Part 7 Miscellaneous — Publication 1167

Section 7.1 – Specifications for Substitute Schedules K-1

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

. Because of significant changes 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), or Form 1120-S (for S corporations). Substitute Schedules K-1 should be as close as possible to exact replicas of the official IRS schedules and follow the same process for submitting other substitute forms and schedules. 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.

Submit substitute Schedule K-1 forms, in PDF format, to scrips@irs.gov for scannability acceptance. Schedule K-1 forms that require testing do not need to be mailed to the Program. You must include information on the substitute forms that can be tested. This information should be dummy information. Use an “X” for alpha characters and “0” for numbers. The IRS will review and provide feedback of any changes needed so that your forms can be recognized correctly.

Include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and 1120-S. Allow at least 0.25 inch of white space around the 6-digit code.

661117 for Form 1041.
651123 for Form 1065.
671124 for Form 1120-S.

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

You will no longer be able to produce Schedules K-1 that contain only those lines or boxes that taxpayers are required to use. All lines must be included.
The words “* See attached statement for additional information.” must be preprinted in the lower right-hand side on Schedules K-1 of Forms 1041, 1065, and 1120-S.
All Schedules K-1 that are filed with the IRS should be printed on commercial standard size (8.5″ x 11″) paper (the international standard (A4) of 8.27″ x 11.69″ may be substituted).
10-point Helvetica Light Standard is preferred for all entries that are typed or made using a computer.
Submissions should include the IRS source code or NACTP vendor ID code printed on the lower left corner of the form or in place of the IRS catalog number.

7.1.2 Special Requirements for Recipient Copies of Schedules K-1

Each recipient’s information must be on a separate sheet of paper. Therefore, you must separate all continuously printed substitutes, by recipient, before filing with the IRS.
No carbon copies or pressure-sensitive copies will be accepted.
The Schedule K-1 must contain the name, address, and SSN or EIN of both the entity (estate, trust, partnership, or S corporation) and the recipient (beneficiary, partner, or shareholder).
The Schedule K-1 must contain the tax year, the OMB number, the schedule number (K-1), the related form number (1041, 1065, or 1120-S), and the official schedule name in substantially the same position and format as shown on the official IRS schedule.
The Schedule K-1 must contain all the line items as shown on the official form, except for the instructions, if any are printed on the back of the official Schedule K-1.
The line items or boxes must be in the same order and arrangement as those on the official form.
The amount of each recipient’s share of each item must be shown. A partial percent should be reflected as a decimal (for example, 50 ¹ /2% should be 50.5%). Furnishing a total 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.
State or local tax-related information may not be included on the Schedules K-1 filed with the IRS.

The entity may have to pay a penalty if substitute Schedules K-1 are filed that do not conform to specifications.

Additionally, the IRS may consider the Schedules K-1 that do not conform to specifications as not being able to be processed and may return Form 1041, 1065, or 1120-S to the filer 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, and 1120-S. 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.

Include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and 1120-S. Allow white space around the 6-digit code.
- 661117 for Form 1041.
- 651123 for Form 1065.

671124 for Form 1120-S.
You will no longer be able to produce Schedules K-1 that contain only those lines or boxes that taxpayers are required to use. All lines must be included.
The words “* See attached statement for additional information.” must be preprinted in the lower right-hand side on Schedules K-1 of Forms 1041, 1065, and 1120-S.
The Schedule K-1 must contain the name, address, and SSN or EIN of both the entity and recipient.
The Schedule K-1 must contain the tax year, the OMB number, the schedule number (K-1), the related form number (1041, 1065, or 1120-S), and the official schedule name in substantially the same position and format as shown on the official IRS schedule.
All applicable amounts and information required to be reported must be titled and numbered in the same manner as shown on the official IRS schedule. The line items or boxes must be in the same order and arrangement and must be numbered like those on the official IRS schedule.
The Schedule K-1 must contain all items required for use by the recipient. The instructions for the schedule must identify the line or box number and code, if any, for each item as shown on the official IRS schedule.
The amount of each recipient’s share of each item must be shown. A partial percent should be reflected as a decimal (for example, 50 ¹ /2% should be 50.5%). Furnishing a total 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.
Instructions to the recipient that are substantially similar to those on or accompanying the 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.
The quality of the ink or other material used to generate recipients’ schedules must produce clearly legible documents. In general, black chemical transfer inks are preferred.
In order to assure uniformity of substitute Schedules K-1, the paper size should be standard commercial (8.5″ x 11″) (the international standard (A4) of 8.27″ x 11.69″ may be substituted).
The paper weight, paper color, font type, font size, font color, and page layout must be such that the average recipient can easily decipher the information on each page. The preferred font is Helvetica and a minimum of 10-point font.

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

State or local tax-related information may be included on recipient copies of substitute 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.
The legend “Important Tax Return Document Enclosed” must appear in a bold and conspicuous manner on the outside of the envelope that contains the substitute recipient copy of Schedule K-1.
The entity may have to pay a penalty if a substitute Schedule K-1 furnished to any recipient does not conform to the specifications of this revenue procedure and results in impeding processing.

. Electronic filing is the preferred method of filing; however, 2-D bar code is the best alternative method for paper processing.

In an effort to improve efficiency and increase data accuracy, the IRS partnered with the tax software development community on a 2-D bar code project in 2003. Certain tax software packages have been modified to generate 2-D bar codes on Schedules K-1. As a result, when Schedules K-1 are printed using these programs, a bar code will print on the page.

Rather than manually transcribe information from the Schedule K-1, the IRS will scan the bar code and electronically upload the information from the Schedule K-1. This will result in more efficient operations within the IRS and fewer transcription errors for your clients.

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 Schedules K-1 and their parent returns as outlined in Section 7.1.6 .

In addition to the requirements in Sections 7.1.1 and 7.1.2, the bar-coded Schedules K-1 must meet the following specifications.

The bar code should be printed in the space labeled “For IRS Use Only” on each Schedule K-1. The entire bar code must be printed within the “For IRS Use Only” box surrounded by a white space of at least 0.25 inch.
Bar codes must be printed in PDF417 format.
The bar codes 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.
Be sure to include the 6-digit form ID code in the upper right of Schedules K-1 of Forms 1041, 1065, and 1120-S. Allow white space around the 6-digit code.
- 661117 for Form 1041.
- 651123 for Form 1065.
- 671124 for Form 1120-S.

7.1.4 2-D Bar Code Specifications for Schedules K-1

. Follow these general specifications for preparing all 2-D bar-coded Schedules K-1.

Numeric fields.
- Do not include leading zeros (except TINs, ZIP codes, and percentages).
- If negative value, the minus sign “–” must be present immediately to the left of the number and part of the 12-position field.
- Do not use non-numeric characters except that the literal "STMT" can be put in money fields.
- All money fields should be rounded to the nearest whole dollar amount—if a money amount ends in 00 to 49 cents, drop the cents; if it ends in 50 to 99 cents, truncate the cents and increment the dollar amount by one. Use the same rounding technique for the bar-coded and the printed Schedules K-1.
- All numeric-only fields are right justified (except TINs and ZIP codes).
All field lengths are expressed as maximum lengths. If the value in the field has fewer positions or the software program does not support that many positions, put in the bar code only those positions actually used.
Alpha fields.
- Do not include leading blanks (left justified).
- Do not include trailing blanks.
- Use uppercase alpha characters only.
Variable fields.
- Do not include leading blanks (left justified).
- Do not include trailing blanks.
- Use uppercase alpha characters, numerics, and special characters as defined in each field.
Delimit each field with a carriage return.
Express percentages as 6-digit numbers without the percent sign. Left justify with a leading zero(s) (for percentages less than 100%) and no decimal point (decimal point is assumed between 3rd and 4th positions). Examples: 25.32% expressed as “025320”; 105% expressed as “105000”; 8.275% expressed as “008275”; 10.24674% expressed as “010247”.
It is vital that the print routine reinitialize the bar code prior to printing each succeeding Schedule K-1. Failure to do this will result in each Schedule K-1 for a parent return having the same bar code as the document before it.

7.1.5 Approval Process for Bar- Coded Schedules K-1

. 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. If your company is creating bar-coded Schedules K-1, you must receive certification for both the printed Schedule K-1, as well as the bar code, before offering your product for sale. 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.

The IRS has released the final Schedule K-1 bar-code specifications by publishing them on the IRS website (see IRS.gov/E-file-Providers/K-1- Bar-Code-Certification-Process ).
The IRS will publish a set of test documents that will be used to test the ability of tax preparation software to create bar codes in the correct format.
Software developers will submit two identical copies of the test documents—one to the IRS and one to a contracted testing vendor.
The IRS will use one set to ensure the printed schedules comply with standard substitute forms specifications.
If the printed forms fail to meet the substitute forms criteria, the IRS will inform the software developer of the reason for noncompliance.
The software developer must resubmit the Schedule(s) K-1 until it passes the substitute forms criteria.
The testing vendor will review the bar codes to ensure they meet the published bar-code specifications.
If the bar code(s) does not meet published specifications, the testing vendor will contact the software developer directly, informing them of the reason for noncompliance.
Software developers must submit new bar-coded schedules until they pass the bar-code test.
When the bar code passes, the testing vendor will inform the IRS that the developer has passed the bar-code test and the IRS will issue an overall approval for both the substitute form and the bar code.
After receiving this consolidated response, the software vendor is free to release software for tax preparation as long as any subsequent revisions to the schedules do not change the fields.
Find the mailing address for the testing vendor next in Section 7.1.6 . Separate and simultaneous mailings to the IRS and the vendor will reduce testing time.

7.1.6 Procedures for Reducing 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, follow the instructions below.

Mail the parent returns (Forms 1041, 1065, 1120-S) and associated bar-coded Schedule(s) K-1 to the address below in a separate package from all other approval requests.

Internal Revenue Service Attn: K-1 Substitute Forms Analyst SE:W:CAR:MP:T:T:SP Room 6411 1111 Constitution Ave. NW Washington, DC 20224

Mail one copy of the parent form(s) and Schedule(s) K-1 to the IRS and another copy to the testing vendor at the address below.

Leidos-IRS Paper and Remittance Processing Support (PRPS II) Attn: Dane Hawkins 9737 Washingtonian Blvd. Gaithersburg, MD 20878

Include multiple email and phone contact points in the packages.
While the IRS can expedite bar-coded Schedules K-1 and their associated parent returns, it cannot expedite the approval of nonassociated tax returns.
Vendors are encouraged to go to NACTP.org for compliance guidelines in regards to file size and error-correction level.
Submissions should include the IRS source code or NACTP vendor ID code printed on the lower left corner of the form or in place of the IRS catalog number.
If a change is made to the bar code after approval, be sure to increment the version number.

Section 7.2 – Guidelines for Substitute Forms 8655

7.2.1 Increased Standardization for Forms 8655

7.2.2 Requirements for Substitute Forms 8655

. Increased standardization for reporting information on substitute Forms 8655 is now required to aid in processing and for compliance purposes. Follow the guidelines in Section 7.2.2 .

. Follow these specific requirements when producing substitute Forms 8655.

The first line of the title must be “Reporting Agent Authorization.”

7.2.3 Exception for Form 8655

If you want to include a reference to “State Limited Power of Attorney,” it can be in parentheses under the title. “State” must be the first word within the parentheses.
You must include “Form 8655” on the form.
While the line numbers do not have to match the official form, the sequence of the information must be in the same order.
The size of any variable data must be printed in a font no smaller than 10 points.
For adequate disclosure checks, the following must be included for each taxpayer.
- Name.
- EIN.
- Address.
At this time, Form 944 will not be required if Form 941 is checked. Only those forms that the reporting agent company supports need to be listed.
The jurat (perjury statement) must be identical with the exception of references to line numbers.
A contact name and number for the reporting agent are not required.
Any state information included should be contained in a separate section of the substitute form. Preferably, this information will be in the same area as line 19 of the official form.
All substitute Forms 8655 must be approved by the Program as outlined in the Form 8655 specifications in this publication.
If you have not already been assigned a 3-letter source code, you will be given one when your substitute form is submitted for approval. This source code should be included in the lower left corner of the form.
The 20-business-day assumed approval policy does not apply to Form 8655 approvals.

. Because of how Form 8655 is processed and distributed to recipients, vendors are allowed to affix their logos onto the substitute version of the form. This exception is for Form 8655 only.

Section 7.3 – Guidelines for Substitute Image Character Recognition (ICR) Forms

7.3.1 Overview

. The following suggestions may be used as a guideline for creating easily scanned substitute tax forms. If you choose to participate, use the Form 1040 format provided in Exhibit C and Exhibit D . The grid view is for user ease of understanding only and should be removed before printing forms for submission.

7.3.2 Automated Processing of Certain Forms

7.3.3 Form Design Requirements

7.3.4 Data Format Requirements

Note. The exhibits are to show formatting only and are not a current copy of the form. Use the most current version of any form to create the substitute tax form.

. Certain forms have been redesigned for automated processing via ICR technology. As a result, these forms have different requirements for reproduction. These specific requirements apply to both the form image as well as the format of the variable data.

Forms should have a 0.5-inch margin on all sides.
Nothing should be printed within the 0.5-inch margins.
Vertical and horizontal lines should be replicated as they are on the IRS form.
Printing should be in black ink on white paper. No color or shading should be used.
Reproduce the exact text on each line as it appears on the IRS form. Do not abbreviate or leave out text.

See Section 3.3 .
Rows 1–3 and 64–66 and columns 1–5 and 81–85 should be left blank.
SSN and EIN fields should have dashes (for example, 999-99-9999 or 99-9999999).
Do not use real data unless specifically directed (for example, printing 12345678912 vs. XXXXXXXXXXX for bank routing number as required by Pub. 1345).
Dollar value fields should be printed with commas and no decimals (for example, 999,999,999).
Data placement should match defined areas on the form. Variable data should not be printed outside defined areas (for example, first, middle, last, and suffix fields should be printed where they appear on the IRS form, not combined).
Do not populate blank value fields with a zero. If there is no value for a field, leave it blank. Exceptions include calculated fields with valid inputs that result in a value of zero.
Vendor codes and company-specific printing information should only appear in the spaces designated on the form.