SERVICE OFFERS GUIDANCE TO WITHHOLDING AGENTS ON FORM 1042S, FOREIGN PERSON'S U.S. SOURCE INCOME SUBJECT TO WITHHOLDING MAGNETIC TAPE FILING.

Rev. Proc. 89-58

TABLE OF CONTENTS

PART A. GENERAL

     SECTION 1. PURPOSE

     SECTION 1. GENERAL

SECTION 1. PURPOSE

The purpose of this revenue procedure is to update and supersede Rev. Proc. 87-63, 1987-2 C.B. 809, and set forth the requirements and conditions under which withholding agents, as defined in Part A, Sec. 5.01, may file Form 1042S, Foreign Person's U.S. Source Income Subject to Withholding, on magnetic tape.

SEC. 2. NATURE OF CHANGES - CURRENT YEAR (TAX YEAR 1989)

.01 For Tax Year 1989, the following changes have been included in this revenue procedure:

(a) All references to the National Computer Center have been changed to the Martinsburg Computing Center to reflect the name change of October 1, 1988.

(b) Added a section on "Filing Requirements"--Part A, Sec. 4.

(c) Added a separate section on "Requests for Undue Hardship Waivers"--Part A, Sec. 7.

(d) Added a section on "Filing Due Dates"--Part A, Sec. 8.

(e) Added a section on "Replacement Files"--Part A, Sec. 11.

(f) Added a section on "Contacting the Martinsburg Computing Center"--Part A, Sec. 13.

(g) The End of Reel "Z" Record is no longer an acceptable record, and is not to be coded in your file. The last record on a tape reel may be either a Recipient "Q" Record, or a Withholding Agent "W" Record, unless it is the last reel of a multi-reel file. The last record on the last reel of a multi-reel file will be the End of Transmission "Y" Record. If there is only one tape reel in your submission, you will end that reel with an End of Transmission "Y" Record.

(h) A note was added under Part A, Sec. 3, "Important Notes and Common Errors," concerning when it is necessary to code multiple Recipient "Q" Records.

(i) The language in the affidavit for Form 4804, Transmittal of Information Returns Reported on Magnetic Media, has been changed to eliminate the references to agent responsibility for securing correct Taxpayer Identification Numbers (TINs).

(j) Information has been included in Part A, Sec. 10, "Extensions of Time to File," concerning Form 2758, Application for Extension of Time to File for U.S. Partnership, Fiduciary, and Certain Organizations Return, which is used to request an extension of time for submitting Forms 1042/1042S to the Internal Revenue Service (IRS).

(k) If a file needs a replacement, the time frame for the filer to return the corrected data has increased from 15 to 30 days from the date of notice (Part A, Sec. 11.02).

(l) The date for submitting corrections has been changed from September 1 to October 1 (Part A, Sec. 12.07).

(m) The hours to contact the Martinsburg Computing Center have changed from 8:30 AM to 6:30 PM, to 8:30 AM to 6:00 PM, Eastern time.

.02 The following changes have been made to the Transmitter "T" Record:

(a) Transmitter Control Code (TCC) - Positions 126-130 - A new field has been added to the Transmitter "T" Record in which to code the Forms 1042S TCC. This field will be optional for Tax Year 1989 reporting. Starting in Tax Year 1990, this will be a required field.

.03 The following changes have been made to the Recipient "Q" Record:

(a) Account Type Code - Position 112 - The field title has been changed to "Type of TIN", and indicators "3" and "4" have been deleted for this field.

(b) Taxpayer Identification Number (TIN) - Positions 113-121 - Instructions were added concerning the requirement to provide a TIN when using Exemption Code "1" or Exemption Code "2" or "4" in conjunction with Income Code "16".

(c) Country Code - Positions 137-138 - Editorial changes were made for clarification under Description and Remarks.

(d) Name lines - Positions 139-243 - Editorial changes were made for clarification under Description and Remarks, and a note has been added informing the filer that failure to provide the FULL name of the recipient could result in the return of the file for correction.

(e) State Code - Positions 328-329 - Editorial changes were made for clarification under Description and Remarks.

(f) Country Name - Positions 330-349 - Editorial changes were made for clarification under Description and Remarks.

(g) Exemption Code - Position 365 - Instructions were added concerning the requirement to provide a TIN when using Exemption Code "1" or Exemption Codes "2" or "4" in conjunction with Income Code "16".

(h) Catastrophic Health Care Indicator - Position 424 - A new field has been added for use by the Social Security Administration (SSA) and Railroad Retirement Board (RRB) to indicate whether or not the recipient is medicare eligible.

(i) Foreign Student Withholding Allowance Amount - Positions 425-434 - A new field has been added for those filers using Income Code "15" with respect to payment of U.S. source scholarships and fellowship grants.

(j) Foreign Student Net Income Amount - Positions 435-444 - A new field has been added for those filers using Income Code "15" to report the net income amount money totals for foreign students.

.04 The following changes have been made to the End of Reel "Z" Record:

(a) The End of Reel "Z" Record has been eliminated for Tax Year 1989 and subsequent years. Do not code your files using the End of Reel "Z" Record.

SEC. 3. IMPORTANT NOTES AND COMMON ERRORS

To prevent the data from being submitted incorrectly, and to expedite the processing of your data files, the following information is being provided to point out the more commonly made errors by the filers of Form 1042S information: FAILURE TO FORMAT YOUR RECORDS CORRECTLY WILL RESULT IN YOUR FILE BEING RETURNED TO YOU FOR CORRECTION. DEVIATIONS CANNOT AND WILL NOT BE PERMITTED IN ANY OF THE DATA FIELDS. THIS REVENUE PROCEDURE IS TO BE FOLLOWED EXACTLY AS WRITTEN, AND FAILURE TO COMPLY MAY RESULT IN PENALTIES BEING ASSESSED.

.01 A Transmitter Control Code (TCC) is a five-character numeric code assigned to magnetic tape filers of Form 1042S information returns to IRS. A TCC is also assigned to filers of the Form 1099 series information returns, as well as those filers who submit Forms 8027 and W-4 to IRS magnetically. Each of these types of returns requires a separate TCC to be assigned. If you submit your Form 1042S data via magnetic tape, you must have a separate TCC assigned to you specifically for Form 1042S data. YOU CANNOT USE THE TCC ASSIGNED TO YOU FOR FORMS 1099, OR OTHER MAGNETIC MEDIA PROCESSING. A valid Form 1042S TCC will begin with the two digits 22. You must submit a Form 4419, Application for Filing Information Returns on Magnetic Media, to the IRS Martinsburg Computing Center (MCC) at least 90 days prior to March 15 to be assigned a Form 1042S TCC. (See Part A, Sec. 5.03.)

.02 The only acceptable medium to file Forms 1042S magnetically is via magnetic tape at this time. It is NOT acceptable to submit your data on 8" 5 1/4" or 3 1/2" diskettes, or on data cartridges.

.03 The only paper documents that will accompany your magnetic tape file to MCC are the transmittal Forms 4804/4802. DO NOT SEND ANY PAPER FORMS 1042, 1042S, or 8233 TO THE IRS MARTINSBURG COMPUTING CENTER. They will go to the Philadelphia Service Center (see Part A, Sec. 14.03 for address).

.04 Form 4804, Transmittal of Information Returns Reported on Magnetic Media, must accompany your magnetic tape shipment. NOTE: WE WILL NOT PROCESS YOUR FILE UNTIL WE HAVE RECEIVED A COMPLETED AND SIGNED FORM 4804 FROM YOUR ORGANIZATION. You MUST indicate two money totals on Form 4804, which are "Total Gross Income Paid" and "Total Amount of Tax Withheld." These money totals will reflect the totals of all of the Withholding "W" Records in your file. Failure to include the two money amounts will delay the processing of your file. (See Part A, Sec. 9.)

.05 Recipient surnames are used to sort the recipient "Q" Records. Submit the recipient data with the surname first. However, if you prefer not to enter the surname first, use an asterisk to indicate the beginning of the surname for this purpose. If the surname is the first name on the line, the asterisk MUST be omitted, since the asterisk cannot be the first, left-most character of the name. If this is not the case, files omitting the asterisk WILL be automatically returned for replacement. (See Part A, Sec. 15.02.)

.06 Transmitter "T" Record - The Transmitter "T" Record MUST be the first data record on a reel, and MUST appear on each reel in the file sent by the Transmitter. FAILURE TO CODE A "T" RECORD AS THE FIRST RECORD ON EACH REEL IN YOUR FILE WILL RESULT IN THE FILE BEING RETURNED FOR CORRECTION. (See Part B, Sec. 4.)

.07 Employer Identification Number (EIN) - If you do not have the Employer Identification Numbers (EIN) for the Transmitter, and/or Recipient, code the EIN fields with blanks, NOT all 9's or all zeros.

.08 Name and address fields - ACCEPTABLE PUNCTUATION MARKS INCLUDE HYPHENS (-), AMPERSANDS (&), SLASHES (/), ASTERISKS (*), PERCENTS (%), PERIODS (.), COMMAS (,) AND APOSTROPHES ('). DO NOT CODE TWO OR MORE CONSECUTIVE BLANKS. The name and/or address will be considered invalid if you code other punctuation and/or two or more consecutive blanks in the name and address fields.

.09 Street Address - Recipient "Q" Record - Positions 244-278. If your Street Address is too long for the 35 positions provided in the Street Address field (positions 244-278), you may use the 2nd and 3rd Name Line fields (positions 174-243) to code additional street address information. Some filers are using these fields to code City, State, Province, and Postal Zone information, which is invalid in the name line fields. Those items must be coded in the appropriate fields. DEVIATIONS WILL NOT BE PERMITTED IN THESE ADDRESS FIELDS. YOUR FILE WILL BE RETURNED TO YOU FOR CORRECTION IF THE CITY, STATE, PROVINCE, AND POSTAL ZONE FIELDS ARE NOT FORMATTED CORRECTLY.

.10 Province Name - Recipient "Q" Record - Positions 304-318. Filers are to use the two-digit Province Code for Canadian addresses, or the province name may be written out in full.

.11 Postal Code - Recipient "Q" Record - Positions 319-327 - Do not code two or more consecutive, IMBEDDED blanks in this field.

.12 State Code - Recipient "Q" Record - Positions 328-329 are for the correct two-character STATE Code for U.S. addresses. Filers are erroneously coding the two-character COUNTRY code here, which is incorrect.

.13 Payer's Name - Recipient "Q" Record - Positions 380-414. Valid characters are now alphabetic, numeric, ampersands (&), hyphens (-), periods (.), commas (,), and apostrophes (').

.14 Multiple Recipient "Q" Records - If you withhold tax for a recipient at different tax rates (for example, there is a change in Country Code, or a country's tax treaty during the year), you must produce a separate Recipient "Q" Record for that recipient for each amount of tax withheld. Failure to do so will result in a math computation error, and your file will be returned to you for correction.

.15 When submitting a multi-reel file (see definition in Part B, Sec. 2.02) it is important that the End of Transmission "Y" Record is not coded until the LAST record of the LAST reel is in the file. Some filers are sending in "multi-reel" files where each and every tape in the file end with the "Y" Record, which is incorrect. The End of Transmission "Y" Record indicates to our program that the end of data has been reached, and the file closes at that point, and no further data will be read from the file. For example, if you send in a three reel file, the first and second reels will end with either a "Q" or "W" Record, and the third and last reel will end with a "Y" Record.

SEC. 4. FILING REQUIREMENTS

.01 Withholding agents who are required to file 250 or more Forms 1042S with IRS must submit these forms on magnetic tape.

.02 This requirement applies separately to original and correction documents.

.03 These requirements shall not apply if you establish undue hardship (see Part A, Sec. 7).

SEC. 5. APPLICATION FOR TAPE REPORTING (FORM 4419)

.01 A withholding agent is defined as any person or entity, U.S. or foreign, required to withhold U.S. tax on payments of income subject to withholding from sources within the United States as provided for in Chapter 3 of the Internal Revenue Code. A withholding agent may be an individual, partnership, corporation, trust, estate, government agency (Federal, State or local), association, or a tax-exempt foundation or organization.

.02 Withholding agents must use magnetic tape to file 250 or more Forms 1042S with the Internal Revenue Service (IRS) for calendar year beginning on or after January 1, 1987 (Tax Year 1987 and subsequent years).

.03 Withholding agents or their agents are required to complete Form 4419, Application for Filing Information Returns on Magnetic Media. Applications should be filed with Martinsburg Computing Center (MCC) at least 90 days before the due date of the return.

NOTE: Do NOT submit your Form 1042S data using a 1099 Transmitter Control Code (TCC). MCC will process your application and notify the applicant in writing within 30 days of receipt of the application. Magnetic tape returns may not be filed with IRS until the application has been approved. If approved, IRS will issue a five-digit TCC to your organization which will begin with the digits 22, which indicates a Form 1042S TCC. Once you have received a TCC for Form 1042S filing, it is not necessary to reapply each year. If you have any changes to Form 4419 (for example, if the name of your organization or the contact person changes), please notify IRS in writing so that your file can be updated. In ALL correspondence to MCC, refer to your current five-character numeric TCC to assist IRS in locating your files.

.04 If your magnetic tape files have been prepared for you in the past by a service bureau, and you now have computer equipment compatible with that of IRS and wish to prepare your own files, you must request your own five-character TCC by filing application Form 4419.

.05 A copy of Form 4419 is included in this publication for your convenience. Form 4419 has been revised for 1989. Follow the instructions on the back of the form carefully when completing it.

SEC. 6. TEST FILES

.01 Application Form 4419 must be filed with the IRS Martinsburg Computing Center (MCC) BEFORE "test" files are submitted.

.02 IRS will assist new filers with their initial magnetic tape submission by reviewing "test" files submitted in advance of the filing season. Approved withholding agents or their agents should submit "test" files to the computer assistant at MCC. As a guideline, IRS requires that all Form 1042S "test" files be submitted between January 1 and February 15.

.03 Include a transmittal Form 4804, 4802, or computer generated substitute marked as "TEST DATA" that identifies your five-character Transmitter Control Code (TCC) and total record and money amounts. Clearly mark the tape label Form 5064 as "TEST DATA," and indicate the total number of Recipient "Q" Records in the block marked "Number of Payees."

SEC. 7. REQUESTS FOR UNDUE HARDSHIP WAIVERS

.01 Withholding agents required to file Form 1042S on magnetic tape may receive a waiver from such requirements if filing on magnetic tape would create an undue hardship. The withholding agent may request a waiver from the filing requirements by submitting Form 8508, Request for Waiver from Filing Information Returns on Magnetic Media, with the IRS Martinsburg Computing Center (MCC). If you as an individual or organization are filing as transmitter for other withholding agents, a separate Form 8508 must be submitted for each withholding agent. ATTACHING A LIST OF WITHHOLDING AGENTS IS NOT ACCEPTABLE.

.02 Transmitters may file Form 8508 for persons required to file on magnetic media if all information requested on Form 8508 is provided for each withholding agent, if the transmitter provides a letter stating they have power-of-attorney for the agent, and if the transmitter or withholding agent signs the request attesting that all information is true, correct, and complete. The waiver request must be filed with MCC at least 90 days before the Forms 1042S are due to IRS. IN THE PAST, WE HAVE ACCEPTED WAIVER REQUESTS UP TO THE DUE DATE OF THE RETURN (MARCH 15). HOWEVER, THIS IS NO LONGER ACCEPTABLE. IF A REQUEST IS NOT RECEIVED 90 DAYS BEFORE THE DUE DATE OF THE RETURN, IT WILL NOT BE HONORED.

.03 The waiver, if approved, will only provide exemption from magnetic media filing for one tax year. Filers may not apply for a waiver for more than one tax year at a time. You must reapply each year that a waiver is necessary. Copies of Form 8508 may be obtained from MCC and other IRS offices.

.04 If your waiver request is approved, keep it for your records. Do NOT send a copy of the approved waiver to the Philadelphia Service Center with your paper returns.

.05 An approved waiver from filing information returns on magnetic media does not provide exemption from all filing; you must still file your information returns on acceptable paper forms to IRS.

.06 Magnetic tape is the only permissible magnetic medium for filing Forms 1042S and shall be filed in accordance with the applicable revenue procedures. Diskette reporting of Forms 1042S cannot be accepted at this time. However, IRS expects to accept diskettes in the near future for this program, possibly for Tax Year 1990 data filed in Calendar Year 1991.

SEC. 8. FILING DUE DATES

.01 Magnetic tape reporting to IRS for Forms 1042S must be on a calendar year basis. The dates prescribed for filing paper documents with IRS will also apply to magnetic tape filing. Files must be submitted to the Martinsburg Computing Center (MCC) postmarked by March 15.

.02 Copies of Form 1042S information must be furnished to the income recipient also by March 15. If the due date falls on a Saturday, Sunday, or a legal holiday, the due date is extended to the next day that is not a Saturday, Sunday, or legal holiday.

SEC. 9. FILING OF TAPE REPORTS

.01 Form 4804, "Transmittal of Information Returns Reported on Magnetic Media," MUST accompany magnetic tape submissions. If you file for multiple withholding agents and have the authority to sign the affidavit on Form 4804, you should also submit Form 4802, Transmittal for Multiple Magnetic Media Reporting. BE SURE TO INCLUDE FORM 4804, 4802, OR COMPUTER GENERATED SUBSTITUTE WITH YOUR TAPE SHIPMENT. DO NOT MAIL THE TAPES AND THE TRANSMITTAL DOCUMENTS SEPARATELY. IRS encourages the use of a computer generated substitute Form 4804 which includes all necessary information requested on the current form. Form 4804 has been revised for Tax Year 1989. The revised form should be used for your submissions. If you computer generate a substitute Form 4804, be sure to incorporate the changes for 1989. Paper information returns must be transmitted to the Philadelphia Service Center (PSC). Do NOT send Forms 1042S filed on paper forms to the IRS Martinsburg Computing Center (MCC).

.02 The affidavit for Form 4804 should be signed by the withholding agent; however, the transmitter, service bureau, paying agent, or disbursing agent (all hereafter referred to as agent), may sign the affidavit on behalf of the withholding agent if the conditions in (a) and (b) are met:

(a) The agent has the authority to sign the affidavit under an agency agreement (either oral, written, or implied) that is valid under the state law.

(b) The agent signs the affidavit and adds the caption "For: (name of withholding agent)."

.03 Although a duly authorized agent signs the affidavit, the withholding agent is held responsible for the accuracy of the Form 4804, and the withholding agent will be liable for penalties for failure to comply with filing requirements.

.04 DO NOT REPORT THE SAME INFORMATION ON PAPER DOCUMENTS THAT YOU REPORT ON MAGNETIC TAPE. If you report part of your returns on paper and part on magnetic tape, be sure that duplicate returns, with the same information, are not included on both. This does NOT mean that corrected documents are not to be filed. If a return has been prepared and submitted improperly, you must file a corrected return as soon as you are aware that a correction is necessary.

.05 Before submitting your magnetic tape file, include the following:

(a) A signed Form 4804 or computer generated substitute.

(b) A Form 4802 if you transmit for multiple withholding agents and have the authority to sign the affidavit on Form 4804.

(c) The magnetic tape with an external identifying label (Form 5064). Be sure to include your Form 1042S Transmitter Control Code (TCC), number of Recipient "Q" Records, and type of documents (Form 1042S).

(d) On the outside of the shipping container, include a Form 4801 or a substitute for the form which reads "DELIVER UNOPENED TO TAPE LIBRARY - MAGNETIC MEDIA REPORTING - BOX _____ OF _____." If there is only one container, mark the outside of the as Box 1 of 1. For multiple containers, include the sequence (e.g., Box 1 of 3, 2 of 3, 3 of 3).

(e) If you were granted an extension of time, include a copy of the APPROVAL letter from IRS with the magnetic tape shipment.

.06 IRS will not pay or accept "Collect on Delivery" or "Charged to IRS" shipments of reportable tax information that an individual or organization is legally required to submit.

.07 Files may be returned to you due to coding or format errors. These are to be returned to IRS within 30 days of the date of notice or the withholding agent may be subject to a failure to file penalty.

.08 The withholding agent's Form 1042 tax return is used to verify the number of Forms 1042S filed on paper and/or magnetic tape. For transmitters or service bureaus filing Form 1042S information on magnetic tape for several withholding agents, separate Forms 1042 MUST be filed by each withholding agent included in the transmittal. Since the required Form 1042 is a tax return (with or without a remittance attached), it MUST be filed separately from the shipment of magnetic tape. Form 1042, with attached remittance (if applicable) will be sent to the Philadelphia Service Center (PSC) (see Part A, Sec. 14 for address), NOT the Martinsburg Computing Center (MCC). (See instructions for Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons.)

.09 Forms 1042S (Recipient "Q" Records) from different branches of the withholding agent's business activity should be consolidated under one withholding agent's "W" Record, especially when one common name and Employer Identification Number (EIN) would be used for each of the branches. For example, Bank X has branch offices in two different states. It would be acceptable for Branch Y of Bank X to report Recipient "Q" Records and associated "W" Record as "Bank X, Branch Y" when Branch Y has its own EIN, and for Branch Z of Bank X to report separately its Recipient "Q" Records and associated "W" Record as "Bank X, Branch Z" using its own EIN. Branches should not report separately when those branches are using a common EIN (and name). Branches filing separately should not use a common address (for example, the address of the parent bank) when that common address is not normally used for filing other types of returns with IRS. It is assumed that for each "W" Record (which represents a unique withholding agent), there will be a corresponding Form 1042 submitted which will reflect the accumulation of the associated Recipient "Q" Records.

.10 The magnetic tape specifications contained in Part "B" of this revenue procedure must be strictly adhered to. Deviations will not be permitted under any circumstances. This includes the city, state, province, and postal zone fields, which must be positioned exactly as shown. All magnetic tape files will be scanned for completeness of required fields, mathematical verification, and proper format. Tapes failing to meet specifications will not be processed, but will be returned to the transmitter for correction. Corrected files must be returned to MCC within 30 days from the date of notice of the returned file.

.11 Withholding agents are required to retain a copy of the information returns filed with IRS, or to have the ability to reconstruct the data, for at least three years.

SEC. 10. EXTENSIONS OF TIME TO FILE

.01 If a withholding agent is required to submit Forms 1042S on magnetic tape to IRS, and is unable to submit these tape files by the date prescribed in Part A, Sec. 8.01, they can submit a letter, or the official extension request for Form 1042S reporting (Form 2758), requesting an extension of time for 30 days as soon as they are aware than an extension will be necessary. If an additional extension of time is necessary, the withholding agent must submit a second request for an additional 30 day extension. Extensions may be granted for a maximum of 60 days.

.02 In order to be considered for an extension of time, the request MUST be postmarked by the due date of the return; otherwise, you may be subject to a late filing penalty. The letter should be sent to the attention of the Magnetic Media Reporting Program at the IRS Martinsburg Computing Center (MCC). See Part A, Sec. 13 for the address. The request should include:

(a) The withholding agent's (or transmitter's, if filing for multiple withholding agents) name and address.

(b) The withholding agent's Taxpayer Identification Number (TIN).

(c) The tax year for which the extension of time is requested (e.g., 1989).

(d) The name and telephone number of a person to contact who is familiar with the request.

(e) The specific type of returns (e.g., Forms 1042S).

(f) The five-character Transmitter Control Code (TCC) assigned to the organization or individual requesting the extension. (Please be sure that the TCC provided is your assigned TCC for Forms 1042S processing ONLY.)

(g) The reason for the delay and the date that you will be able to file.

(h) If you file for multiple withholding agents, the request must include a list of all withholding agents and their TINs (EIN or SSN).

An approved extension of time for magnetic media filing does not provide additional time for supplying a copy to the recipient. If additional time is needed in providing the recipient's copy, contact the District Director of the IRS District in which you reside or in which your business is located.

.03 If an extension of time to file on magnetic media is granted by MCC, a copy of the letter granting the extension MUST be included with the transmittal Form 4804 or computer generated substitute when the file is submitted.

.04 Since the Form 1042 is not considered timely filed until the Forms 1042S are received by IRS, an extension of time to file Forms 1042S that the filer receives from MCC will AUTOMATICALLY provide an extension for filing Form 1042 with the Philadelphia Service Center. If an extension of time to file the paper Form 1042 with the Philadelphia Service Center (see Part A, Sec. 14.03 for address) is granted by MCC, a copy of the letter granting the extension MUST be included with the paper Form 1042. NOTE: IF YOU ONLY NEED AN EXTENSION OF TIME TO FILE FORM 1042, AND NOT THE FORMS 1042S, SEND THAT REQUEST FOR THE EXTENSION OF TIME TO THE DIRECTOR, PHILADELPHIA SERVICE CENTER (see Part A, Sec. 14.03 for address).

SEC. 11. REPLACEMENT FILES

.01 Normally, tapes will be returned to the transmitters by November 15 of the year in which submitted. However, if the tapes submitted are unprocessable, and must be returned for correction prior to processing, they will be returned within six months of the receipt of acceptable tapes. We suggest that the withholding agent retain the original tape until the expiration of the statue of limitations for assessment. It is also recommended that the transmitter or filer of the magnetic tape file retain a copy of the tape file submitted to IRS for their own records.

.02 Please open all returned files as soon as you receive them. In some cases, files are returned due to errors and they must be corrected and returned to IRS within 30 days of the date of notice. FAILURE TO CORRECT AND RE-SUBMIT YOUR REPLACEMENT FILE MAY RESULT IN A FAILURE TO FILE PENALTY BEING ASSESSED.

.03 IRS will prepare the appropriate statements for transmittal to treaty countries.

SEC. 12. CORRECTED STATEMENTS

.01 Corrected files must be filed with the Martinsburg Computing Center (MCC) within 30 days from the date of notice.

.02 Forms 1042S are required to be filed on magnetic tape if you file 250 or more returns. THIS REQUIREMENT APPLIES SEPARATELY TO BOTH ORIGINAL AND CORRECTED RETURNS.

.03 To distinguish between a correction and a replacement:

A correction is media submitted by the payer to correct records that were successfully processed by IRS, but contained erroneous information.

A replacement is media that IRS has returned due to format errors encountered during processing. After necessary changes have been made, the media must be returned to MCC for re-input.

.04 If you file Forms 1042S on magnetic tape, and later determine that corrections are necessary to some of the Recipient "Q" Records, you may file the corrections on paper if you have less than 250 corrected returns. However, if you have 250 or more corrections, they MUST be submitted to IRS on magnetic tape. NOTE: CORRECTED RECORDS CANNOT BE SUBMITTED ON THE SAME TAPE FILE AS ORIGINAL RETURNS.

.05 Since corrected statements supersede information previously supplied, all required data fields must be completed. If you submit corrections on magnetic tape, code an "A" in Position 366 of the Recipient "Q" Record. If you submit corrections on paper documents, annotate each form "Corrected" at the top. Corrected documents should be bundled separately from other paper documents and sent to the Philadelphia Service Center (see address in Part A, Sec. 14). WHEN CORRECTED PAPER DOCUMENTS ARE SHIPPED SEPARATELY, AN AMENDED FORM 1042 MUST BE FILED, ALSO SUITABLY ANNOTATED.

.06 When the magnetic tape files are returned to the transmitter for data correction, a listing of the type of errors and frequency of such errors will be provided. The transmitter should correct the problems and submit a replacement file to the computer assistant at MCC. Certain problems noted may not require any corrective action. For example, certain Recipient "Q" Records should have had their tax withheld at a particular tax rate, but the withholding agent, for whatever reason, withheld at a different tax rate. The transmitter (in conjunction with the withholding agent, if necessary) should first verify that the tax rates in question are in fact the rates at which tax was withheld. Once verified, a letter should accompany the tape file stipulating that the tax rates are accurate as submitted.

.07 Corrections should be aggregated and filed as soon as possible, but not later than October 1 of each year.

SEC. 13. CONTACTING THE MARTINSBURG COMPUTING CENTER

.01 Copies of revenue procedures, application Form 4419, waiver request Form 8508, transmittal Forms 4804/4802, media label Form 5064, and additional magnetic media related materials are available from the IRS Martinsburg Computing Center (MCC). You may send your magnetic media files, and any inquiries, addressed to MCC at the following addresses:

    If by U.S. Postal Service, send to:

.03 Due to the volume of input received and the cost to return special containers, special shipping containers should not be used for transmitting data to MCC, since they will not be returned to you.

SEC. 14. EFFECT ON PAPER DOCUMENTS

.01 Magnetic tape reporting to IRS eliminates the need for submission of paper Forms 1042S. However, withholding agents must continue to provide recipients with requisite information.

.02 If only a portion of the statements are reported on magnetic tape and the remainder are reported on paper forms to IRS, those paper statements must be filed on the prescribed forms.

.03 The address for filing paper Forms 1042S, Form 1042 (with a remittance attached, if applicable), or Forms 8233, will be:

    Internal Revenue Service Center

SEC. 15. DATA ENTRIES

.01 Since Taxpayer Identification Numbers (TINs) are not required on all Forms 1042S (see specific Instructions for Withholding Agents, in the Instructions for Forms 1042 and 1042S), the specifications in PART "B" of this revenue procedure permit omission of such identifying numbers. Although identifying numbers are not always required for nonresident alien income recipients, IRS appreciates their being furnished when available.

.02 Recipient surnames are used to computer-generate Sort Names. Use an asterisk to indicate the beginning of the surname for this purpose. If the surname is the first name on the line, as may be the case for nationals of Asian countries, the asterisk is to be omitted. In the case of a partnership or joint ownership, or some other case where more than one individual is listed, asterisk only the first surname.

A blank will always precede the asterisk when it is used, but no asterisk may be followed by a blank. Do not use an asterisk with corporate or any other business entity or governmental organization name, except partnerships or sole proprietorships. NEVER HAVE MORE THAN ONE BLANK SEPARATING PORTIONS OF A NAME LINE OR AN ADDRESS FIELD.

NOTE: IT IS VERY IMPORTANT THAT THE ASTERISK IS PLACED BEFORE THE SURNAME (unless the above-mentioned exceptions apply). FILES OMITTING THE ASTERISK WILL BE AUTOMATICALLY RETURNED FOR REPLACEMENT. DEVIATIONS FROM THIS FORMAT ARE NOT ACCEPTABLE.

.03 In the case of multiple recipients, the name of the person whose identifying number has been provided should be placed before all other names.

.04 Sometimes the recipient identification recorded on the withholding agent's records is lengthy, and exceeds the 105 characters allotted in the Recipient Name Line and Supplement Name Lines on the magnetic tape records. This is most common in the case of trusts or other types of fiduciary accounts. The first 105 characters of the recipient identification normally provide sufficient descriptive data for IRS's purposes. IRS encourages all agents to truncate or abbreviate lengthy recipient descriptions. Never have more than one blank separating portions of a name line or an address field.

.05 All monetary amount fields must show dollars and cents (omit the decimal point). For example, $135.72 must be shown as 13572, and $100 must be shown as 10000. All money amount fields are positive and must not be signed in any fashion. All money amounts must be right-justified and zero filled. Do not truncate any money amount fields. If the amount is more than the allowed space, prepare a second "Q" record to show the difference.

.06 There are several circumstances where more than one "Q" Record is expected for a recipient. These situations include:

(a) Different sources of income. For example, Recipient X derived income from Capital Gains (Income Code 09) and Industrial Royalties (Income Code 10). One "Q" Record must be provided listing Income Code "09," and the Gross Income Paid and Tax Withheld pertaining solely to that type of income. A separate "Q" Record must document the Income Code "10" information.

(b) Change in Country Code during the year. For example, the withholding agent received notification via Form 1001 that the recipient changed his official country for which tax treaty benefits apply from country X to country Y. One "Q" Record must be provided reflecting Gross Income Paid, Tax Rate, and Tax Withheld for country X (reflecting income and withholding from January 1 through June 30). A second "Q" Record must be provided reflecting Income, Tax Rate, and Tax Withheld for country Y (covering income and withholding from July 1 through December 31).

(c) Change in a country's tax treaty rate during the year. For example, effective April 1, country X changed its tax treaty rate for a particular type of income from 10% to 20%. One "Q" Record must be provided reflecting Gross Income Paid and Tax Withheld at the 10% rate (covering January 1 through March 31). A second "Q" Record must also be provided reflecting Gross Income Paid and Tax Withheld at the 20% rate (covering April 1 through December 31).

NOTE: These three situations are NOT mutually exclusive. Therefore, if a recipient has two sources of income, each of which is derived from a country whose corresponding tax treaty rates changed during the year, and the recipient submitted a Form 1001 to the Withholding Agent changing his country code for tax purposes, as many as six (6) separate "Q" Records must be provided. FAILURE TO PROVIDE MULTIPLE RECIPIENT "Q" RECORDS UNDER THESE VARIOUS CIRCUMSTANCES WILL RESULT IN MATH COMPUTATION ERRORS WHEN IRS PROCESSES YOUR FILE, AND WILL RESULT IN YOUR FILE BEING RETURNED TO YOU FOR CORRECTION.

PART B. MAGNETIC TAPE SPECIFICATIONS

SECTION 1. GENERAL

.01 These specifications prescribe the required format and content of the records to be included in the file, but not the methods or equipment to be used in their preparation. Usually, IRS will be able to process, without translation, any compatible tape file. To be compatible, a tape file must meet all of the following:

Type of tape - 1/2 inch Mylar base, oxide coated

(a) When the recording mode is 9-track EBCDIC (Extended Binary Coded Decimal Interchange Code) with

(1) Odd parity

(2) Recording density - 800, 1600, or 6250 BPI

(3) If you use UNISYS Series 1100, you must submit an interchange tape.

(b) When the recording mode is 9-track ASCII (American Standard Coded Information Interchange) with

(1) Odd Parity

(2) Recording density - 800, 1600, or 6250 BPI

(c) When the recording mode is 7-track BCD (Binary Coded Decimal) with

(1) Odd or even parity

(2) Recording density - 556 or 800 BPI

NOTE: IRS will accept and process 7-track tapes; however, 9-track is preferred.

.02 All compatible tape files must have the following characteristics: Type of tape - 0.5 inch (12.7 mm) wide, computer grade magnetic tape on reels of up to 2400 feet (731.52M) within the following specifications:

(a) Tape thickness: 1.0 or 1.5 mils and

(b) Reel diameter: 10.5 inch (26.67 cm), 8.5 inch (21.59 cm), or 7-inch (17.78 cm)

(c) At this time, IRS cannot accept cartridge tape.

.03 An acceptable tape file for each withholding agent will contain data records as follows:

(a) Single reel:

(1) A Transmitter "T" Record; then

(2) one or more Recipient "Q" Records followed by a specific Withholding Agent "W" Record; then

(3) additional "Q" and "W" Record sequences for other withholding agents as needed; then

(4) an End of Transmission "Y" Record.

(b) Multiple reels:

(1) A Transmitter "T" Record at the beginning of each reel; then

(2) sequences of Recipient "Q" Records followed by corresponding Withholding Agent "W" Records; then

(3) an End of Transmission "Y" Record ending the last reel.

(c) Notes:

(1) A sequence of Recipient "Q" Records may be continued from one reel to the next if they apply to the same withholding agent, without the necessity of repeating the "W" Record. The sequence might be, for example, QQQQ (end of one reel); TQQQQW (beginning of next reel).

.04 A multi-reel file is a group of tape reels submitted under one Transmitter Control Code (TCC) and each of the reels will end with a "Q" or "W" Record EXCEPT for the last reel of the file, which ends with an End of Transmission "Y" Record. The external labels for a multi-reel file should indicate a continuous file (e.g., 1 of 3, 2 of 3, 3 of 3). However, if you submit several reels under one TCC, but end each reel with an End of Transmission "Y" Record, for the purposes of IRS processing, this is not a multi-reel file, so annotate the labels on these reels as 1/1. IRS encourages the submission of multi-reel files; please be sure that you do NOT code an End of Transmission "Y" Record until the LAST reel in the multi-reel file.

.05 An external affixed label, Form 5064, must appear on each tape submitted for processing. The following information is needed:

(a) The transmitter's name.

(b) The five-digit Transmitter Control Code (TCC) assigned to you specifically for Forms 1042S processing. DO NOT ENTER YOUR FORMS 1099 TCC HERE. YOU MUST HAVE A SEPARATE TCC FOR FORMS 1042S PROCESSING. (See Part A, Sec. 5.03.)

(c) The tax year of the data (e.g., 1989)

(d) In the block which describes the Operating System/Hardware, indicate the recording code and density (for example, EBCDIC, 6250 BPI)

(e) Indicate the document type (1042S) in the block which describes "Return(s)."

(f) In the block annotated "Number of Payees," indicate the total number of Recipient "Q" Records on that reel.

(g) In the block annotated "Transmitter's number for media," indicate the reel number assigned by your organization to the tape. (Optional: If your organization uses a numbering system for your tape reels, indicate your in-house reel number; otherwise, leave blank).

(h) The sequence of each tape (for example, 1 of 3, 2 of 3, 3 of 3).

.06 All records, including header and trailer labels (if used) must be transmitted at the same density.

SEC. 2. CONVENTIONS AND DEFINITIONS

.01 Header labels, trailer labels, record marks, and tape marks are all optional. They may be used as required by the transmitter's equipment or programming. If used, they must conform to the following standards:

(a) Header labels must begin with VOL1, VOL2, HDR1, HDR2, or 1HDR. If used, they must be the first record(s) on the reel immediately before the Transmitter "T" Record. Header labels may not exceed 80 characters in length.

(b) Trailer labels must begin 1EOR, 1EOF, EOF1, or EOR1. If used, they must be the last record(s) on the reel, after the "Y" record and tape mark (if a tape mark is used). Trailer labels may not exceed 80 characters in length.

(c) Record marks, if used, may only follow the data portion of a record or block. All records are of uniform length, and record marks are not needed.

(d) Tape marks, if used, must be IBM 001111 (Octal 17) in even parity. They always appear immediately after the "Y" record. If header and trailer labels are also used, the tape mark must follow the header label and must precede and/or follow the trailer label(s).

.02 Definitions:

 Element        Description

.01 The tape records defined in this revenue procedure may be blocked or unblocked, subject to the following:

(a) All data records must be a fixed length of 450 positions.

(b) All records may be blocked, except header and trailer labels.

(c) A block may not exceed 15,000 characters, although shorter blocks may be written as desired. If records are being blocked, but sufficient records are not available to fill a complete block, the block may either be "padded" with 9's to fill all unused positions, or truncated after the last data record to create a "short block". Do NOT pad the block with blanks, or create blank records (for example, Q followed by 449 blanks, etc.).

(d) Records may not span blocks.

(e) Two forms of blocking are acceptable:

(1) Only "Q" Records are blocked; all other records are unblocked.

(2) All records, except header and trailer labels (if used) are blocked. In this case, a "T" Record may only be the first record in the first block on the reel; a "W" Record must follow all associated "Q" Records; and the "Y" Record is the LAST record in the final block on the LAST reel in a multi-reel file, or the last record in the last block of a single reel (only block padding (all 9's) could follow).

.02 The first position of each record indicates the record type:

        Transmitter T

SEC. 4. THE TRANSMITTER "T" RECORD

This record identifies the entity who prepared and transmitted the magnetic tape file. The Transmitter and one of the withholding agents may be the same, but they need not be. The Transmitter "T" Record MUST be the first data record on a reel (preceded only by header labels, if any), and MUST appear on each reel in the file sent by the Transmitter. On multiple reel files the reel number must be incremented by 1 (one) for each tape reel after the first reel. Each "T" Record has a fixed length of 450 positions. NOTE: ALL MAGNETIC TAPES SUBMITTED TO IRS WITHOUT THE TRANSMITTER "T" RECORD AS THE FIRST RECORD WILL BE RETURNED TO THE FILER FOR CORRECTION.

                  RECORD NAME: TRANSMITTER "T" RECORD

This Record contains complete name and address data for both Withholding Agent and Recipient of Income, together with all the particulars of the income paid and tax withheld. Complete Withholding Agent data is required because each Recipient "Q" Record is treated as if it were a separate Form 1042S, and is processed independently of other records. Since the "Q" Record is restricted to one type of income only, it may be necessary to write more than one "Q" Record for any given individual income recipient, who may have received income of more than one type (see Part A, Sec. 15.06). All recipient "Q" Records for a particular Withholding Agent must be written before the corresponding Withholding Agent "W" Record, and before "Q" Records for another Withholding Agent may begin. Any order of "Q" Records within those belonging to a given Withholding Agent may be used (for example, they may be sorted alphabetically by surname, or by country code, or by country of the mailing address, etc.) at the convenience of the Transmitter or Withholding Agent, since the "Q" Records are fully independent. All "Q" Records have a fixed length of 450 positions. All fields are required unless otherwise stated.

                   RECORD NAME: RECIPIENT "Q" RECORD

 354-364  Gross Income Paid    11       Enter dollars and cents up to

Enter a "W" Record after the last "Q" Record submitted for a particular Withholding Agent. The "W" Record serves as a summary of the preceding "Q" Record data, and enables IRS to double-check the correctness of information received. Several "W" Records for different withholding agents may appear on the same Transmitter's file. Also, the "W" Record may refer to "Q" Records on more than one reel, provided all of the preceding "Q" Records are for the same withholding agent. A "W" Record may only be followed by new Recipient "Q" Records for the next Withholding Agent, if any, or by a tape mark and/or trailer label when more reels follow this reel, or by an End of Transmission "Y" Record, when this is the last reel of the file. The "W" Record cannot be the last record on the FILE. Each "W" Record has a fixed length of 450 positions. All fields in the "W" Record are required as follows:

               RECORD NAME: WITHHOLDING AGENT "W" RECORD

.01 End the LAST reel ONLY on a file with an End of Transmission "Y" Record. The "Y" Record may only be preceded by a "W" Record. It may only be followed by a Tape Mark, or a Tape Mark and a Trailer Label (if Trailer Labels are used), or a Trailer Label. The "Y" Record will count the total number of withholding agents in the transmission, and the total number of tape reels in the file. The "Y" Record has a fixed length of 450 positions, and all positions listed are required. PLEASE NOTE THAT IF SUBMITTING A MULTI-REEL FILE, THERE WILL ONLY BE ONE END OF TRANSMISSION "Y" RECORD. THE END OF TRANSMISSION "Y" RECORD WILL BE THE LAST RECORD IN THE FINAL BLOCK ON THE LAST REEL IN YOUR FILE.

              RECORD NAME: END OF TRANSMISSION "Y" RECORD

Revenue Procedure 87-63 is superseded.