printed on plain white paper using a Sheet Format computer printer. Tax Return

Graphics Those parts of a printed tax form that are not tax amount entries nor called-for information. Generally, these are line numbers, captions, shadings, instructions, special indicators, borders, rules, and strokes created by typesetting, photographics, photocomposition, etc.

Acceptable A legible photocopy of an original form. Reproduced Form

Supporting A document providing detailed information to support an entry for a line(s) on an official or approved substitute Statement form and filed with (attached to) a tax return. (A supporting statement is not a tax form and does not take the (Supplemental place of an official form, unless specifically permitted elsewhere in this procedure.) Schedule)

Specific Forms The following terms are used throughout this revenue procedure in reference to all substitute forms, with the Terms exception of the 1040PC “answer sheet format” tax return.

Format The overall physical arrangement and general layout of a substitute form.

Sequence The same numeric and logical placement order of data, as reflected on the official form version. Sequence is an integral part of the total format requirement.

Line Reference The line numbers, letters or alphanumerics used to identify each captioned line on the official forms, and (Code) printed to the immediate left of each caption or data entry field.

Item Caption The textual portion of each line on the form identifying the specific data elements required.

Data Entry Field All areas designated on a form for the insertion of data, such as dollar amounts, quantities, responses, checkboxes, etc.

1997–50 I.R.B. 13 December 15, 1997

Important Any person or company who uses substitute forms and makes all or part of the changes specified in this Stipulation of revenue procedure agrees to the following stipulations: This Revenue Procedure

• The Internal Revenue Service presumes the changes are made in accordance with these procedures and, as

such, will be noninterruptive to the processing of the tax return.

• Should any of the changes prove to be not exactly as described, and as a result become disruptive to the Internal Revenue Service during processing of the tax return, the person or company agrees to accept the determination of the IRS as to whether or not the form may continue to be used during the filing season.

• Also agrees to work with the IRS in correcting noted deficiencies. Notification of deficiencies may be

made by any combination of fax, letter, email, or phone contact and may include the return of unacceptable forms for resubmission of acceptable forms.

December 15, 1997 14 1997–50 I.R.B.

Methods of Official versions are supplied by the Internal Revenue Service, such as those in the taxpayer’s tax package, Reproducing those printed in revenue procedures, and over-the-counter forms available at IRS and other governmental Internal Revenue public offices or buildings. Forms are also available on CD-ROM, and on-line via Fedworld and the Service Forms Internet.

There are methods of reproducing Internal Revenue Service printed tax forms suitable for use as substitute tax forms without prior approval.

• You can photocopy most tax forms and use them instead of the official ones. The entire substitute form,

including entries, must be legible.

• You can reproduce any current tax form as cut sheets, snapsets, and marginally punched, pin-fed forms so

long as you use an official IRS version as the master copy.

• You can reproduce a “signature form” as a valid substitute form. Many tax forms (including returns) have

a taxpayer signature requirement as part of the form layout. The jurat/perjury statement/signature line areas must be retained and worded exactly as on the official form. The requirement for a signature by itself does not prohibit a tax form from being properly computer-generated.

• You can computer-generate Answer Sheet Format Tax Returns on plain bond paper using IRS-accepted

software for the 1040PC format for return types 1040EZ, 1040, 1040A, and attachments, forms, and schedules.

December 15, 1997 16 1997–50 I.R.B.

Overview All payment vouchers (Forms 940–V, 940–EZ(V), 941–V, 943–V, 945–V, 1040–V, and 2290–V) must be reproduced. Substitute vouchers must be the same size as the officially printed vouchers. Vouchers that are prepared for printing on a laser printer may include a scanline.

Scanline Fields NNNNNNNNN AA AAAA NN N NNNN NNN

A B C D E F G

A - Social Security Number/Employer Identification Number (SSN/EIN) has 9 numeric spaces. B - Check Digit has 2 alpha spaces. C - Name Control has 4 alphanumeric spaces. D - Master File Tax (MFT) Code has 2 numeric spaces (see below). E - Taxpayer Identification Number (TIN) Type has 1 numeric space (see below) F - Tax period has four numeric spaces in year/month format (YYMM). G - Transaction Code has 3 numeric spaces.

MFT Code Code Number for:

• Form 1040 family - 30;

• Form 940/940-EZ - 10;

• Form 941 - 01;

• Form 943 - 11;

• Form 945 - 16; and

• Form 2290 - 60.

TIN Type Type Number for:

• Form 1040 family - 0; and

• Forms 940, 940–EZ, 941, 943, 945, and 2290–2.

Voucher Size The voucher size must be exactly 8.0� - 3.25�. The document scanline must be vertically positioned 1.625 inches from the bottom of the scanline to the bottom of the voucher. The right most character of the scanline must be placed 3.5 inches from the right leading edge of the document. The maximum vertical displacement is .06 inches. The minimum required horizontal clear space between characters is .014 inches. The line to be scanned must have a clear band 0.25 inches in height from top to bottom of the scanline, and from border to border of the document. “Clear band” means no printing except for dropout ink.

Print and Paper Vouchers must be printed in black ink using OCR A or OCR B, size 1 font. The paper must be 20 to 24 Weight pound OCR bond paper weight.

1997–50 I.R.B. 17 December 15, 1997

Things You You cannot, without prior IRS approval, change any Internal Revenue Service tax form or use your own CANNOT Do (non-approved) versions (preprinted labels), including graphics, unless specifically permitted by this revto IRS Forms enue procedure. Suitable for Substitute Tax You cannot adjust any of the graphics on Forms 1040, 1040A, and 1040EZ (except in those areas specified Forms in Chapter 5 of this revenue procedure) without prior approval from the IRS Substitute Forms Program.

You cannot use your own preprinted label on tax returns filed with IRS, unless you fully comply with the exception criteria specified in the section on use of preaddressed IRS labels in this revenue procedure.

December 15, 1997 18 1997–50 I.R.B.

Basic Preparers who desire to file substitute privately designed and printed tax forms and/or computer-generated Requirements and computer-prepared tax forms must develop such substitutes using the guidelines for substitute forms established in this chapter. These substitutes, unless excepted by revenue procedure, must be approved by the IRS before being filed.

1040PC Format A software developer who wants to market, distribute, or use for its own clientele, a tax preparation packReturn age featuring the 1040PC tax return format, must first file an application to participate in the program. Only after successfully fulfilling test requirements will a developer’s software package be accepted by the IRS to produce 1040PC tax returns.

Conditional The Internal Revenue Service cannot grant final approval of your substitute form until the official form has Approval Based been published. However, the IRS usually releases advance proof copies of selected major tax forms that on Advanced are subject to further changes and OMB approval before their release in final format for printing and distriProofs bution to the public.

We encourage submission of proposed substitutes of these advance proof forms, and will grant conditional approval based solely on these early proofs. These advance proofs are subject to significant change before forms are finalized. If these advance proofs are used as the basis for your substitute forms, you will be responsible for subsequently updating your final forms to agree with the final official version before use. These revisions need not be submitted for further approval.

NOTE: Conditional approval will not be granted after the final version of an official form is published.

Any alteration of forms must be within the limits acceptable to the Service. It is possible that, from one filing period to another, a change in law or a change in internal need (processing, audit, compliance, etc.) may change the allowable limits for the alteration of the official form.

When specific approval of any substitute form (other than those specified in Chapter 2, IRS Contacts) is desired, a sample of the proposed substitute should be forwarded for consideration by letter to the Substitute Forms Program Coordinator at the address shown in Chapter 2.

To expedite multiple forms approval, we prefer that your proposed forms be submitted in separate sets by return. For example, Forms 1040 and their normally related schedules or attachments should be submitted separately from Forms 1120, 1065, 5500 Series, etc., if at all possible. Schedules and forms (e.g., Forms 3468, 4136, etc.) that can be used with more than one type of return (e.g., 1040, 1041, 1120, etc.) should be submitted only once for approval, regardless of the number of different tax returns with which they may be ultimately associated. In addition, all pages of a multipage form or return should be submitted in the same package.

Approving Offices As no IRS office except the ones specified in this procedure are authorized to approve substitute forms, unnecessary delay may result if forms are sent elsewhere for approval. All forms submitted to any other office must be forwarded to the appropriate office for formal control and review. The Substitute Forms Program Coordinator may then coordinate the response with the program analyst responsible for the processing of that form. Such coordination may include allowing the analyst to officially approve the form. No IRS office is authorized to allow deviations from this revenue procedure.

Service’s Review The IRS does not review or approve the logic of specific software programs, nor confirm the calculations of Software entered on forms output from these programs that are submitted for approval. The accuracy of the program Programs, etc. itself remains the responsibility of the software package developer, distributor, or user. The Substitute Forms Program is primarily concerned with the prefiling quality review of the final forms output, produced by whatever means, that are expected to be processed by IRS field offices. For the above reasons, it is suggested that you submit forms without including any “taxpayer” information such as names, addresses, monetary amounts, etc.

When to Send Proposed substitutes, which are required to be submitted per this revenue procedure, should be sent as Proposed much in advance of the filing period as possible. This is to allow adequate time for analysis and response. Substitutes

1997–50 I.R.B. 19 December 15, 1997

Accompanying When the sample substitute is submitted, there should be an accompanying statement that lists the form Statement number of each substitute requested and detail those items that deviate from the official form in position, arrangement, appearance, line numbers, additions, deletions, etc. Included with each of the items should be a detailed reason or justification for the change and an approximation of the number of forms expected to be filed.

When requesting approval for multiple forms, the statement should be presented as a checksheet. Checksheets are not mandatory, but do facilitate the approval process. The checksheet may look like the example (Exhibit C) displayed in the back of this procedure or may be one of your own design. Please include your fax number on the checksheet.

Approval/Non- The Substitute Forms Coordinator will fax the checksheet or an approval letter back to the originator if a Approval Notice fax number has been provided, unless:

• the requester has asked for a formal letter, or;

• significant corrections are required to the submitted forms.

Notice of approval may contain qualifications for use of the substitutes. Notices of non-approval letters may specify the changes required for approval, and may also require resubmission of the form(s) in question. Telephone contact is used when possible.

Duration of Most signature tax returns and many of their schedules and related forms have the tax (liability) year printed Approval in the upper right corner. Approvals for these forms are usually good for one calendar year (January through December of the year of filing). Quarterly tax forms in the 94X series, and Form 720, require approval for any quarter in which the form has been revised.

• If the preprinted year is the only change made to a form, the form for the upcoming year is not subject to

review.

• Otherwise, each new filing season requires a new approval.

Limited Continued Limited continued use of a change approved for one tax year may be allowed for the same form in the folUse of Approved lowing tax year. Examples of such limitations and requirements are the use of abbreviated words, revised Change form spacing, compressed text lines, shortened captions, etc., which do not change the consistency of lines or text on the official forms.

If substantial changes are made to the form, new substitutes must be submitted for approval. If only minor editorial changes are made to the form, it is not subject to review.

If you received written approval of a previous tax year substitute form governed by this revenue procedure and continue to use the approved change on your current tax year substitute form, you may revise your form to include this change and, without additional written approval, use it as a current tax year substitute form, provided you comply with the requirements in this revenue procedure.

When Approval If you received written approval for a specific change on a specific form last year, such as deleting the Is Not Required vertical lines used to separate dollars and cents on some forms and schedules, e.g., Schedules A & B of Form 1040, you may again make the same change on the same form this year if the item changed is present on this year’s official form.

• The new substitute does not have to be sent to the IRS and written approval is not required.

• However, the new substitute must conform to the official current year IRS form in other respects: date,

Office of Management and Budget (OMB) approval number, attachment sequence number, Paperwork Reduction Act Notice statement, arrangement, item caption, line number, line reference, data sequence, etc.

• It must also comply with this revenue procedure—which may have eliminated, added to, or otherwise

changed the guideline(s) which affected the change approved last year.

Exception: Those written approvals which state that the approved change or form would not be allowed in any other tax year, or for a temporary, limited, or interim approval pending resolution of a failure to meet one or more IRS-prescribed requirements.

• This authorization for continued use of an approved change is limited to the continuation of design logic

from an immediately prior tax year substitute form to a current tax year substitute form.

December 15, 1997 20 1997–50 I.R.B.

Continuous Forms without preprinted tax years are called “continuous use” forms. Many of these forms had expiration Use Forms dates, but these are being phased out. Continuous use forms are revised when a legislative change affects the form or a change will facilitate processing.

Internet Program A chart of print dates (for annual and quarterly forms) and most current revision dates (for continuous use Chart forms) will be maintained on the Internet. For further details, see the section on Internet access in Chapter 4 of this revenue procedure.

Required Copies Generally, you must send us one copy of each form being submitted for approval. However, if you are producing forms for different computer systems (e.g., IBM (or compatible) vs. MacIntosh) or different types of printers (laser vs. dot matrix), and these forms differ significantly in appearance, submit one copy for each type of system or printer.

Requestor’s Following the receipt of initial approval for a substitute forms package, or of a software output program to Responsibility After print substitute forms, it is the responsibility of the originator (designer or distributor) to provide each subReceipt of Approval sequent client firm or individual with the pertinent Service forms requirements that must be met for contin uing acceptability. Examples of this responsibility include:

• The use of prescribed print paper, font size, legibility, state tax data deletion,

• The legal requirements of the Paperwork Reduction Act Notice for informing all users of substitute forms

of the official use and collection requirements stated in the instructions for the official IRS forms, completion of documents, etc.

Source Code The Substitute Forms Program Coordinator Office, T:FP:S, will assign a unique source code to each firm that submits substitute paper forms for approval. This will be a permanent control number that should be used on every form created by a particular firm.

• This source code should be printed at the bottom left margin area on the first page of every approved substitute paper form.

• The source code for paper returns consists of three alpha characters.

• This source code should not be used on optically scanned (OCR) forms, except for certain specified Forms

1040–ES.

1997–50 I.R.B. 21 December 15, 1997

OMB Legal Requirements of the Paperwork Reduction Act of 1995 (“Act”). Public Law 104-13 requires that: Requirements for All Substitute - OMB approve all IRS tax forms that are subject to the Act, Forms

• Each IRS form contains (in the upper right corner) the OMB number, if any, and

• Each IRS form (or its instructions) states why IRS needs the information, how it will be used, and whether

or not the information is required to be furnished.

This information must be provided to every user of official or substitute tax forms.

Application of Act On forms to which OMB numbers have been assigned: to Substitute Forms

• All substitute forms must contain in the upper right corner the OMB number that is on the official form.

• Format Required - OMB No. XXXX-XXXX (Preferred) or OMB # XXXX-XXXX.

Required You must also inform the users of your substitute forms of the IRS use and collection requirements stated Explanation to in the instructions for the official Internal Revenue Service form. Users

• If you provide your users or customers with the official IRS instructions, page 1 of each form must retain

either the Paperwork Reduction Act Notice, or a reference to it as the IRS does on the official forms (usually in the lower left corner of the forms).

• If the IRS instructions are not provided to users of your forms, the exact text of the Paperwork Reduction

Act Notice must be furnished on the form or separately.

• This notice reads, in part, “We ask for this information to carry out the Internal Revenue laws of the United

States. You are required to give us the information. We need it to insure that you are complying with these laws and to allow us to figure and collect the right amount of tax...”

• You must also include a copy of the alternative statement provided to users of your forms with the forms

you submit for approval.

Obtaining OMB The OMB number and Paperwork Reduction Act Notice may be obtained from the official form (or its Number and Notice instructions), any format produced by the IRS (e.g., Compact Disc (CD), Internet download, or Bulletin Board System (BBS) download).

December 15, 1997 22 1997–50 I.R.B.

Assembly of Forms Continued

• Supporting statements must be in the same sequence as the forms they support, and

• Additional information required or voluntarily submitted.

In this way, they are received in the order in which they must be processed. If you do not send them to us in this order, the Internal Revenue Service has to delay the return package to disassemble them and place them in order before processing is continued.

December 15, 1997 24 1997–50 I.R.B.

Paper Content The paper must be:

- Chemical wood writing paper that is equal to or better than the quality used for the official form

- At least 18 pound (17� - 22�, 500 sheets), or

- At least 50 pound offset book (25� - 38�, 500 sheets).

Paper with There are several kinds of paper prohibited for substitute forms. These are: Chemical - Carbon-bonded paper Transfer - Chemical transfer paper except when the following specifications are met: Properties - Each ply within the chemical transfer set of forms must be labeled.

• Only the top ply (ply one and white in color), the one that contains chemical on the back only (coated

back), may be filed with the Service.

Example A set containing three plies would be constructed as follows: one ply (coated back), “Federal Return, File with IRS”; ply two (coated front and back), “Taxpayer’s copy”, and ply three (coated front), “Preparer’s copy.”

• The file designation, “Federal Return, File with IRS,” for ply one must be printed in the bottom right margin (just below the last line of the form) in 12-point, bold-face type.

• It is not mandatory, but recommended, that the file designation ”Federal Return, File with IRS,” be printed in a contrasting ink for visual emphasis.

Carbon Paper Do not attach any carbon paper to any return you file with the Internal Revenue Service.

Paper and Ink We prefer that the color and opacity of paper substantially duplicates that of the original form. This means Color that your substitute must be printed in black ink and may be on white or on the colored paper the IRS form is printed on. Forms 1040A and 1040 substitute reproductions may be in black ink without the colored shading. The only exception to this rule is Form 1041–ES, which should always be printed with a very light gray shading in the color screened area. This is necessary to assist us in expeditiously separating this form from the very similar Form 1040–ES.

Page Size Substitute or reproduced forms and computer prepared/generated substitutes may be the same size as the official form (8� - 11� in most cases) or they may be the standard commercial size (8 ¹ ⁄2� - 11�) exclusive of pinfeed holes. The thickness of the stock cannot be less than .003 inch.

1997–50 I.R.B. 25 December 15, 1997

Printing Medium The private printing of all substitute tax forms must be by conventional printing processes, photocopying, computer-graphics, or similar reproduction processes.

Legibility All forms must have a high standard of legibility, both as to printing and reproduction and as to fill-in matter. Entries of taxpayer data may be no smaller than eight points. The Internal Revenue Service reserves the right to reject those with poor legibility. The ink and printing method used must ensure that no part of a form (including text, graphics, data entries, etc.) develops “smears” or similar quality deterioration. This includes any subsequent copies or reproductions made from an approved master substitute form, either during preparation or during IRS processing.

Type Font Many federal tax forms are printed using “Helvetica” as the basic type font. We request that you use this type font when composing substitute forms.

Print Spacing Substitute forms should be printed using a 6 lines/inch vertical print option. They should also be printed horizontally in 10 pitch pica (i.e., 10 print characters per inch) or 12 pitch elite (i.e., 12 print positions per inch).

Image Size The image size of printed substitute form should be as close as possible to that of the official form. You may omit any text on both computer-prepared and computer-generated forms that is solely instructional.

Title Area Changes To allow a large top margin for marginal printing and more lines per page, the title line(s) for all substitute forms (not including the form’s year designation and sequence number, when present), may be photographically reduced by 40 percent or reset as one line of type. When reset as one line, the type size may be no smaller than 14-point. You may omit “Department of the Treasury, Internal Revenue Service” and all reference to instructions in the form’s title area.

Remove When privately printing substitute tax forms, the Government Printing Office symbol and/or jacket number Government must be removed. In the same place, using the same type size, print the Employer Identification Number Printing Office (EIN), the Social Security Number (SSN) of the printer or designer, or the IRS assigned source code. (We Symbol and IRS prefer this last number be printed in the lower left area of the first page of each form.) Also remove the IRS Catalog Number Catalog Number, if one is present in the bottom center margin, and the Recycle Symbol, if the substitute is not produced on recycled paper.

Printing On One While it is preferred that both sides of the paper be used for substitute and reproduced forms, resulting in the Side of Paper same page arrangement as that of the official form or schedule, the IRS will not reject your forms if only one side of the paper is used.

Photocopy The Internal Revenue Service does not undertake to approve or disapprove the specific equipment or process Equipment used in reproducing official forms. Photocopies of forms must be entirely legible and satisfy the conditions stated in this and other revenue procedures.

Reproductions Reproductions of official forms and substitute forms that do not meet the requirements of this revenue procedure may not be filed instead of the official forms. Illegible photocopies are subject to being returned to the filer for resubmission of legible copies.

Removal of You may remove all references to instructions. No prior approval is needed. One exception is that the stateInstructions ment, “For Paperwork Reduction Act Notice, See Instructions”, must be retained or a similar statement provided on each form.

December 15, 1997 26 1997–50 I.R.B.

Margin Size The format of a reproduced tax return when printed on the page must have margins on all sides at least as large as the margins on the official form. This allows room for IRS employees to make the necessary entries on the form during processing.

• A 1/2� to 1/4� inch margin must be maintained across the top, bottom, and both sides (exclusive of any pinfed holes) of all computer-generated substitutes.

• The marginal, perforated strips containing the pin-fed holes must be removed from all forms prior to filing with the Internal Revenue Service.

Marginal Printing Non-tax material allowed in limited areas.

• Printing is never allowed in the top right margin of the tax return form (i.e., Forms 1040, 1040A, 1040EZ,

1120, 940, 941, 5500 Series, etc.). The Service uses this area to imprint a Document Locator Number for each return.

• With the exception of the actual tax return forms (i.e., Forms 1040, 1040A, 1040EZ, 1120, 940, 941, etc.),

you may print in the left vertical margin and in the left half of the bottom margin.

Prior approval is not required for the marginal printing allowed when printed on an official form or on a photocopy of an official form.

The marginal printing allowance is also the guide for the preparation of acceptable substitute forms. There is no exception to the requirement that no printing is allowed in the top right margin of the tax return form.

1997–50 I.R.B. 27 December 15, 1997

Examples of Two sets of exhibits (Exhibits A–1, A–2, B–1, and B–2) are at the end of this revenue procedure. These are Approved Formats examples of how the guidelines in this revenue procedure may be used in some specific cases. Vertical spacFrom the Exhibits ing is six (6) lines to the inch. These examples are from a prior year and are not to be used as substitute forms.

Examples of Examples of acceptable computer-generated formats are also shown in the Exhibits section of this revenue Acceptable procedure. Exhibits CG-A and CG-B show computer-generated Schedules A and B. Vertical spacing is six computer-generated (6) lines to the inch. You may also refer to them as examples of how the guidelines in this revenue proceformats dure may be used in specific cases. A combination of upper and lower case print fonts is acceptable in producing the computer-generated forms included in this procedure. This same logic for computer-generated forms can be applied to any IRS form that is normally reproducible as a substitute form, with the exception of tax return forms as discussed elsewhere.

December 15, 1997 28 1997–50 I.R.B.

Filing Substitute To be acceptable for filing, a substitute return or form must print out in a format that will allow the party subForms mitting the return to follow the same instructions as for filing official forms. These instructions are in the taxpayer’s tax package or in the related form instructions. The form must be on the appropriate size paper, be legible, and include a jurat where one appears on the published form.

Caution to Software The IRS has received returns produced by software packages with approved output where either the form Publishers heading was altered or the lines were spaced irregularly. This produces an illegible or unrecognizable return or a return with the wrong number of pages. We realize that many of these problems are caused by individual printer differences but they may delay input of return data and, in some cases, generate correspondence to the taxpayer. Therefore, in the instructions to the purchasers of your product, both individual and professional, please stress that their returns will be processed more efficiently if they are properly formatted. This includes:

• Having the correct form numbers and titles at the top of the return, and

• Submitting the same number of pages as if the form were an official IRS form, with the line items on the

proper pages.

Use Preaddressed If you are a practitioner filling out a return for a client or a software publisher who prints instruction manuIRS Label als, stress the use of the preaddressed label provided in the tax package the IRS sent to the taxpayer, when available. The use of this label (or its precisely duplicated label information) is extremely important for the efficient, accurate, and economical processing of a taxpayer’s return. Labeled returns indicate that a taxpayer is an established filer and permits us to automatically accelerate processing of those returns. This results in quicker refunds, more accurate names/addresses and postal deliveries, and less manual review by IRS functions.

Caution to If you are producing a software package that generates name and address data onto the tax return, do not Producers of under any circumstances program either the Service preprinted check digits or a practitioner-derived Name Software Packages Control to appear on any return prepared and filed with the Internal Revenue Service.

Programming to Whenever applicable: Print Forms

• Use only the following label information format for single filers:

000-00-0000 JOHN Q. PUBLIC 310 OAK DRIVE HOMETOWN, STATE 94000

• Use only the following information for joint filers:

000-00-0000 000-00-0000 JOHN Q. PUBLIC MARY I. PUBLIC 310 OAK DRIVE HOMETOWN, STATE 94000

1997–50 I.R.B. 29 December 15, 1997

Sources of The publications listed below may be ordered by calling 1-800-TAX-FORM (1-800-829-3676). Identify the Publications requested document by IRS publication number:

• Pub. 1141, the revenue procedure on specifications for private printing for Forms W–2 and W–3.

• Pub. 1167, the revenue procedure on substitute printed, computer- prepared, and computer-generated tax

forms and schedules. This publication is available from the IRS Internet website.

• Pub. 1179, the revenue procedure on paper substitute information returns (Forms 1096, 1098, 1099 series,

5498, and W–2G).

• Pub. 1192, Catalog of Reproducible Forms and Instructions.

• Pub. 1220, the revenue procedure on electronic or magnetic tape and magnetic diskette reporting for information returns (Forms 1098, 1099 series, 5498, and W–2G).

• Pub. 1223, the revenue procedure on substitute Forms W–2c and W–3c.

• Pub. 1239, Specifications for Filing Form 8027, Employer’s Annual Information Return of Tip Income and

Allocated Tips, on Magnetic Tape.

• Pub. 1245, Magnetic Tape Reporting for Forms W–4.

• Pub. 1345, Handbook for Electronic Filers of Individual Income Tax Returns (Tax Year 1997). (This is an

annual publication; tax year is subject to change). This publication is available from the IRS Internet website.

• Pub. 1345–A, Handbook for Electronic Filers of Individual Income Tax Returns (Tax Year 1997)

(Supplement). This publication, printed in the late fall, supplements Publication 1345.

• Pub. 1355, the revenue procedure on the requirements for substitute Form 1040–ES.

Where To Order If you are mailing your order, the address to use is determined by your location.

If you are located in:

• Alaska, Arizona, California, Colorado, Hawaii, Idaho, Kansas, Montana, Nevada, New Mexico,

Oklahoma, Oregon, Utah, Washington, Wyoming, Guam, Northern Marianas, or American Samoa

• mail your request to:

Western Area Distribution Center Rancho Cordova, CA 95743-0001

• Alabama, Arkansas, Illinois, Indiana, Iowa, Kentucky, Louisiana, Michigan, Minnesota, Mississippi,

Missouri, Nebraska, North Dakota, Ohio, South Dakota, Tennessee, Texas, or Wisconsin

• mail your request to:

Central Area Distribution Center P.O. Box 8903 Bloomington, IL 61702-8903

• Connecticut, Delaware, District of Columbia, Florida, Georgia, Maine, Maryland, Massachusetts, New

Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, West Virginia, as well as all foreign countries and Puerto Rico

• mail your request to:

Eastern Area Distribution Center P.O. Box 85074 Richmond, VA 23261-5074

• Taxpayers in the Virgin Islands should mail their requests to:

V.I. Bureau of Internal Revenue 9601 Estate Thomas Charlotte Amalie, St. Thomas, VI 00802

1997–50 I.R.B. 31 December 15, 1997

The Internet Copies of tax forms with instructions, publications, and other tax related materials may be obtained via the Internet. Forms can be downloaded in several file formats (PDF-Portable Document Format, PS - PostScript, and PCL - Printer Control Language). Those choosing to use PDF files for viewing on personal computer can also download a free copy of the Adobe Acrobat Reader.

• World Wide Web - http://www.irs.ustreas.gov

• FTP—ftp.irs.ustreas.gov

• Telnet—iris.irs.ustreas.gov

This service is free but time on the Internet is subject to the fees charged by your Internet provider.

Fedworld (BBS) The Internal Revenue Information Systems (IRIS) Bulletin Board can be reached via FedWorld, an aggregation of federal BBS maintained by the Department of Commerce. IRIS can be reached directly by modem at (703) 321-8020; FedWorld’s main number is (703) 321-3339. These are toll calls.

Tax Fax The most frequently requested tax forms, instrucitons, and other information are available through IRS Tax Fax. Prior to 12/1/97 dial (703) 487-4160. The new number starting 12/1/97 will be (703) 368-9694. Call from your fax machine and follow the voice prompts. Your request will be transmitted directly back to you. Each call is limited to requesting three items; users pay the telephone line charges.

Report of Print The Service makes available a text file that shows print dates for returns processing forms. It is in three parts: Dates

• Schedule of anticipated print dates of annual returns,

• Schedule of anticipated print dates of quarterly returns, and

• Schedule of last revision dates for continuous use only forms.

The file name is 0prtdate.txt and is located in the File Transfer Protocol (FTP) library of the Internet at ftp://ftp.fedworld.gov/pub/irs-utl and in the IRS/UTL library on the IRIS Bulletin Board. The file will be updated weekly during peak printing periods and as necessary at other times. NOTE: All dates in the FTP area are reloaded daily and do not reflect the most recent posting of the report. IRIS Bulletin Board shows the most recent posting by date.

December 15, 1997 32 1997–50 I.R.B.

Information About The IRS also offers access to current and prior year tax forms and instructions through its Federal Tax Forms Federal Tax Forms CD-ROM, Publication 1796. The CD will contain over 600 current year tax forms, instructions, and CD-ROM Taxpayer Information Publications (TIPs). Also included are prior year forms and instructions from 1991 and some prior year. All necessary software to view the files must be installed from the CD-ROM. Software for Microsoft Windows 3.x and Macintosh System 7.5 and later is included on the disk. The software will also run under Windows 95. All products are presented in Adobe’s Portable Document Format (PDF). A copy of the Adobe Acrobat Reader is on the CD. In addition, the TIPs will be provided in the Standard Generalized Markup Language (SGML). The cost of the CD is $20 and it will be released in February 1998. Please reference stock number 648-097-00003-4. Those who order before December 2, 1997 will also receive the January early release CD containing tax products issued to that point.

System For system requirements and to order the 1996 Federal Tax Forms CD-ROM, Publication 1796 (stock Requirements and number 648-097-00003-4), contact the Government Printing Office’s (GPO) Superintendent of Documents: How To Order the Federal Tax Forms - by telephone—(202) 512-1800; select option 1; CD-ROM

• by fax—(202) 512-2250;

• through GPO’s Federal Bulletin Board—(202) 512-1387; after sign on type “/go irs”;

• through GPO’s World Wide Web site at http://www.gpo.gov/su_docs;

• by mail using the order form contained in IRS Publication 1045 (Information for Tax Practitioners); or

• by mail to:

Superintendent of Documents P.O. Box 371954 Pittsburgh, PA 15250-7954.

1997–50 I.R.B. 33 December 15, 1997

Adjustments You may make minor vertical and horizontal spacing adjustments to allow for computer or word-processing printing. This includes widening the amount columns or tax entry areas so long as the adjustments do not exceed other provisions stated in revenue procedures. No prior approval is needed for these changes .

Name and Address The horizontal rules and instructions within the name and address area may be removed and the entire area Area left blank; no line or instruction can remain in the area. However, the statement regarding use of the IRS mail label should be retained. The heavy ruled border (when present) that outlines the name and address area must not be removed, relocated, expanded, or contracted.

Required Format When the name and address area is left blank, the following format must be used when printing the taxpayer’s name and address. Otherwise, unless the taxpayer’s preprinted label is affixed over the information entered in this area, the lines must be filled in as shown:

• 1st name line (35 characters maximum)

• 2nd name line (35 characters maximum)

• In-care-of name line (35 characters maximum)

• City, State (24 char. max.), one blank char., & ZIP (five char.)

Conventional When there is no in-care-of name line, the name and address will consist of only three lines (single filer) or Name and Address four lines (joint filer). Data Name and address (joint filer) with no in-care-of name line:

JOHN Z. JONES MARY I. JONES 1234 ANYWHERE ST., APT 111 ANYTOWN, STATE 12321

Example of In- Name and address (single filer) with in-care-of name line: Care-Of Name Line

JOHN Z. JONES C/O THOMAS A. JONES 4311 SOMEWHERE AVE. SAMETOWN, STATE 54345

Social Security The vertical lines separating the format arrangement of the SSN/EIN may be removed. When the vertical Number (SSN) and lines are removed, the SSN and EIN formats must be 000-00-0000 or 00-0000000, respectively. Employer Identification Number (EIN) Area

Cents Column - You may remove the vertical rule that separates the dollars from the cents.

• All entries in the amount column should have a decimal point following the whole dollar amounts whether

or not the vertical line that separates the dollars from the cents is present.

• You may omit printing the cents, but all amounts entered on the form must follow a consistent format. You

are strongly urged to round off the figures to whole dollar amounts, following the official return instructions.

• Where several amounts are summed together, the total should be rounded off subsequent to the addition

(i.e, individual amounts should not be rounded off for computation purposes).

• When printing money amounts, you must use one of the following ten-character formats: (a) 0,000,000.

(b) 000,000.00

• When there is no entry for a line, leave the line blank.

“Paid Preparer’s On all forms, the paid preparer’s information area may not be rearranged or relocated. You may add three Use Only” Area lines and remove the horizontal rules in the preparer’s address area.

1997–50 I.R.B. 35 December 15, 1997

General No prior approval is needed for the following changes (for use with computer-prepared forms only).

Line 4 of Form This line may be compressed horizontally (to allow for same line entry for the name of the qualifying child) 1040A by using the following caption: “Head of household; child’s name” (name field).

Other Lines Any line whose caption takes up two or more vertical lines may be compressed to one line by using contractions, etc., and by removing instructional references.

Page 2 of Form All lines must be present and numbered in the order shown on the official form. These lines may also be 1040A compressed.

Color Screening It is not necessary to duplicate the colorscreening used on the official form. A substitute Form 1040A may be printed in black and white only, with no color screening.

Other Changes No other changes to the Form 1040A graphics are allowed without prior approval, except for the removal of Prohibited instructions and references to instructions.

December 15, 1997 36 1997–50 I.R.B.

General No prior approval is needed for the following changes (for use with computer-prepared forms only).

Line 4 of Form This line may be compressed horizontally (to allow for a larger entry area for the name of the qualifying 1040 child) by using the following caption: “Head of household; child’s name” (name field).

Line 6c of Form The vertical lines separating columns (1) through (4) may be removed. The captions may be shortened to 1040 allow a one-line caption for each column.

Other Lines Any other line whose caption takes up two or more vertical lines may be compressed to one line by using contractions, etc., and by removing instructional references.

Line 21 - Other The fill-in portion of this line may be expanded vertically to three lines. Income The amount entry box must remain a single entry.

Line 39 of Form You may change the line caption to read “Tax” and computer print the words “Total includes tax from” and 1040 - Tax either “Form(s) 8814”, or “Form 4972”.

Line 44 of Form You may change the caption to read: “Other credits from Form” and computer-print only the form(s) that 1040 apply.

Color Screening It is not necessary to duplicate the color screening used on the official form. A substitute Form 1040 may be printed in black and white only, with no color screening.

Other Changes No other changes to the Form 1040 graphics are permitted without prior approval except for the removal of Prohibited instructions and references to instructions.

1997–50 I.R.B. 37 December 15, 1997

Use of Your Own Internal control numbers and identifying symbols of the computer preparer may be shown on the substitute, Internal Control if the use of such numbers or symbols is acceptable to the taxpayer and the taxpayer’s representative. If Numbers and shown, such information must not be printed in the top ¹ ⁄2-inch clear area of any form or schedule requiring Identifying a signature. With the exception of the actual tax return form (i.e., Forms 1040, 1120, 940, 941, 5500 Series, Symbols etc.), you may print in the left vertical and bottom left margins. The bottom left margin you may use extends 3 ¹ ⁄2 inches from the left edge of the form.

Descriptions for Descriptions for captions, lines, etc., appearing on the substitute forms may be limited to one print line by Captions, Lines, using abbreviations and contractions, and by omitting articles, prepositions, etc. However, sufficient key etc. words must be retained to permit ready identification of the caption, line, or item.

Derivation of Explanatory detail and/or intermediate calculations for derivation of final line totals may be included on the Final Totals substitute. We prefer that such calculations be submitted in the form of a supporting statement. If intermediate calculations are included on the substitute, the line on which they appear may not be numbered or lettered. Intermediate calculations may not be printed in the right column. This column is reserved for official numbered and lettered lines that correspond to the ones on the official form. If a supporting statement is submitted, intermediate calculations or subtotals may be formatted at the preparer’s option.

Instructional Text Text prescribed for the official form, which is solely instructional in nature, e.g., “Attach this schedule to Prescribed for the Form 1040,” “See instructions,” etc., may be omitted from the substitute form. Official Form

Mixing of Forms Information for more than one schedule or form may not be shown on the same printout page. Both sides of on the Same Page the paper may be printed for multiple page official forms; but it is unacceptable to intermix single page Prohibited schedules of forms, except for Schedules A and B (Form 1040), which are printed back to back by the Service.

Schedule E can be printed on both sides of the paper, because the official form is multiple page, with page 2 continued on the back. However, do not print Schedule E on the front page and Schedule SE on the back, or Schedule A on the front and Form 8615 on the back, etc. Both pages of a substitute form must match the official form version it represents, except that the back page may be blank if the Service form only contains the instructions thereon.

Identifying Identify all computer-prepared substitutes clearly; print the form designation ¹ ⁄2� from the top margin and 1 ¹ ⁄2� Computer- from the left margin; print the title centered on the first line of print; and print the taxable year and, where Prepared applicable, the sequence number on the same line ¹ ⁄2 to 1� from right margin. Include the taxpayer’s name Substitutes and SSN on all forms and attachments. Also, print the OMB number as reflected on the official form.

Negative Amounts Negative (or loss) monetary amount entries should be enclosed in brackets, or signed minus, to assist in the accurate computation and input of form data. On many official forms the Service preprints brackets in selected negative data fields, and these designations should be retained or inserted on affected substitute forms.

1997–50 I.R.B. 39 December 15, 1997

Specific Ink Requirements Continued

Typography Type must be substantially identical in both size and shape with corresponding type on the official form reproduction proof.

Proper Alignment To assure proper alignment and position of handprinted characters representing return lines 1 through 10 tax and Position of data, they must be handprinted (entered) into the preprinted amount field boxes on the form. A #2 lead Handprinted wooden pencil, or blue, and/or black ink pen (ball point, fountain, or felt-tipped) is recommended as the Characters writing tool that will consistently provide the required stroke width and print contrast on entered characters.

Reading of Reading of handprinted characters requires adherence to the following techniques: Handprinted Character - Enter numeric amount digits carefully and clearly. Fill at least 2/3 of the individual character box Techniques height, keeping the character within the box with no overlapping or touching characters. Specific required digit constraints are shown below.

• When entering “fours”, keep the top open.

• When entering “ones”, do not use serifs.

• When entering “twos”, do not add extra loops.

• All character lines must be connected with no gaps.

Note: All the general and detailed provisions of this revenue procedure apply (in addition to this specific OCR/ICR Section) to the development of substitute OCR/ICR Forms 1040EZ.

Introduction The Internal Revenue Service offers an electronic approach for filing individual income tax returns. The 1040PC Format Return is an alternative to the conventional preprinted tax return. The 1040PC is an answer sheet return, generated on a personal computer in a three-column format, that prints only tax data that is input into the software. Tax returns are filed by tax preparers and taxpayers using commercially available tax preparation software packages that include the 1040PC Format Return print option.

1040PC Format 1040PC Format Returns are computer-prepared, printed on plain white paper, signed and mailed to the Returns designated processing center, and processed like any other conventionally filed return.

1997–50 I.R.B. 41 December 15, 1997

Software Packages Preparers, or taxpayers, must purchase IRS-accepted tax preparation software packages that include the Must Be Purchased 1040PC print option. All that is necessary to participate in 1040PC is a personal computer, accepted software, a printer, and plain white paper. The 1040PC is attractive to tax preparers and taxpayers who might not be interested or capable of electronic filing.

Options Available The Direct Deposit option is available to taxpayers filing 1040PC returns. Balance due returns may also to Taxpayers be filed using 1040PC. The payment may be forwarded to the Service Center with a separate payment voucher (Form 1040–V).

Use of the 1040PC All software used to generate the 1040PC Format Return must be tested and accepted by the Internal Program Revenue Service. Testing will validate 1040PC returns generated by the software and that the software program is in compliance with validity and consistency checks in the IRS 1040PC project specifications. Software developers who wish to participate in the 1040PC program must submit Form 9356, Application for Software Developers to Participate in the 1040PC Answer Sheet for Individual Income Tax Returns, to the 1040PC Filing Section.

Acceptance Code Upon successful completion of software acceptance testing, the software developer will be issued a software acceptance code that will be embedded into the software and print on every 1040PC return generated. This is not the same as the Source Code issued by the Substitute Forms Program or the approval number which is generated for OCR Scannable Application Forms for Employee Plans.

References/ The Internal Revenue Service believes that 1040PC will prove beneficial to taxpayers, tax preparers, and Information on the the Service. For specific information about the alternative computer-generated 1040PC Format Return, 1040PC Format refer to Publication 1678, Project 1040PC, Handbook for 1040PC Format Preparers and Publication 1630, Return Project 1040PC, Specifications for Software Developers. You may also call (202) 283-0823 or write:

Internal Revenue Service 1040PC Filing Office, T:S:P:S 5000 Ellin Rd Lanham, MD 20706

Form 941 Not The Service is not currently machine reading (scanning) Form 941 or Schedule B (Form 941). Previous Machine Read instructions labeled “Special Form 941 Requirements” have been removed from this revenue procedure.

December 15, 1997 42 1997–50 I.R.B.

OCR Scannable Forms 4461, 4461–A, 4461–B, 5300, 5303, 5307, 5310–A, and 6406 are OCR scannable documents subDocuments mitted to key district offices for employee plans matters. They may be submitted as computer-generated substitute forms if the requirements of this section are satisfied.

OCR Data Sheet An OCR data sheet must be generated according to the following requirements: Requirements - Set at least 1” margin at top, bottom, and both sides.

• A data element consists of a less than sign (delimiter), information or at least 5 blank spaces, and a greater

than sign (delimiter). All data elements from page one of the application forms listed above must be printed on the OCR data sheet, even if no information is entered between the delimiters.

• Each data element must start at the left margin.

• One line for each data field, except for employer and plan name fields which may be two lines. However,

only one set of delimiters may bracket the field, even if the field is on two lines.

• Each data element must appear on the OCR data sheet in the same sequence as printed on the preprinted

form, reading top to bottom and from left to right.

• Each data field must be sequentially numbered at left commencing with 1. See Notice 90-38 for examples

of the acceptable format.

• The data sheet must be printed on 8 ¹ ⁄2” � 11” white nonrecycled paper suitable for use with printing equipment and duplicating machines. A photocopy is not acceptable. Heavyweight bond paper and onion skin

paper are not acceptable.

• Use 10 pitch type in a standard business font (e.g., courier, elite, pica).

• Add at least two spaces before and after each less than and greater than sign (delimiters).

• Do not fold or staple the OCR data sheet. It may remain loose, or be paper or spring clipped to the application.

• At the top of the OCR data sheet add the heading “OCR Data Sheet, File With Application Form (Enter

Form Number), Approval Number” (leave nine spaces for approval number).

Where To Send The OCR data sheet must be submitted for approval to EP OCR Forms Coordinator, E:EP:FC, Room 2232, OCR Data Sheet 1111 Constitution Ave., NW, Washington, DC 20024. for Approval

Submission The OCR data sheet must be submitted with a complete word-for-word identical copy of the application form Requirements except as described below. This copy may be a photocopy or a computer-generated substitute form. Computer-generated substitute forms may be submitted for approval to the address above. However, except for the OCR data sheet, such approval is not required if the requirements of this revenue procedure are satisfied. If approval is requested, leave nine spaces for the approval number above the OMB approval number.

Procedures for The OCR data sheet replaces the first copy of page 1 of the application which must otherwise be submitted Filing the OCR in duplicate. To avoid confusion when generating the OCR data sheet, the following wording should be Data Sheet deleted from page 1 of the application: “File page 1 of the form in duplicate” and “Both copies of this page must be signed”. If the Procedural Requirements Checklist is being generated, the following line item statements should be modified as indicated. The question “Has page one been submitted in duplicate” should be modified to read, “Have you submitted the OCR data sheet?”, and the question “Have you signed both copies of page 1 of the application?” should be modified to read “Have you signed the application?”

Nonscannable Nonscannable EP application forms, e.g., Form(s) 5305 and 5306, may be computer generated. They need EP Application not be submitted for approval if the requirements of this revenue procedure are satisfied. If approval is Forms desired, these forms may be submitted to the Substitute Forms Coordinator.

1997–50 I.R.B. 43 December 15, 1997

Substitute Forms Format Requirements Continued

1997–50 I.R.B. 45 December 15, 1997

Schedule K–1 Prior approval is NOT required for a substitute Schedule K–1 that accompanies Form 1065 (for partnership), Requirements a Form 1120S (for small business corporation), or a Form 1041 (for fiduciary) when the substitute Schedule K–1 meets all of the following requirements.

• The Schedule K–1 must contain the payer and recipient’s name, address and SSN/EIN.

• The Schedule K–1 must contain all the items required for use by the taxpayer.

• The line items must be in the same order and arrangement as those on the official form.

• Each taxpayer’s information must be on a separate sheet of paper. Therefore, all continuously printed substitutes must be separated, by taxpayer, before filing with the Service.

• Schedule K–1 for recipients must have instructions for required line items attached.

• You may be subject to penalties if you file Schedules K–1 with the Service and furnish Schedules K–1 to

partners, shareholders, or beneficiaries that do not conform to the specifications of this revenue procedure.

• The amount of each partner’s shareholder’s or beneficiary’s share of each line item must be shown. The

furnishing of a total amount of each line item and a percentage (or decimal equivalent) to be applied to such total amount by the partner, shareholder, or beneficiary does not satisfy the law and the specifications of this revenue procedure.

• If you file Schedules K–1 not conforming to the above specifications, IRS may consider these as not

processable and return them to you to be filed correctly. You may also be subjected to the penalty as mentioned

Procedures for Organizations are permitted to produce substitute tax return envelopes. Use of substitute return envelopes Printing IRS that comply with the requirements set forth in this section will assist in delivery of mail by the U.S. Postal Envelopes Service and facilitate internal sorting once the envelopes are received at the Internal Revenue Service Centers.

The permanent five-digit ZIP codes must be utilized when mailing returns to the prescribed service center:

December 15, 1997 46 1997–50 I.R.B.

Sorting of The sorting of returns by form type is accomplished by the preprinted bar codes on return envelopes that are Returns by Form included in each specific type of form or package mailed to the taxpayer. The 32 bit bar code located to the Type left of the address on each envelope identifies the type of form that person is filing and assists the Service in consolidating like returns for processing. Failure to use the envelopes furnished by the Service results in additional processing time and effort, and possibly delays the timely deposit of funds, processing of returns, and issuance of refund checks.

Sorting of Returns The Internal Revenue Service will not furnish or sell bulk quantities of preprinted tax return envelopes to taxby ZIP + 4 or 9 payers or tax practitioners. A suitable alternative has been developed that will accommodate the sorting Digit ZIP Codes needs of both the IRS and the U.S. Postal Service. The new alternative is based on the use of ZIP + 4 or 9 digit ZIP codes for mailing various types of tax returns to the different area service centers. Essentially, the Postal Service will utilize the last four digits to identify and sort the various form types into separate groups for processing. The list of add-on four digits or + 4 portion of the 9 digit ZIP codes with the related form designations is provided below and is to become a permanent part of the five digit service center ZIP codes shown above.

Add-on Four Digits or + 4 Portion of the 9 Digit ZIP Codes

Reproducible The Reproducible Program that in past years supplied the envelope Reproduction Proofs was abolished Program Is September 30, 1996. The IRS will no longer provide camera copy to practitioners for the production of Abolished envelopes. Practitioners must develop their own camera copy.

1997–50 I.R.B. 47 December 15, 1997

Guidelines for Use of preparer company names, addresses, and logos is permissible as long as prescribed clear areas are not Having Envelopes invaded. The government recommends that the envelope stock have an average opacity not less than 89 perPreprinted cent and contain a minimum of 50 percent waste paper. Use of carbon-based ink is essential for effective address and bar code reading. Envelope construction can be of side seam or diagonal seam design. The government recommends that the size of the envelope should be 5-3/4� by 9�. Continuous pin-fed construction is not desirable but is permissible if the glued edge is at the top. This requirement is firm because mail opening equipment is designed to slice or otherwise open the bottom edge of each envelope.

Envelopes/ The above procedures or guidelines are written for the user having envelopes preprinted. Many practitionZip Codes ers may not wish to have volumes of the different envelopes with differing ZIP codes/form designations preprinted for reasons of low volume, warehousing, waste, etc. In this case, the practitioner can type or machine print the addresses with the appropriate ZIP codes to accommodate sorting. If the requirements/guidelines outlined in this section cannot be met, then use of only the appropriate five digit service center ZIP code is needed.

Form 5471 and This section covers instructions for producing substitutes for: Form 5472

• Form 5471, Information Return of U.S. Persons with Respect to Certain Foreign Corporations and accompanying Schedules J, M, N, and O.

• Form 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation

Engaged in a U.S. Trade or Business (Under Sections 6038A and 6038C of the Internal Revenue Code).

Paper and Paper and computer-generated substitutes for Form 5471 and the accompanying Schedules J, M, N, and O, Computer- and Form 5472 that totally conform to the specifications contained in this procedure may be privately printGenerated ed, but must have prior approval and are subject to annual review from the Internal Revenue Service. Substitutes

Official Forms Copies of the official forms for the reporting year may be obtained from most Service offices. The Service Can Be Obtained provides only cut sheets of these forms. Continuous fan-folded/pin-fed forms are not provided. From Most Service Offices

Quality Substitute The Service will accept quality substitute tax forms that are consistent with the official forms they represent Forms AND that do not have an adverse impact on our processing. Therefore, only those substitute forms that conform to, and do not deviate from, the corresponding official forms are acceptable.

Computer- If the substitute returns and schedules meet the guidelines prescribed herein, the Service will (for filing purPrepared Tax poses) accept computer-prepared Forms 5471 and 5472 filled in by a computer, word processing equipment Forms or similar automated equipment or a combination of computer-prepared/generated and filled in information. They may be filed separately or attached to individual or business income tax returns.

Format The specifications for Form 5471 and 5472 are as follows: Arrangement

• The Substitute must follow the design of the official form as to format, arrangement, item caption, line

numbers, line references, and sequence. It must be an exact textual and graphic MIRROR image of the official form for it to be acceptable.

• The filer must use one of the official ten character amount formats. All entries in the amount column

should have a decimal point following the whole dollar amounts whether or not the vertical line that separates the dollars from the cents is present. It must follow a consistent format.

December 15, 1997 48 1997–50 I.R.B.

Format - The reference code must be printed to the left of the corresponding captioned line and also immediately Arrangement preceding the data entry field EVEN if there is no reference code preceding the data entry field on the Continued official form. The reference code that is immediately before the data field must either be followed by a period or enclosed in parentheses. There also must be at least two blank spaces between the period or the right parenthesis and the first digit of the data field.

- The size of the page must be the same as the official form (8 ¹ ⁄2� - 11�).

- The acceptable type is “Helvetica”.

- The spacing of the type must be 6 lines/inch vertical, 10 or 12 print characters per inch horizontally.

- A ¹ ⁄2 to 1/4” margin must be maintained across the top, bottom, and both sides (exclusive of any pin-fed

holes).

• The substitute form must be of the same number of pages as the official one.

• The preprinted brackets in the money fields should be retained.

• The filer must COMPLETELY fill in all the specified numbers or referenced lines as they appear on the

official form (not just totals) BEFORE attaching any supporting statement.

• Supporting statements are NEVER to be used until the required official form they support are first totally

filled in (completed). A blank or incomplete form that refers to a supporting statement, in lieu of completing a tax return, is unacceptable.

• Descriptions for captions, lines, etc., appearing in the substitute forms may be limited to one print line by

using abbreviations and contractions, and by omitting articles, prepostitons, etc. However, sufficient key words must be retained to permit ready identification of the caption, line, or item.

• Text prescribed for the official form, which is solely instructional in nature, e.g., “Attach this schedule to

Form 1040”, “See instruction”, etc., may be omitted from the form.

Filing Instructions Instructions for filing substitute forms are the same as for filing official forms.

1997–50 I.R.B. 49 December 15, 1997

Guidelines for A participant in the electronic filing program who wants to develop a substitute form should follow the Preparing guidelines for preparing substitute forms throughout this publication, and send a sample of the form for Substitute Forms approval to the Substitute Forms Coordinator at the address in Chapter 2. Forms 8453 prepared using a in the Electronic font where all IRS-approved wording will not fit on a single page will not be accepted as a substitute form. Filing Program This applies primarily to dot-matrix printers, although forms prepared similarly on laser and inkjet printers will also be rejected. PLEASE NOTE: Use of unapproved forms could result in suspension of the participant from the electronic filing program.

Instructions for Publication 1315 provides the requirements and instructions for reporting agents who sumit Federal Tax Reporting Agents Deposits (FTD) payment information on magnetic tape. Magnetic tape submissions for FTD can be made for Forms 940, 941, 942, 943, 720, CT–1, 990–PF, 990–T, 990–C, 1042, 1120, and Schedule A (Form 941) Backup Withholding.

Instructions for Revenue Procedure 89–49 (Pub. 1374) provides the requirements and instructions for certain banks and fiduBanks and ciaries to submit quarterly Form 1041–ES payments on magnetic tape through the Federal Tax Deposit (FTD) Fiduciaries system.

Effect on Other This revenue procedure supersedes Revenue Procedure 96–48, I.R.B. 1996–48. Documents

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