IRS REVISES RULES FOR MAGNETIC FILING OF NONRESIDENT ALIEN TAX RETURNS.

Rev. Proc. 95-22

                              CONTENTS

This revenue procedure informs those who participate in the Magnetic Media Filing Program for Form 1040NR, U.S. Nonresident Alien Income Tax Return ("Program"), of their obligations to the Internal Revenue Service, taxpayers, and other participants. This revenue procedure updates Rev. Proc. 94-38, 1994-1 C.B. 685.

SECTION 2. BACKGROUND

.01 Section 1.6012-5 of the Income Tax Regulations provides that the Commissioner may authorize the use, at the option of a person required to make a return, of a composite return in lieu of any form specified in 26 CFR Part 1 (Income Tax), subject to the conditions, limitations, and special rules governing the preparation, execution, filing, and correction thereof as the commissioner may deem appropriate. The composite return shall consist of a form prescribed by the Commissioner and an attachment or attachments of magnetic tape or other approved media.

.02 A magnetically filed Form 1040NR is a composite return consisting of data transmitted on magnetic tape or floppy disk (magnetic media) and certain paper documents. The non-magnetic media portion of the return consists of Form 8453-NR, U.S. Nonresident Alien Income Tax Declaration for Magnetic Media Filing, and other paper documents that cannot be transmitted on magnetic media. Form 8453-NR must be received by the Service before any magnetically filed return is complete. A magnetically filed return must contain the same information that a return filed completely on paper contains. See section 8 for procedures for completing Form 8453-NR.

.03 The Magnetic Media Project Office ("Project Office", see section 17 for address and telephone numbers) will periodically issue a list of the forms and schedules that can be magnetically transmitted, as well as forms, schedules, and other information that cannot be magnetically filed.

.04 A tax return with a zero balance, balance due, or refund due may be filed on magnetic media.

.05 A tax return cannot be filed on magnetic media after December 5, notwithstanding the fact that the taxpayer has been granted an extension to file. Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return or Form 2688, Application for Additional Extension of Time To File U.S. Individual Income Tax Return, cannot be filed on magnetic media.

.06 An amended tax return cannot be filed on magnetic media. A taxpayer must file an amended tax return on paper in accordance with the instructions for Form 1040X, Amended U.S. Individual Income Tax Return.

.07 Upon request, the Project Office will provide technical information (i.e., file specifications, record layouts, and testing procedures) for magnetic media filing.

SECTION 3. SIGNIFICANT CHANGES FROM REV. PROC. 94-38

.01 Section 4.02 provides a new category of Magnetic Media Filer: a Service Bureau.

.02 Section 6.10 provides additional recordkeeping requirements for a Return Originator.

.03 Section 6.13 provides responsibilities of a Service Bureau.

.04 Section 8.01 provides that the information in the magnetic media transmission must be identical to the information on Form 8453- NR, and that the Magnetic Media Return Originator must not put its address as the taxpayer's address in the magnetic media portion of the return.

.05 Sections 8.02 and 8.03 provide a signature requirement for revised and replacement Forms 8453-NR.

.06 Section 12.05 lists additional reasons for suspension and provides that the suspension may be immediate and without warning or notice.

.07 Section 12.08 alters the time period during which a rejected applicant must wait to be reconsidered for participation in the program.

SECTION 4. MAGNETIC MEDIA FILING PARTICIPANTS-DEFINITIONS

.01 After acceptance into the Program, as described in Section 5, a participant is referred to as a Magnetic Media Filer ("Filer").

.02 A Filer is categorized as follows:

(1) RETURN ORIGINATOR. A Magnetic Media Return Originator ("Return Originator") is either (a) a Magnetic Media Return Preparer ("Return Preparer") who prepares tax returns, including Forms 8453- NR, for taxpayers who intend to have their returns magnetically filed; or (b) a Magnetic Media Return Collector ("Return Collector") who accepts completed tax returns, including Forms 8453-NR, from taxpayers who intend to have their returns magnetically filed.

(2) SERVICE BUREAU. A Service Bureau receives tax return information on any media from a Filer, formats the return information, and either forwards the return information to a Magnetic Media Transmitter or sends back the return information to the Filer. A Service Bureau may or may not process Forms 8453-NR and send them to the Project Office.

(3) SOFTWARE DEVELOPER. A Magnetic Media Software Developer ("Software Developer") develops software for the purposes of (a) formatting returns according to the Service's magnetic media return specifications; and/or (b) transmitting magnetic media returns directly to the Service. A Software Developer may also sell its software.

(4) TRANSMITTER. A Magnetic Media Transmitter ("Transmitter") accepts a magnetic media tax return from a Filer and submits the return directly to the Service.

.03 The Filer categories are not mutually exclusive. For example, a Return Originator can, at the same time, be considered a Transmitter, Software Developer, or Service Bureau depending on the function(s) performed.

SECTION 5. ACCEPTANCE INTO THE PROGRAM

.01 To be accepted into the Program, any potential Filer must:

(1) file a properly completed application using Form MAR-8980 with the Project Office, unless previously accepted into the Program;

(2) successfully complete the necessary testing with the Project Office if the potential Filer intends to transmit magnetic media returns or has developed software for formatting or transmitting magnetic media returns; and

(3) receive a letter of acceptance into the Program.

.02 Once accepted into the Program, a Filer must submit a revised Form MAR-8980 if there is any change to the information previously submitted on that form.

.03 The following reasons may result in a rejected application for participation in the Program (this list is not all-inclusive):

(1) conviction of any criminal offense under the revenue laws of the United States, or of any offense involving dishonesty or breach of trust;

(2) failure to file timely and accurate business or personal tax returns;

(3) failure to timely pay personal or business tax liabilities;

(4) assessment of penalties;

(5) suspension/disbarment from practice before the Service;

(6) other facts or conduct of a disreputable nature that would reflect adversely on the Program;

(7) misrepresentation on an application;

(8) suspension or rejection from the Program in a prior year;

(9) unethical practices in return preparation;

(10) stockpiling returns (section 6.06) prior to official acceptance into the Program;

(11) knowingly and directly or indirectly employing or accepting assistance from any person who has been denied acceptance into the Program or is suspended from the Program. (This includes any individual whose actions resulted in the rejection or suspension of a corporation or a partnership from the Program); or

(12) knowingly and directly or indirectly accepting employment as an associate, correspondent, or subagent from, or sharing fees with, any person who has been denied acceptance into the Program or is suspended from the Program. (This includes any individual whose actions resulted in the rejection or suspension of a corporation or a partnership from the Program.)

SECTION 6. RESPONSIBILITIES OF A FILER

.01 To ensure that a complete return is accurately and efficiently filed, a Filer must comply with all publications and notices of the Project Office. Currently, these publications and notices include:

(1) Procedures for Magnetic Media Filing of U.S. Nonresident Alien Income Tax Returns, Form 1040NR; and

(2) File Specifications and Record Layouts for Magnetic Media Filing of U.S. Nonresident Alien Income Tax Returns, Form 1040NR.

.02 A Filer must ensure that no other entity uses its assigned Magnetic Tape Filer Identification Number (MTFIN). A MTFIN cannot be transferred by sale, loan, gift, or otherwise to another entity.

.03 A Filer must maintain a high degree of integrity, compliance, and accuracy.

.04 A Filer may only accept a return for magnetic media filing directly from a taxpayer or from a Return Originator.

.05 If a Filer charges a fee for the submission of a magnetic media tax return, the fee may not be based on a percentage of the refund amount. A Filer may not charge a separate fee for Direct Deposit. See section 10 for a discussion of Direct Deposit.

.06 A potential Filer may not stockpile tax returns for magnetic transmission prior to receiving official acceptance into the program. A Filer may not stockpile returns at any time. Stockpiling means collecting a tax return from a taxpayer or from a Return Originator prior to official acceptance into the Program. After official acceptance into the Program, stockpiling for a Return Originator means waiting for more than three days after receiving the necessary information to submit a tax return to a Transmitter, and stockpiling for a Transmitter means waiting for more than ten days after receiving the necessary information to submit a tax return.

.07 A previously accepted Filer must submit a revised Form MAR- 8980 to update information when there is any change to:

(1) the Firm name or Doing Business As (DBA) name;

(2) the contact representative's name or telephone number; or

(3) the magnetic media filing category.

.08 A Filer must ensure that a magnetic media return is filed on or before the due date of the tax return. A magnetic media return is not considered filed until the magnetic media portion of the tax return is acknowledged as accepted for processing and a signed Form 8453-NR is received by the Service.

.09 If an acknowledgement of a magnetic media return's acceptance for processing has not been received by the Transmitter within 14 days of transmission or if a Transmitter receives an acknowledgement for a return that was not transmitted on the designated transmission, the Transmitter must immediately contact the Project Office for further instructions.

.10 A Return Originator must:

(1) comply with the procedures for completing Form 8453-NR described in section 8;

(2) furnish the taxpayer with a copy of the signed Form 8453-NR and, in the case of a prepared or corrected return, the non-magnetic portions of the return;

(3) retain the following material until the end of the calendar year in which the magnetic media return was filed, unless otherwise notified by the Service:

(a) a copy of the signed Form 8453-NR, Forms W-2, W-2G, Certain Gambling Winnings, and 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., and the non-magnetic portion of the taxpayer's return;

(b) a complete copy of the magnetically transmitted portion of the taxpayer's return (may be retained on computer media) that can be readily and accurately converted into a magnetic media that the Service can process; and

(c) the acknowledgement file received from the Service or from a Transmitter;

(4) upon request by the Service for the materials described in section 6.10(3), make those materials available to the Service at the at the business address from which a return was accepted for magnetic media filing; and

(5) identify the paid preparer (if any) in the appropriate field of the magnetic-media return, in addition to ensuring that the paid preparer signed Form 8453-NR.

.11 A Return Originator who is also the paid preparer of a magnetic media return must comply with section 1.6107-1(b). This section of the regulations describes the tax return materials that must be retained and the retention periods for these materials.

.12 If the magnetic media portion of a taxpayer's return is acknowledged as rejected by the Service, the Return Originator must immediately advise the taxpayer that the taxpayer's return has not been filed. If the taxpayer chooses to have the rejected return resubmitted on magnetic media, and the Return Originator successfully works with the Project Office to correct the problems causing the return to be rejected, the return will be accepted as timely filed. If the Project Office determines that a magnetic media return cannot be accepted for processing or the taxpayer chooses not to have the rejected return resubmitted on magnetic media, the taxpayer must file a paper return. If the due date (with regard to any extensions of time to file) of the return has passed, the taxpayer must file a paper return within ten days of the rejection along with an explanation of why the return is being filed after the due date. A paper return filed in good faith under any of these circumstances will be accepted as timely filed.

.13 A Service Bureau must:

(1) deliver all magnetic media returns to a Transmitter or to the Return Originator who gave the magnetic media returns to the Service Bureau within three calendar days of receipt;

(2) retrieve the acknowledgement file from the Transmitter within one calendar day of being informed of the receipt by the Transmitter;

(3) initiate the communication of the acknowledgement file to the Return Originator (whether related or not) within one work day of retrieving the acknowledgement file;

(4) if the Service Bureau processes Form 8453-NR, send back to the Return Originator any return and Form 8453-NR that needs correction, unless the correction is described in section 8.02(3);

(5) accept tax return information only from a Return Originator who is in good standing in the Program;

(6) include its MTFIN and the Return Originator's MTFIN in the transmission of all tax return information;

(7) retain each acknowledgement file received from a Transmitter until the end of the calendar year in which the electronic return was filed;

(8) if requested, serve as a contact point between its client Return Originator and the Service; and

(9) if requested, provide the Service with a list of each client Return Originator.

.14 A Transmitter must:

(1) transmit all magnetic media returns within ten days of receipt and forward the acknowledgement files to the Return Originators or the Service Bureau within five days after receipt of the acknowledgments from the Service;

(2) match the acknowledgement file to the original transmission file and resubmit any return that was not acknowledged as accepted for processing after necessary corrections are made within seven days of receiving the acknowledgement file;

(3) contact the Project Office for assistance if a return has been rejected after three attempts, or if an acknowledgement is received for a return that was not in the original submission;

(4) ensure the security of all transmitted data;

(5) promptly correct any transmission error that causes a magnetic media return to be rejected; and

(6) retain an acknowledgement file received from the Service until the end of the calendar year in which the magnetic media return was filed.

.15 A Transmitter who provides transmission services to another Filer must, in addition to the items covered in section 6.14, also:

(1) only accept a magnetic media return for transmission to the Service from an accepted Filer;

(2) provide each client with the acknowledgement file for the transmitted return within five days after receipt of the acknowledgment from the Service; and

(3) use its assigned MTFIN when filing returns.

.16 A Software Developer must:

(1) promptly correct any software error that causes a magnetic media return to be rejected; and

(2) promptly distribute any software correction made to its software packages to all Filers utilizing these packages.

.17 In addition to the specific responsibilities described in this section, a Filer must meet all the requirements of this revenue procedure to keep the privilege of participating in the Program.

SECTION 7. PENALTIES

.01 Penalties for Disclosure or Use of Information.

(1) A Filer, except a Software Developer, is a tax return preparer under the definition of section 301.7216-1(b) of the Regulations on Procedure and Administration. A Filer is subject to a criminal penalty for disclosure or use of tax return information, as described in section 301.7216-1(a). In general, that regulation provides that any preparer who discloses or uses any tax return information for a purpose other than preparing, assisting in preparing, or obtaining or providing services in connection with the preparation of a tax return is guilty of a misdemeanor. Section 6713 of the Internal Revenue Code also provides civil penalties that may be assessed against a preparer who makes an unauthorized disclosure or use of tax return information.

(2) Under section 301.7216-2(h), disclosure among accepted Filers for the purpose of preparing a return is permissible. For example, it is permissible for a Return Originator to pass on tax return information to a Transmitter for the purpose of having a magnetic return formatted and transmitted to the Service. However, if the tax return information is disclosed or used in any other way, the Transmitter may be guilty of a misdemeanor as described in paragraph (1) above.

.02 Other Preparer Penalties.

(1) Preparer penalties may be asserted against an individual or firm who meets the definition of an income tax return preparer under sections 7701(a)(36) and 301.7701-15. Examples of preparer penalties that may be asserted under appropriate circumstances include, but are not limited to, those set forth in sections 6694, 6695, and 6713.

(2) Under section 301.7701-15(d), Return Collectors, Service Bureaus, Software Developers, and Transmitters are not income tax return preparers for the purpose of assessing most preparer penalties as long as their services are limited to "typing, reproduction, or other mechanical assistance in the preparation of a return or claim for refund."

(3) If a Return Collector, Service Bureau, Software Developer, or Transmitter alters the return information in a nonsubstantive way, this alteration will be considered to come under the "mechanical assistance" exception described in section 301.7701-15(d)(1). A nonsubstantive change is a correction or change limited to a transposition error, misplaced entry, spelling error, or arithmetic correction that falls within one of the following tolerances:

(a) the Total Tax amount, Total Payments amount, Refund amount, or the Amount You Owe shown on Form 8453-NR differs from the corresponding amount on the magnetic media return by no more than $7;

(b) the Total Income amount shown on Form 8453-NR differs from the corresponding amount on the magnetic media return by no more than $25; or

(c) dropping cents and rounding to whole dollars.

(4) If a Return Collector, Service Bureau, or Transmitter alters the return information in a substantive way, rather than having the taxpayer alter the return, the Return Collector, Service Bureau, or Transmitter will be considered to be an income tax return preparer for purposes of section 7701(a)(36).

(5) If a Return Collector, Service Bureau, Transmitter, or the product of a Software Developer, goes beyond mechanical assistance, any of these parties may be held liable for income tax return preparer penalties. Rev. Rul. 85-189, 1985-2 C.B. 341, describes a situation where a Software Developer was determined to be an income tax return preparer and subject to certain preparer penalties.

.03 In addition to the above specified provisions, the Service reserves the right to assert all appropriate preparer, nonpreparer, and disclosure penalties against a Filer as warranted under the circumstances.

SECTION 8. FORM 8453-NR, U.S. NONRESIDENT ALIEN INCOME TAX DECLARATION FOR MAGNETIC MEDIA FILING

.01 Procedures for Completing Form 8453-NR.

(1) Form 8453-NR must be completed in accordance with the instructions for Form 8453-NR.

(2) The taxpayer's name, address, taxpayer identification number, tax return information, and direct-deposit-of-refund information in the magnetic media submission must be identical to the information on the Form 8453-NR that the taxpayer signed and provided for submission to the Service. In addition, a Return Originator must not put its address as the taxpayer's address in the magnetic media portion of the return.

(3) After the magnetic media return has been prepared and before the return is submitted, the taxpayer must verify the information on the magnetic media return and on Form 8453-NR and sign Form 8453-NR. An easily readable file copy of the prepared return must be provided to the taxpayer at the time of signature.

(4) A Filer must submit a Form 8453-NR to the Project Office with each magnetically filed return. A single Form 8453-NR (inscribed with the language "See attached Multiple Return Information Listing") may be used for a multiple return filing if the person who signs Form 8453-NR has proper authorization to sign each of the returns included in the multiple return filing. A person who makes a multiple return filing must attach to Form 8453-NR an information page(s) titled "Form 8453-NR for Multiple Returns --- Tax Return Information Listing" at the top of the pages(s). Below the title, the multiple return Filer must provide his or her name and address. The next item on the page(s) must be a list that includes every taxpayer's name control, taxpayer identification number, and the information shown on lines one through five on Form 8453-NR, for each return included in a multiple return filing.

(5) A Filer must ensure that the Service receives by April 15 all the returns of individuals who were employees and who received wages subject to U.S. income tax withholding. For those individuals who did not receive wages as an employee that were subject to U.S. income tax withholding, the Service must receive the returns by June 15. However, section 2.05 of this revenue procedure provides that a magnetic media return cannot be filed after December 5.

(6) If a Filer functions as a Return Originator, the Filer must sign the Return Originator's Declaration on Form 8453-NR.

(7) If the Filer is also the paid preparer, the Filer must check the "Paid Preparer" box and sign the Return Originator Declaration on Form 8453-NR.

.02 Corrections to Form 8453-NR.

(1) If the Return Originator makes changes to a magnetic media return after Form 8453-NR has been signed by the taxpayer, but before it is transmitted, the Return Originator must have all the necessary parties described above sign a new Form 8453-NR with the corrections if either of the following applies:

(a) the "Total Income" (Form 8453-NR, line 1) differs from the amount on the magnetic media return by more than $25; or

(b) the "Total Tax" (Form 8453-NR, line 2), the "Refund" (Form 8453-NR, line 4), or the "Amount Owed" (Form 8453-NR, line 5) differs from the amount on the magnetic media return by more than $7.

(2) A new Form 8453-NR is not required for a nonsubstantive change. A nonsubstantive change is limited to a correction within the above tolerances for an arithmetic error, transposition error, misplaced entry, or a spelling error. The incorrect nonsubstantive information must be neatly lined through on Form 8453-NR and the correct data entered next to the lined-through entry. Also, the initials or the name of the person making the correction must be entered.

(3) Dropping cents and rounding to whole dollars does not constitute a substantive change or alteration to the return unless the amount differs by more than the above tolerances. All rounding should be accomplished in accordance with the instructions in the Form 104ONR tax package.

.03 If the Service determines that a Form 8453-NR is missing, the Return Originator must provide the Service with a replacement. Whether the replacement Form 8453-NR is a copy of the original Form 8453-NR or a recently completed Form 8453-NR, the signatures on the replacement Form 8453-NR must be original signatures. A Filer must also provide a copy of the Form(s) W-2, W-2G, and 1099R that may have been attached to the Form 8453-NR.

.04 If a substitute Form 8453-NR is used, it must be approved by the Service prior to use. See Rev. Proc. 95-16, 1995-8 I.R.B. 5.

SECTION 9. OBLIGATIONS OF A RETURN ORIGINATOR TO THE TAXPAYER

.01 A Return Originator must:

(1) furnish the taxpayer with a paper copy of the magnetic media material that was transmitted to the Service. This information can be contained on a replica of an official form or on an unofficial form. However, on an unofficial form, data entries must be referenced to the line numbers on an official form;

(2) provide the taxpayer with a copy of Form 8453-NR and, in the case of a prepared or corrected return, the non-magnetic media portion of the taxpayer's return;

(3) advise the taxpayer to retain a complete copy of the return and any supporting material;

(4) advise the taxpayer that an amended return, if needed, must be filed as a paper return and mailed to the Philadelphia Service Center;

(5) upon request, provide the taxpayer with the date the magnetic media portion of the taxpayer's return was acknowledged as accepted for processing by the Service; and

(6) inform the taxpayer that the address reported on the return will become the taxpayer's "last known address" for all purposes of the Code, if, for purposes of filing the return, a taxpayer chooses to use an address other than his or her home address (or other usual mailing address). This means that all future written communications from the Service to the taxpayer will be sent to the address reported on the return rather than to the taxpayer's home address (or other usual mailing address). In particular, the Service is required by the Code to send the following notices to a taxpayer's "last known address":

(a) formal document request for the production of foreign-based documentation (section 982(c)(1));

(b) notification of disclosure proceedings (section 6110(f)(3)(B));

(c) notice of deficiency (section 6212(b));

(d) notice and demand for tax (section 6303(a));

(e) notice of revocation of certification of release or nonattachment of a lien (section 6325(f)(2)(A));

(f) notice of intention to levy (section 6331(d)(2)(C));

(g) copy of notice of levy with respect to a life insurance or endowment contract (section 6332(b)(1));

(h) notice of seizure and sale (section 6335(a) and (b));

(i) notice of liability in transferee cases (section 6901(g)); and

(j) notice of third-party summons (section 7609(a)(2)). See Rev. Proc. 90-18, 1990-1 C.B. 491, for additional information about "last known address."

.02 A Return Originator should advise the taxpayer to wait at least three weeks from the acceptance date of the magnetic media tax return before contacting the Service for the status of a refund. If such contact is necessary, the taxpayer should be advised to use the IRS Tele-Tax system.

SECTION 10. DIRECT DEPOSIT OF REFUNDS

.01 The Service does not guarantee a specific date by which a refund will be directly deposited into the taxpayer's financial institution account. The taxpayer's account must be with a financial institution located in the United States. Because of disclosure laws, the Service cannot provide information to the Filer about any delay or denial of a Direct Deposit without proper written authorization.

.02 Neither the Service nor the Financial Management Service (FMS) is responsible for the misapplication of a Direct Deposit that is caused by error, negligence, or malfeasance on the part of the taxpayer, Filer, financial institution, or any of their agents.

.03 A Return Originator must:

(1) ensure that the taxpayer is aware of all the general information regarding a Direct Deposit;

(2) not charge a separate fee for Direct Deposit;

(3) accept any Direct Deposit election to any eligible financial institution designated by the taxpayer;

(4) ensure that the taxpayer is eligible to choose Direct Deposit;

(5) verify that the taxpayer has entered the Direct Deposit information requested on Part II of Form 8453-NR correctly and that the information entered is the information transmitted on the magnetic media portion of the return;

(6) caution the taxpayer that once a magnetic media return has been accepted for processing by the Service:

(a) the Direct Deposit election cannot be rescinded;

(b) the Routing Transit Number of the financial institution cannot be changed; and

(c) the taxpayer's account number cannot be changed; and

(7) advise the taxpayer to follow the procedures in section 9.02 if there is a need to contact the Service about a Direct Deposit request.

SECTION 11. ADVERTISING STANDARDS FOR A FILER AND A FINANCIAL INSTITUTION

.01 A Filer shall comply with the advertising and solicitation provisions of 31 C.F.R. Part 10 (Treasury Department Circular No. 230). This circular prohibits the use or participation in the use of any form of public communication containing a false, fraudulent, misleading, deceptive, unduly influencing, coercive, or unfair statement or claim. In addition, advertising must not imply a special relationship with the Service, FMS, or the Treasury Department. Any claims concerning faster refunds by virtue of magnetic media filing must be consistent with the language in official Service publications.

.02 The use of the Service's name, "Internal Revenue Service," or "IRS" within a firm's name may result in immediate suspension from the Program.

.03 The use of improper or misleading advertising in relation to the Program (including the time frames for refunds) may result in immediate suspension from the Program.

.04 Use of Direct Deposit name and logo.

(1) The name "Direct Deposit" will be used with initial capital letters or all capital letters.

(2) The logo/graphic for Direct Deposit will be used whenever feasible in advertising copy.

(3) The color or size of the Direct Deposit logo/graphic may be changed when used in advertising pieces.

.05 Advertising materials shall not carry the FMS or Treasury seals.

.06 Advertising for a cooperative magnetic media return project (public/private sector) must clearly state the names of all cooperating parties.

.07 If a Filer uses radio or television broadcasting to advertise, the broadcast must be pre-recorded. The Filer must keep a copy of the pre-recorded advertisement for a period of at least 36 months from the date of the last transmission or use.

.08 If a Filer uses direct mail or fax communications to advertise, the Filer must retain a copy of the actual mailing or fax, along with a list or other description of persons to whom the communication was mailed, faxed, or otherwise distributed for a period of at least 36 months from the date of the last mailing, fax, or distribution.

.09 Acceptance to participate in the Program does not imply endorsement by the Service or FMS of the software or quality of services provided.

SECTION 12. MONITORING AND SUSPENSION OF A FILER

.01 The Service will monitor a Filer for conformity with this revenue procedure. The Service can immediately suspend, without notice, a Filer from the Program. However, in most circumstances, a suspension from participation in the Program is effective as of the date of the letter informing the Filer of the suspension. Before suspending a Filer, the Service may issue a warning letter that describes specific corrective action for deviations from this revenue procedure.

.02 The Service will monitor the timely receipt of Forms 8453- NR, as well as their overall legibility.

.03 The Service will monitor the quality of the Filer's submissions throughout the filing season. The Service will also monitor magnetic media returns and tabulate rejections, errors, and other defects. If quality deteriorates, the Filer will receive a warning from the Service.

.04 The Service will monitor complaints about a Filer and issue a warning or suspension letter as appropriate.

.05 The Service reserves the right to suspend the magnetic media filing privilege of any Filer who violates any provision of this revenue procedure. Generally, the Service will advise a suspended Filer concerning the requirements for reacceptance into the Program. The following reasons may lead to a warning letter and/or suspension of a Filer from the Program (this list is not all-inclusive):

(1) the reasons listed in section 5.03;

(2) deterioration in the format of individual submissions;

(3) unacceptable cumulative error rate;

(4) untimely received, illegible, missing, or unapproved substitute Forms 8453-NR;

(5) stockpiling of returns while participating in the Program;

(6) failure on the part of a Transmitter to provide clients with acknowledgement files within five days after receipt from the Service;

(7) significant complaints about a Filer;

(8) failure on the part of a Filer to ensure that no other entity uses its assigned MTFIN;

(9) failure on the part of a Filer to cooperate with the Service's efforts to monitor Filers and investigate magnetic media filing abuse;

(10) failure on the part of a Filer to properly use the standard/non-standard W-2 indicator;

(11) failure on the part of a Transmitter to use its assigned MTFIN when filing returns;

(12) failure on the part of the Transmitter to include a Service Bureau's MTFIN in the transmission of a return submitted by a Service Bureau;

(13) failure on the part of a Service Bureau or a Transmitter to include the Return Originator's MTFIN as part of a return that the Return Originator submits to the Service Bureau or the Transmitter;

(14) violation of the advertising standards described in section 11;

(15) failure to maintain and make available records as described in section 6.10(3) and (4);

(16) accepting a tax return for magnetic media filing either directly or indirectly from a person (other than the taxpayer who is submitting his or her return) who is not in the Program;

(17) submitting the magnetic media portion of the return with information that is not identical to the information on the Form 8453-NR;

(18) failure to timely pay any applicable fees, as implemented by subsequent guidance; or

(19) filing returns before February 15, 1995, with any form of substitute Form W-2.

.06 The Service will list in the Internal Revenue Bulletin the name of any entity that is suspended from the Program and the effective date of that suspension.

.07 A suspension from participation in the Program or a revocation of the privilege to participate in the Program is effective as of the date of the letter informing the Filer of the suspension or revocation.

.08 Most denials and suspensions of participation in the Program will result in:

(1) a rejected applicant not being reconsidered for participation in the Program for at least two filing seasons; and

(2) a suspended Filer not being reconsidered for participation in the Program for at least two years.

SECTION 13. ADMINISTRATIVE REVIEW PROCESS FOR DENIAL OF PARTICIPATION IN THE PROGRAM

.01 An applicant who has been denied participation in the Program has the right to an administrative review. During the administrative review process, the denial of participation remains in effect.

.02 In response to the submission of a Form MAR-8980, the Service will either (1) accept an applicant into the Program, or (2) issue a proposed letter of denial that explains to the applicant why the Service proposes to reject the application to participate in the Program.

.03 An applicant who receives a proposed letter of denial may respond, in writing, to the Project Office. The applicant's response must address the Project Office's explanation for proposing the denial to participate. The Project Office must receive the applicant's response within 30 calendar days of the date of the proposed letter of denial.

.04 Upon receipt of an applicant's written response, the Project Office will reconsider its proposed letter of denial. The Project Office may (1) withdraw its proposed letter of denial and admit the applicant into the Program, or (2) finalize its proposed letter of denial and issue it to the applicant.

.05 If an applicant receives a final letter from the Project Office that denies the applicant participation in the Program, the applicant is entitled to an appeal, in writing, to the Director of Practice.

.06 The appeal must be filed with the Project Office within 30 days of the date of the denial letter. An applicant's written appeal must contain a detailed explanation, with supporting documentation, of why the denial should be reversed. In addition, the applicant must include a copy of the applicant's Form MAR-8980 and a copy of the denial letter.

.07 The Project Office, upon receipt of a written appeal to the Director of Practice, will forward to the Director of Practice its file on the applicant and the materials described in section 13.06 that the applicant has submitted to the Project Office. The Project Office will forward to the Director of Practice these materials within 15 calendar days of receipt of the applicant's appeal to the Director of Practice.

.08 Failure to respond within the 30-day periods described in sections 13.03 and 13.06 irrevocably terminates an applicant's right to an administrative review or appeal.

SECTION 14. ADMINISTRATIVE REVIEW PROCESS FOR SUSPENSION FROM THE PROGRAM

.01 A Filer who has been suspended from participation in the Program has the right to an administrative review. During the administrative review process, the suspension remains in effect.

.02 If a Filer receives a suspension letter from the Project Office, the Filer is entitled to an appeal, in writing, to the Director of Practice.

.03 The Filer must ensure that the Project Office receives the Filer's written appeal for review by the Director of Practice within 30 calendar days of the date of the suspension letter. The Filer's written appeal for review must contain detailed reasons, with supporting documentation, for reversal of the suspension. In addition, the Filer must include a copy of its Form MAR-8980 and a copy of the suspension letter.

.04 The Project Office, upon receipt of a written appeal to the Director of Practice, will forward to the Director of Practice its file on the Filer and the material described in section 14.03 that the Filer has submitted to the Project Office. The Project Office will forward to the Director of Practice these materials within 15 calendar days of the receipt of a Filer's written request for appeal.

.05 Failure to appeal within the 30-day period described in section 14.03 irrevocably terminates a Filer's right to appeal the decision to suspend the Filer from participation in the Program.

SECTION 15. EFFECT ON OTHER DOCUMENTS

Rev. Proc. 94-38, 1994-1 C.B. 685, is superseded.

SECTION 16. EFFECTIVE DATE

This revenue procedure is effective April 10, 1995.

SECTION 17. PROJECT OFFICE INFORMATION

All questions regarding this revenue procedure should be directed to:

                    Internal Revenue Service