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

Note. The formats for Schedules K-1 of Forms 1065 and 1120S have significantly changed for 2004. Because Publication 1167 is printed before the forms become finalized, draft copies are provided in the exhibits (see Exhibits D, E, and F). Before releasing their substitute forms, software vendors are responsible for making any subsequent changes that have been made to the final official IRS forms after the draft forms have been posted.

Because of significant changes to the 2004 Schedules K-1 for Forms 1065 and 1120S and to improve processing, prior approval is now required for substitute Schedules K-1 that accompany Form 1041 (for estates and trusts), Form 1065 (for partnerships), Form 1065-B (for electing large partnerships), or Form 1120S (for S corporations). Substitute Schedules K-1 should be as close as possible to exact replicas of copies of the official IRS schedules and follow the same process for submitting other substitute forms and schedules.

If you feel you will suffer a financial hardship in producing the 2004 Schedules K-1 of Forms 1065 and 1120S because of the significant changes to the form and format, the IRS will consider allowing deviations from the official form for tax year 2004 only. However, you must include all information on the form. Only deviations in placement and format will be considered. You may prepare a justification and submit it to the IRS at *taxforms@irs.gov with “Attn: Substitute Forms” on the subject line or:

Internal Revenue Service Attn: Substitute Forms Program SE:W:CAR:MP:T:T:SP 1111 Constitution Avenue, NW Room 6406 Washington, D.C. 20224

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7.1.2 Special Requirements for Recipient Copies of Schedules K-1

Schedules K-1 that accompany Forms 1041, 1065, 1065-B, or 1120S must meet all specifications. The specifications include, but are not limited to, the following requirements:

that taxpayers are required to use. All lines must be included.

lower right hand side on Schedules K-1 of Forms 1065 and 1120S.

international standard (A4) of 8.27” x 11.69” may be substituted).

separate all continuously printed substitutes, by recipient, before filing with the IRS.

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.

the instructions, if any are printed on the back of the official Schedule K-1.

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

as not being able to process and may return Forms 1041, 1065, 1065-B, or 1120S to the entity to be filed correctly.

Schedules K-1 that are 2-D bar-coded will continue to require prior approval from the IRS (see Sections 7.1.3 through 7.1.5).

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

that taxpayers are required to use. All lines must be included.

lower right hand side on Schedules K-1 of Forms 1065 and 1120S.

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. The line items or boxes must

2004–44 I.R.B. 756 November 1, 2004

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

7.1.4 Approval Process for Bar-Coded Schedules K-1

be in the same order and arrangement and must be numbered like those on the official IRS schedule.

to the schedule must identify the line or box number and code, if any, for each item as shown in 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.

official IRS schedule must be provided to aid in the proper reporting of the items on the recipient’s income tax return. Where items are not reported to a recipient because they do not apply, the related instructions may be omitted.

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

8.5” x 11” (the international standard (A4) of 8.27” x 11.69” may be substituted.)

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

Schedules K-1. All 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 and results in impeding processing.

In an effort to reduce the burden of manually transcribing tax documents, improve quality, and increase government efficiency, the IRS is pleased to provide specifications for 2-D bar-coded substitute Schedules K-1 for Forms 1041, 1065, and 1120S. The IRS encourages voluntary participation in adding 2-D barcoding. See Exhibits D, E, and F 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 produce the official IRS Schedules K-1 but cannot use the expedited process for approving bar-coded K-1’s and their parent returns as outlined in Section 7.1.5.

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

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

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 resubmitted for any subsequent changes to the official IRS form that would affect the bar-code. Below are instructions and a sequence of events that will comprise the testing process.

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7.1.5 Procedures for Reducing Testing Time

on the IRS.gov web site (see http://www.irs.gov/efile/article/0,,id=113408,00.html )

preparation software to create bar codes in the correct format.

IRS and one to a contracted testing vendor.

developer of the reason for noncompliance.

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

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.

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 expediting the testing of bar-coded Schedules K-1 and their associated parent returns. To receive this expedited service, closely follow the bullets below.

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

Internal Revenue Service Attn: Bar-Coded K-1 SE:W:CAR:MP:T:T:SP 1111 Constitution Avenue, NW Room 6406 Washington, D.C. 20224

Northrop Grumman Information Tech Attn: Bill Philpot, Product Assurance Manager 1800 Alexander Bell Drive Suite 300 Reston, VA 20191 Phone: (703) 453-1200

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

2004–44 I.R.B. 758 November 1, 2004

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 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.

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7.2.4 Guidelines for Having Envelopes Preprinted

7.2.5 Envelopes/ZIP Codes

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.

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7.3.7 Filing Instructions

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

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