Part 7 Miscellaneous Forms and Programs

Section 7.1 — Specifications for Substitute Schedules K–1

7.1.1 Requirements for Schedules K–1 That Accompany Forms 1041, 1065, 1065–B, and 1120S

7.1.2 Special Requirements for Recipient Copies of Schedules K–1

Prior approval is not required for substitute Schedules K–1 that accompany Form 1041 (for estates and trusts), Form 1065 (for partnerships), Form 1065–B (for electing large partnerships), or Form 1120S (for S corporations) if they are exact copies of the official IRS schedules or exact copies that contain only those lines that taxpayers are required to use. Schedules that are 2–D bar-coded require prior approval (See Sections 7.1.3 through 7.1.5). Schedules K–1 that accompany Forms 1041, 1065, 1065–B, or 1120S must meet all of the following requirements:

tate, trust, partnership, or S corporation) and the recipient (beneficiary, partner, or shareholder).

the related form number (1041, 1065, 1065–B, or 1120S), and the official schedule name in substantially the same position and format as shown on the official IRS schedule.

ously-printed substitutes must be separated, by recipient, before filing with the IRS.

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

conform to the above specifications. In addition, the IRS may consider the Schedules K–1 as not processable and return Forms 1041, 1065, 1065–B, or 1120S to the entity to be filed correctly.

Increased standardization for reporting information is now required for recipient copies of substitute Schedules K–1 of Forms 1041, 1065, 1065–B, and 1120S. The more uniform visual standards are provided to increase compliance by allowing recipients to more easily recognize a substitute Schedule K–1. The entity must furnish to each recipient a copy of Schedule K–1 that meets the following requirements:

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7.1.3 Requirements For Schedules K–1 with Two-Dimensional (2-D) Bar Codes

the related form number (1041, 1065, 1065–B, or 1120S), and the official schedule name in substantially the same position and format as shown on the official IRS schedule.

in the same manner as shown on the official IRS schedule. Line numbers are to be shown in the same order as those on the official schedule.

that are not required for the particular recipient may be omitted. If line items are omitted or skipped, the remaining line items must be labeled in the same manner and shown in the same order as they are on the official IRS schedule. The instructions to the schedule must clearly indicate that the number and order of the items relate to the official IRS schedule.

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

ule must be provided to aid in the proper reporting of the items on the recipient’s income tax return. Where items have been omitted because they are not required for use by a recipient, the related instructions may also be omitted.

clearly legible documents. In general, black chemical transfer inks are preferred.

may be substituted for the maximum dimensions.)

that the average recipient can easily decipher the information on each page.

does not interfere with the purpose of the schedules.

non-tax-related information should be separated from the tax information on the substitute schedule to avoid confusion for the recipient.

spicuous manner on the outside of the envelope that contains the substitute recipient copy of Schedule K–1.

does not conform to the specifications of this revenue procedure.

In an effort to reduce the burden of manually transcribing tax documents, improve quality, and increase government efficiency, the IRS is pleased to introduce specifications for 2-D barcoded substitute Schedules K–1 for Forms 1041, 1065, and 1120S . The Service encourages voluntary participation in adding 2-D bar-coding. See Exhibits F, G, and H for examples of draft bar-coded Schedules K–1.

Note: If software vendors do not want to produce bar-coded Schedules K–1, they may pro- duce the official IRS Schedules K–1 without leaving a space for bar-codes and without using the expedited process for approving bar-coded K–1’s and their parent returns as outlined in Section 7.1.5.

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7.1.4 Approval Process for Bar-Coded Schedules K–1

7.1.5 Procedures for Reducing Testing Time

In addition to the above requirements, the bar-coded Schedules K–1 must meet the following specifications.

corner of the schedule. The entire bar code must print within the “For Official Use Only” box surrounded by a white space of at least ¹ /4-inch.

must always be in the specified format with every field represented by at least a field delimiter (carriage return). Leaving out a field in a bar code will cause every subsequent field to be misread.

Prior to releasing commercially available tax software that creates bar-coded Schedules K–1, the printed schedule and the bar code must both be tested. Bar code testing must be done using the final official IRS Schedule K–1. Bar code approval requests must be resub- mitted for any subsequent changes to the official IRS form that would affect the bar-code . Below are instructions and a sequence of events that will comprise the testing process.

in the Internal Revenue Bulletin. The exact release or bulletin number will be determined after this revenue procedure is published.

test the ability of tax preparation software to create bar codes in the correct format.

IRS and one to a contracted testing vendor.

software developer of the reason for non-compliance.

the software developer directly informing them of the reason for noncompliance.

has passed the bar-code test and the IRS will issue an overall approval for both the substitute form and the bar-code.

for tax preparation as long as any subsequent revisions to the schedules do not change the fields.

Revenue Bulletin as mentioned above. Separate mailings to the IRS and the vendor will reduce testing time.

In order to help provide incentives to the software development community to participate in the Schedule K–1 2-D project, the IRS has committed to expedite the testing of bar-coded Schedules K–1 and their associated parent returns. To receive this expedited service, closely follow the bullets below.

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K–1 to the address below in a package separate from all other approval requests.

Internal Revenue Service Attn: Bar-Coded K–1 W:CAR:MP:T:T:SP 1111 Constitution Avenue, NW Room 6411 Washington, D.C. 20224

it cannot expedite the approval of non-associated tax returns.

bar-coded Schedule(s) K–1 only to the testing vendor.

Section 7.2 — Procedures for Printing IRS Envelopes

7.2.1 Procedures for Printing IRS Envelopes

7.2.2 Sorting Returns by Form Type

7.2.3 ZIP+4 or 9-Digit ZIP Codes

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

Use the following five-digit ZIP codes when mailing returns to the IRS Service Centers:

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

The IRS will not furnish or sell bulk quantities of preprinted tax return envelopes to taxpayers or tax practitioners. A suitable alternative has been developed that will accommodate the sorting needs of both the IRS and the United States Postal Service (USPS). The alternative is

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7.2.4 Guidelines for Having Envelopes Preprinted

7.2.5 Envelopes/ZIP Codes

based on the use of ZIP + 4, or 9-digit ZIP codes for mailing various types of tax returns to the IRS Service Centers. The IRS uses the last four digits to identify and sort the various form types into separate groups for processing. The list of 4-digit extensions with the related form designations is provided below.

You may use the preparer’s company names, addresses, and logos as long as you do not interfere with the clear areas. The government recommends that the envelope stocks have an average opacity of not less than 89 percent and contain a minimum of 50 percent waste paper. Use of carbon based ink is essential for effective address and bar-code reading. Envelope construction can be of side seam or diagonal seam design. The government recommends that the size of the envelope should be 5 ³ /4 inches by 9 inches. Continuous pin-fed construction is not desirable but is permissible if the glued edge is at the top. This requirement is firm because mail opening equipment is designed to open the bottom edge of each envelope.

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

Section 7.3 — Procedures for Substitute Forms 5471 and 5472

7.3.1 Forms 5471 and 5472

This section covers instructions for producing substitutes for:

tions, and accompanying Schedules J, M, N, and O.

Corporation Engaged in a U.S. Trade or Business.

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7.3.2 Paper and Computer-Generated Substitutes

7.3.3 Where to get the Official Forms

7.3.4 Quality Substitute Forms

7.3.5 Computer- Prepared Tax Forms

7.3.6 Format Arrangement

Substitutes for Form 5471 and the accompanying Schedules J, M, N, and O, and Form 5472 that totally conform to the specifications contained in this procedure may be privately printed, but must have prior approval and are subject to annual review from the IRS.

Copies of the official Forms 5471 and 5472 for the reporting year may be obtained from most IRS offices. The IRS provides only cut sheets of these forms.

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

If the substitute returns and schedules meet the guidelines in this revenue procedure, the IRS will (for filing purposes) accept computer-prepared Forms 5471 and 5472 filled in by a computer, word processor, or similar automated equipment. The IRS will also accept a combination of computer-prepared/generated and filled-in information. They may be filed separately or attached to individual or business income tax returns.

The specifications for Forms 5471 and 5472 are as follows:

caption, line numbers, line references, and sequence. It must be an exact textual and graphic mirror image of the official form.

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.

immediately preceding the data entry field even if there is no reference code preceding the data entry field on the 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.

on the official form (not just totals) before attaching any supporting statement.

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

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

ule to Form 1120,” “See instructions”, etc.) may be omitted from the form.

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