us internal revenue service: i1099--1996

8/14/2019 US Internal Revenue Service: i1099--1996

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Cat. No. 11409F

Paperwork Reduction Act Notice.We askfor the information on these forms to carryout the Internal Revenue laws of the UnitedStates. You are required to give us theinformation. We need it to ensure that you arecomplying with these laws and to allow us tofigure and collect the right amount of tax.

The time needed to complete and file thefollowing forms will vary depending onindividual circumstances. The estimatedaverage times are:

Insts.begin

onpage

1098 7 minutes 8

1099-A 10 minutes 10

1099-B 15 minutes 11

1099-C 11 minutes 12

1099-DIV 14 minutes 13

1099-G 11 minutes 14

1099-INT 12 minutes 14

1099-MISC 14 minutes 16

1099-OID 10 minutes 19

1099-PATR 11 minutes 20

1099-R 20 minutes 201099-S 8 minutes 26

5498 8 minutes 28

W-2G 19 minutes 29

1096 10 minutes (see form)

5754 (see form) 31

If you have comments concerning theaccuracy of these time estimates orsuggestions for making these forms simpler,we would be happy to hear from you. Youcan write to the Tax Forms Committee,Western Area Distribution Center, RanchoCordova, CA 95743-0001. DO NOT sendthese forms to this address. Instead, seeWhere To File on page 5.

Items You Should Note

Phone Numbers on Statements toRecipients

Please include your telephone number on thestatements to recipients you provide so thattaxpayers can contact you directly withquestions.

Form 1099-C

The temporary regulations under section6050P and interim relief provided in Notice

94-73, 1994-2 C.B. 553, are in effect fordebts discharged before December 22, 1996.Although December 22, 1996, is the effectivedate of the final regulations, you may stillfollow the temporary regulations and Notice94-73 for debts canceled between December22 and December 31, 1996. However, youmay choose to follow any provisions in thefinal regulations for any debt canceled in1996. The final regulations (T.D. 8654) werepublished in the Federal Register on January

4, 1996.The instructions for filing Form 1099-C,Cancellation of Debt, that begin on page 12,are based on the temporary regulations andNotice 94-73 (except the instructions forreporting for multiple debtors and for filing acombined Form 1099-C/1099-A). You mayfollow the Form 1099-C instructions for 1996,or you may choose to follow the finalregulations. The instructions for reporting formultiple debtors and for filing combinedForms 1099-C and 1099-A are effectiveJanuary 1, 1995.

Form 1099-SForeign PersonIndicator Withdrawn

The advance proof of the 1996 Form 1099-S,

Proceeds From Real Estate Transactions,printed in Pub. 1407-B, contained a box tobe marked if the transferor is a foreign person(box 6). After further consideration, box 6 wasnot added to the 1996 Form 1099-S. You arenot required to indicate that the transferor isa foreign person.

Form 5498Checkbox for SEP

Form 5498, Individual RetirementArrangement Information, contains new box5, Check for SEP. Mark this box if you arefiling Form 5498 to report the fair marketvalue of a simplified employee pension (SEP).For 1996, this box is optional. See theinstructions for box 5 on page 29.

Grantor TrustsNew regulations allow certain grantor trusts tochoose to file Forms 1099 rather than aseparate statement attached to Form 1041. Ifyou have filed Form 1041 for a grantor trustin the past and want to choose the 1099 filingmethod for 1996, you must have filed aFINAL Form 1041 for 1995. Regulationssection 1.671-4, which contains the newrules, was published in the Federal Registeron December 21, 1995 (T.D. 8633). See thoseregulations for details.

New Voluntary Withholding for 1997

Beginning January 1, 1997, states must allowunemployment compensation recipients toelect to have Federal income tax withheld ata 15% rate.

Also beginning January 1, 1997, a payeewho receives any of the following Federalpayments may elect to have Federal incometax withheld at a rate of 7%, 15%, 28%, or31%: (1) crop disaster payments, (2)Commodity Credit Corporation loans, and (3)any other Federal payment specified by theIRS.

Form 945Withholding Tax Return

Report backup withholding and withholdingfrom gambling winnings, pensions, annuities,IRAs, military retirement, and Indian gamingprofits on Form 945, Annual Return ofWithheld Federal Income Tax. File Form 945for 1996 by January 31, 1997. Generally, anyincome tax withheld reported on Forms 1099or W-2G must be reported on Form 945. Anyincome tax withheld reported on Form W-2,including withholding on distributions to planparticipants from nonqualified plans, must bereported on Form 941, Employers QuarterlyFederal Tax Return. For more information,including the deposit requirements for Form945, see the separate Instructions for Form

945.

Use Form 1096 To Send Forms to theIRS

You must send Copies A of all paper Forms1099, 1098, 5498, and W-2G to the IRS withForm 1096, Annual Summary and Transmittalof U.S. Information Returns. Instructions forcompleting Form 1096 are contained on Form1096.

REMINDERSubstitute Statements toRecipients

If you are not using the official IRS form(generally Copy B) to furnish statements torecipients, be sure your substitute statements

comply with the rules in Pub. 1179, Rulesand Specifications for Private Printing ofSubstitute Forms 1096, 1098, 1099 Series,5498, and W-2G. Pub. 1179, which is revisedannually, is a revenue procedure that explainsthe requirements for format and content ofsubstitute statements to recipients. If you areusing a substitute form to furnishinformation to recipients, it must complywith the requirements in Pub. 1179.

New Requirement: All substitute statementsto recipients must contain the tax year, formnumber, and form name prominentlydisplayed together in one area of thestatement. For example, they could be shownin the upper right part of the statement.

Guide to Information ReturnsSee the chart on pages 32 and 33 for a briefsummary of information return reporting rules.

Need Help?

Information Reporting Call Site.The IRSoperates a centralized call site to answerquestions about reporting on informationreturnsForms 1096, 1098, 1099, 5498, W-2,W-2G, and W-3. If you have questions relatedto reporting on any of these forms, you maycall 304-263-8700 (not a toll-free number)Monday through Friday from 8:30 a.m. to4:30 p.m. eastern time.

Instructions for Forms 1099,1098, 5498, and W-2G(Including Instructions for Forms 1099-A, 1099-B,

1099-C, 1099-DIV, 1099-G, 1099-INT, 1099-MISC,1099-OID, 1099-PATR, 1099-R, 1099-S, and 5754)Section references are to the Internal Revenue Code unless otherwise noted.

Department of the TreasuryInternal Revenue Service96


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Bulletin Board Service.The IRS alsooperates an electronic bulletin board(IRP-BBS). The IRP-BBS offers changes andupdates that affect information reporting. Byusing your personal computer and modem,you can access the IRP-BBS by dialing304-264-7070. For more information, seePub. 1220, Specifications for Filing Forms1098, 1099, 5498 and W-2G Magnetically orElectronically.

Internal Revenue Bulletin.The InternalRevenue Bulletin (IRB), published weekly,contains newly issued regulations, as well as

notices, announcements, legislation, courtdecisions, and other items of general interest.You may find this publication useful to keepyou up to date with current developments.The IRB is sold by the Superintendent ofDocuments, U.S. Government Printing Office,Washington, DC 20402, and is available on asubscription basis. To order the IRB, you canwrite to the Superintendent of Documents orcall 202-512-1800 (not a toll-free number).

Forms and Publications.You may orderforms, instructions, and publications bycalling 1-800-TAX-FORM (1-800-829-3676).

Backup Withholding

Interest, dividends, rents, royalties,commissions, nonemployee compensation,and certain other payments (including brokerand barter exchange transactions, and certainpayments made by fishing boat operators)may be subject to backup withholding at a31% rate. To be subject to backupwithholding, a payment must be a reportableinterest or dividend payment under section6049(a), 6042(a), or 6044 (if the patronagedividend is paid in money or qualified check),or an other reportable payment undersection 6041, 6041A(a), 6045, 6050A, or6050N. If the payment is one of thesereportable payments, backup withholding willapply if:

1. The payee fails to furnish his or her

taxpayer identification number (TIN) to you,OR

2. The IRS notifies you to impose backupwithholding because the payee furnished anincorrect TIN, OR

3. You are notified that the payee is subjectto backup withholding (under section3406(a)(1)(C)), OR

4. For interest and dividend accountsopened or instruments acquired after 1983,the payee fails to certify to you, underpenalties of perjury, that he or she is notsubject to backup withholding under 3 above,OR

5. For interest, dividend, broker, or barterexchange accounts opened or instruments

acquired after 1983, or broker accountsconsidered inactive in 1983, the payee fails tocertify, under penalties of perjury, that the TINprovided is correct.

Except as explained in 5 above, reportableother payments are subject to backupwithholding only if 1 or 2 above applies.

Some payees are exempt from backupwithholding. For a list of types of exemptpayees and other information, please seeForm W-9, Request for TaxpayerIdentification Number and Certification, andInstructions for the Requester of FormW-9.

Real estate transactions reportable undersection 6045(e) and canceled debtsreportable under section 6050P are notsubject to backup withholding.

Generally, the period for which the 31%should be withheld is as follows:

1. Failure to furnish TIN in the mannerrequired.Withhold on payments made untilthe TIN is furnished in the manner required.Special backup withholding rules apply if thepayee has applied for a TIN. The payee maycertify to this on Form W-9 by notingApplied For in the TIN block and by signing

the form. This form then becomes anawaiting-TIN certificate, and the payee has60 days to obtain a TIN and furnish it to you.For information about whether backupwithholding applies during the 60-day period,see Temporary Regulations section35a.9999-3, Q/A-59A. If you do not receive aTIN from the payee within 60 days and youhave not already begun backup withholding,begin backup withholding and continue untilthe TIN is provided.

2. Notice from the IRS that payees TIN isincorrect (B notice).You may elect towithhold on any reportable payment made tothe account(s) subject to backup withholdingafter receipt of the B notice, but you mustwithhold on any reportable payment made to

the account more than 30 business days afteryou received the B notice. Stop withholdingwithin 30 days after you receive a certifiedForm W-9 (or acceptable substitute).

Note: The IRS will furnish a notice to you,and you are required to promptly furnish acopy of such notice, or an acceptablesubstitute, to the payee. For furtherinformation, see Regulations section31.3406(d)-5 and Rev. Proc. 93-37, 1993-2C.B. 477.

If you receive two incorrect TIN noticeswithin 3 years for the same account, followthe procedures in Regulations section31.3406(d)-5(g) and Rev. Proc. 93-37.

3. Notice from the IRS that payee is

subject to backup withholding due tonotified payee underreporting.Startwithholding on payments made on the 31stday after the date you receive notificationfrom the IRS, or you may elect to withholdany time before the 31st day. The IRS willnotify you in writing when to stop withholding,or the payee may furnish you a writtencertification from the IRS stating whenwithholding is to stop. In most cases, thestop date will be January 1 of the yearfollowing the year of the notice.

Note: You must notify the payee whenwithholding under this procedure starts. Forfurther information, see TemporaryRegulations section 35a.3406-2.

4. Payee failure to certify that he or she isnot subject to backup withholding.Withhold on reportable interest and dividendsuntil certification has been received.

For exceptions to these general timingrules, see section 3406(e).

Note: For information about backupwithholding on gambling winnings, see theSpecific Instructions for Form W-2G for thespecific type of gambling winnings later.

Reporting Backup Withholding.Backupwithholding must be reported on Form 945,Annual Return of Withheld Federal IncomeTax. For more information, see the

Instructions for Form 945. Also reportbackup withholding on each Form W-2G,1099-B, DIV, G, INT, MISC, OID, or PATRused to report the payment.

Additional Information.For moreinformation about backup withholding, seeTemporary Regulations sections 35a.9999-1,2, and 3, and 35a.3406-2.

Penalties

The following penalties generally apply to the

person required to file information returns.The penalties apply to paper filers as well asmagnetic media/electronic filers.

Failure To File Correct InformationReturns by the Due Date (Section6721)

If you fail to file a correct information returnby the due date and you cannot showreasonable cause, you may be subject to apenalty. The penalty applies if you fail to filetimely, you fail to include all informationrequired to be shown on a return, or youinclude incorrect information on a return. Thepenalty also applies if you file on paper whenyou were required to file on magnetic media,you report an incorrect TIN or fail to report a

TIN, or you fail to file paper forms that aremachine readable.

The amount of the penalty is based onwhen you file the correct information return.The penalty is:

$15 per information return if you correctlyfile within 30 days (by March 30 if the duedate is February 28); maximum penalty$75,000 per year ($25,000 for smallbusinesses, defined later).

$30 per information return if you correctlyfile more than 30 days after the due date butby August 1; maximum penalty $150,000 peryear ($50,000 for small businesses).

$50 per information return if you file afterAugust 1 or you do not file required

information returns; maximum penalty$250,000 per year ($100,000 for smallbusinesses).

Exceptions to the Penalty.

1. The penalty will not apply to any failurethat you can show was due to reasonablecause and not to willful neglect.

2. An inconsequential error or omission isnot considered a failure to include correctinformation. An inconsequential error oromission does not prevent or hinder the IRSfrom processing the return, from correlatingthe information required to be shown on thereturn with the information shown on thepayees tax return, or from otherwise puttingthe return to its intended use. Errors and

omissions that are never inconsequential arethose relating to (a) a TIN, (b) a payeessurname, and (c) any money amounts.

3. De Minimis Rule for Corrections.Eventhough you cannot show reasonable cause,the penalty for failure to file correctinformation returns will not apply to a certainnumber of returns if:

a. You filed those information returns,

b. Either you failed to include all theinformation required to be shown on a returnor you included incorrect information, and

c. You filed corrections of these informationreturns by August 1.


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If you meet all the conditions in a throughc, the penalty for filing incorrect returns (butnot for filing late) will not apply to the greaterof 10 information returns or 12 of 1% of thetotal number of information returns you arerequired to file for the calendar year.

Lower Maximum Penalties for SmallBusinesses.For purposes of the lowermaximum penalties shown in parenthesesabove, you are a small business if youraverage annual gross receipts for the 3 mostrecent tax years (or for the period you were inexistence, if shorter) ending before the

calendar year in which the information returnswere due are $5 million or less.

Intentional Disregard of FilingRequirements.If any failure to file a correctinformation return is due to intentionaldisregard of the filing or correct informationrequirements, the penalty is at least $100 perinformation return with no maximum penalty.

Failure To Furnish Correct PayeeStatements (Section 6722)

If you fail to provide correct payee statementsand you cannot show reasonable cause, youmay be subject to a penalty. The penaltyapplies if you fail to provide the statement byJanuary 31 (see part H under GeneralInstructions later), you fail to include all

information required to be shown on thestatement, or you include incorrectinformation on the statement. Payeestatement has the same meaning asstatement to recipient as used in part Hunder General Instructions.

The penalty is $50 per statement,regardless of when the correct statement isfurnished, with a maximum of $100,000 peryear. There is no reduction in the penalty forfurnishing a correct statement by August 1.

Exception.An inconsequential error oromission is not considered a failure to includecorrect information. An inconsequential erroror omission cannot reasonably be expectedto prevent or hinder the payee from timely

receiving correct information and reporting iton his or her income tax return or fromotherwise putting the statement to itsintended use. Errors and omissions that arenever inconsequential are those relating to (a)a dollar amount, (b) a payees address, (c) theappropriate form for the information provided(i.e., whether the form is an acceptablesubstitute for the official IRS form), and (d)whether the statement was furnished inperson or by statement mailing, whenrequired.

Intentional Disregard of Payee StatementRequirements.If any failure to provide acorrect payee statement is due to intentionaldisregard of the requirements to furnish acorrect payee statement, the penalty is at

least $100 per payee statement with nomaximum penalty.

Forms 1099-R and 5498

The penalties under sections 6721 and 6722do not apply to Form 1099-R, which is filedunder section 6047. The penalty for failure totimely file Form 1099-R is $25 per day with amaximum of $15,000 per year. See section6652(e).

The penalties under sections 6721 and6722 do not apply to Form 5498, which isfiled under section 408(i). The penalty for

failure to timely file Form 5498 is $50 perreturn with no maximum. See section 6693.

Caution: Congress has considered, and mayconsider again, legislation that would applythe penalties under sections 6721 and 6722to Forms 1099-R and 5498.

Magnetic Media/ElectronicReporting

Magnetic media reporting may be required forfiling all information returns discussed in this

publication. Acceptable forms of magneticmedia are magnetic tape, tape cartridge, 312-and 514-inch diskette. Pub. 1220,Specifications for Filing Forms 1098, 1099,5498 and W-2G Magnetically orElectronically, is the revenue procedure formagnetic media and electronic reporting.Different types of payments, such as interest,dividends, and rents, may be reported on thesame tape or other submission.

Electronic submissions are filed using theInformation Reporting Bulletin Board System(IRP-BBS). The IRP-BBS operates 24 hours aday, 7 days a week, and is accessed usingyour personal computer and modem at304-264-7070. For more information, seePub. 1220.

Note: Filing electronically will satisfy themagnetic media filing requirements. Anyreference to magnetic media in theseinstructions includes electronic filing.

Due Dates.The due dates for magneticmedia reporting are the same as for paperdocument reporting.

Extension of Time To File.For informationabout requesting an extension of time to file,see part B under General Instructions later.

Caution: If you file on magnetic media, donot file the same returns on paper.

Who Must File on Magnetic Media.If youare required to file 250 or more informationreturns, you must file on magnetic media. The

250-or-more requirement applies separatelyto each type of form. For example, if youmust file 500 Forms 1098 and 100 Forms1099-A, you are not required to file Forms1099-A on magnetic media, but you must fileForms 1098 on magnetic media.

Note: Even if you are not required to file onmagnetic media, the IRS encourages you todo so. Also, you may file electronically even ifyou are not required to file on magneticmedia.

The magnetic media filing requirement doesnot apply if you apply for and receive anundue hardship waiver. See How To Requesta Waiver From Filing on Magnetic Medialater.

Filing Requirement Applies Separately toOriginals and Corrections.The magneticmedia filing requirements below applyseparately to original returns and correctedreturns. Originals and corrections are notaggregated to determine whether you arerequired to file on magnetic media. Forexample, if you file 400 Forms 1098 onmagnetic media and you are making 75corrections, your corrections can be filed onpaper because the number of corrections forForm 1098 is less than the 250 filingrequirement. However, if you were filing 250or more Form 1098 corrections, they wouldhave to be filed on magnetic media.

How To Get Approval To File on MagneticMedia.File Form 4419, Application forFiling Information Returns Magnetical-ly/Electronically, at least 30 days (45 days forsome electronic filing) before the due date ofthe returns. Only one Form 4419 need befiled for all types of returns that will be filedon magnetic media. Once you have receivedapproval, you need not reapply each year.The IRS will provide a written reply to theapplicant and further instructions at the timeof approval, usually within 30 days. Amagnetic media reporting package, whichincludes all the necessary transmittals, labels,and instructions, will be mailed to allapproved filers.

How To Request a Waiver From Filing onMagnetic Media.To receive a waiver fromthe required filing of information returns onmagnetic media, submit Form 8508, Requestfor Waiver From Filing Information Returns onMagnetic Media, requesting an unduehardship waiver from filing on magneticmedia. You cannot apply for a waiver formore than 1 tax year at a time. If you need awaiver for more than 1 tax year, you mustreapply at the appropriate time each year.

If a waiver for original returns is approved,any corrections for the same types of returnswill be covered under the waiver. However, if

you submit original returns on magneticmedia but you want to submit yourcorrections on paper, a waiver must beapproved for the corrections if the correctionsexceed the 250 filing requirement.

Waiver requests generally must be filed atleast 45 days before the due date of thereturns. However, new brokers and newbarter exchanges may request an unduehardship waiver by filing Form 8508 by theend of the second month following the monthin which they became a broker or barterexchange.

If you are seeking, in a single application,approval for filing returns on magnetic mediaand, if approval is not granted, a waiver fromthe magnetic media filing requirement, submitboth Forms 4419 and 8508.

If you receive an approved waiver, do notsend a copy of it to the service center whereyou file your paper returns. Keep the waiverfor your records only.

Penalty.If you are required to file onmagnetic media but fail to do so, and you donot have an approved waiver on record, youmay be subject to a penalty of $50 per returnfor failure to file information returns onmagnetic media unless you establishreasonable cause. However, you can file upto 250 returns on paper; those returns will notbe subject to a penalty for failure to file onmagnetic media.

The penalty applies separately to original

returns and corrected returns. See FilingRequirement Applies Separately toOriginals and Corrections earlier.

Paper Document Reporting

If you are required to file 250 or moreinformation returns, see MagneticMedia/Electronic Reporting earlier.

Common Errors.Please be sure to checkyour returns to prevent the following commonerrors:


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1. Duplicate filing. Sending the sameinformation to the IRS more than once.

2. Filers name, address, and taxpayeridentification number are not the same onForm 1096 and Forms 1099, 1098, 5498, orW-2G.

3. Decimal point to show dollars and centsomitted (1000.00 is correct).

4. Two or more types of returns submittedwith one Form 1096 (e.g., Forms 1099-INTand 1099-MISC with one Form 1096). Youmust submit a separate Form 1096 with eachtype of document.

5. Failure to make an entry in box 1a,Gross dividends and other distributions onstock, on Form 1099-DIV. An amount mustbe entered in box 1a if any amount is enteredin box 1b, 1c, 1d, or 1e.

Required Format.Because paper forms areread by machines (optical characterrecognition equipment), all Forms 1096, andCopies A of Forms 1098, 1099, and 5498must be prepared in accordance with thefollowing instructions. If these instructions arenot followed, you may be subject to a penaltyof $50 per incorrectly filed document.

1. DO NOT CUT OR SEPARATE Copies Aof the forms that are printed two or three to asheet (except Form W-2G). Forms 1098,

1099, and 5498 are printed two or three to an8- by 11-inch sheet. Form 1096 is printed oneto an 8- by 11-inch sheet. These forms mustbe submitted to the IRS on the 8- by 11-inchsheet. If at least one form on the page iscorrectly completed, you must submit theentire page. Forms W-2G may be separatedand submitted as single forms.

Send the forms to the IRS in a flat mailing(not folded). Note: Large envelopes mayrequire extra postage.

2. NO PHOTOCOPIES of any forms areacceptable. Official forms are available fromyour IRS district office or by calling1-800-TAX-FORM (1-800-829-3676).

3. DO NOT STAPLE, tear, or tape any of

these forms. It will interfere with the IRSsability to scan the documents.

4. Pinfeed holes on the form are NOTacceptable. Pinfeed strips outside the 8- by11-inch area must be removed beforesubmission, without tearing or ripping theform. Substitute forms prepared in continuousor strip form must be burst and stripped toconform to the size specified for a singlesheet (8 by 11 inches) before they are filedwith the IRS.

5. DO NOT change the title of any box onany form. Do not use a form to reportinformation that is not properly reportable onthat form. If you are unsure of where to reportthe data, call 304-263-8700 or your local IRSoffice.

6. Report information only in theappropriate boxes provided on the forms.Make only one entry in each box unlessotherwise indicated in these instructions.

7. DO NOT submit any copy other thanCopy A to the IRS.

8. DO NOT use prior year forms unless youare reporting prior year information; do notuse subsequent year forms for the currentyear. Because forms are read by machine,you MUST use the current year form to reportcurrent year information.

9. Use the official forms or substitute formsthat meet the specifications in the 1996 Pub.1179, Rules and Specifications for PrivatePrinting of Substitute Forms 1096, 1098,1099 Series, 5498, and W-2G. If you submitsubstitute forms that do not meet the currentspecifications and that are not machinescannable, you may be subject to a penaltyof $50 for each return for improper format.

10. DO NOT use dollar signs ($) (they arepreprinted on the forms), ampersands (&),asterisks (*), commas (,), or other specialcharacters in money amount boxes.

Suggested Format.Below are suggestionsthat will allow the IRS to process thesubmitted forms in the most economicalmanner:

1. Although handwritten forms areacceptable, the IRS prefers that you type ormachine print data entries using 10 pitch(pica) or 12 pitch (elite) black type. Use blockprint, not script characters. Insert data in themiddle of the blocks well separated fromother printing and guidelines, and take othermeasures to guarantee a dark black, clear,sharp image.

2. Do not enter 0 (zero) or None in moneyamount boxes when no entry is required.Leave the boxes blank unless the instructionsspecifically require that you enter a zero. Forexample, in some cases, you must enter zeroto make corrections. See Corrected Returnslater.

3. You may use the account number boxfor an account number designation. Thisnumber must not appear anywhere else onthe form, and this box may not be used forany other item. Showing the account numberis optional. However, it may be to yourbenefit to include the recipients accountnumber on paper documents if your systemof records uses the account number ratherthan the name, social security number, oremployer identification number foridentification purposes. If you furnish theaccount number, the IRS will include it in

future notices to you about backupwithholding. If you are using windowenvelopes to mail statements to recipients,and if you are using reduced rate mail, besure the account number does not appear inthe window because the Postal Service maynot accept these for reduced rate mail.

4. Do not enter number signs (#); forexample, enter RT 2, not Rt. #2.

General Instructions

A. Who Must File.See the SpecificInstructions for each form.

Nominee/Middleman Returns.Generally, ifyou receive a Form 1099 for amounts thatactually belong to another person, you areconsidered a nominee recipient. You must filea Form 1099 (the same type of Form 1099you received) for each of the other ownersshowing the amounts allocable to each. Youmust also furnish a Form 1099 to each of theother owners. File Form 1099 with Form1096, Annual Summary and Transmittal ofU.S. Information Returns, with the InternalRevenue Service Center for your area. Oneach Form 1099, list yourself as the payerand the other owner as the recipient. OnForm 1096, list yourself as the filer. Ahusband or wife is not required to file a

nominee return to show amounts owned bythe other. The nominee, not the originalpayer, is responsible for filing the subsequentForms 1099 to show the amount allocable toeach owner.

Mergers.If two corporations merge and thesurviving corporation becomes the owner ofall the assets and assumes all the liabilities ofthe absorbed corporation, the reportingrequirements explained in this publication willbe met if the surviving corporation files Forms1098, 1099, 5498, and/or W-2G for reportablepayments of both corporations. See Rev. Rul.

69-556, 1969-2 C.B. 242.For information on filing Form 1099-INT for

a successor/predecessor corporation, seeForm 1099-INT later.

Qualified Settlement Funds.A qualifiedsettlement fund must file information returnsas explained in this publication fordistributions to claimants if any transferor tothe fund would have been required to file ifthe transferor had made the distributionsdirectly to the claimants.

For distributions to transferors, a fund issubject to the information reportingrequirements of sections 6041 and 6041Aand may be required to file Form 1099-MISC.For payments made by the fund on behalf ofa claimant or transferor, the fund is subject tothese same rules and may have to file Form1099-MISC for the payment to a third party.For information reporting purposes, apayment made by the fund on behalf of aclaimant or transferor is considered adistribution to the claimant or transferor andis also subject to information reportingrequirements.

The same filing requirements, exceptions,and thresholds apply to qualified settlementfunds as apply to any other payer. That is,the fund must determine the character of thepayment (e.g., interest, fixed anddeterminable income, or gross proceeds frombroker transactions) and to whom thepayment is made (e.g., corporation or

individual).For more information, see Regulations

section 1.468B-2(l).

Payments to Foreign Persons.See theInstructions for Form 1042-S, relating toU.S. source income of foreign persons, forreporting requirements relating to paymentsof income items to foreign persons.

B. When To File.File Form 1096 and Forms1098, 1099, or W-2G by February 28, 1997.Brokers may file Forms 1096 and 1099-Banytime after the reporting period they electto adopt (month, quarter, or year), but notlater than February 28, 1997. File Form 1096and Forms 5498 by June 2, 1997. You willmeet the requirement to file if the form isproperly addressed, mailed, and postmarkedon or before the due date. If the regular duedate falls on a Saturday, Sunday, or legalholiday, file on the next business day. Abusiness day is any day that is not aSaturday, Sunday, or legal holiday. See partH later about providing Forms 1098, 1099,5498, and W-2G or statements to recipients.

Reporting period.Forms 1098, 1099, andW-2G are used to report amounts received,paid, credited, or canceled in the case ofForm 1099-C, during the calendar year. Form5498 is used to report amounts contributedfor the calendar year.


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Extension.For paper or magnetic mediafiling, you may request an extension of timeto file by sending Form 8809, Request forExtension of Time To File InformationReturns, to the address shown on the form.You must request the extension by the duedate of the returns for your request to beconsidered. If your request for an extension isapproved, you will have an additional 30 daysto file. You may request an additionalextension. See Form 8809. For information onextensions for providing statements torecipients, see page 7.

Note: If you are a magnetic media transmitterrequesting extensions of time to file for morethan 50 payers, you must submit theextension requests magnetically orelectronically. For instructions on submittingextension requests on magnetic media, seePub. 1220.

C. Where To File

Send all information returns filed on paper tothe following:

If your principal business,office or agency, or legal

residence in the caseof an individual, is

located in

Use the followingInternal RevenueService Center

address

Alabama, Arizona, Florida,Georgia, Louisiana,Mississippi, New Mexico,Texas

Austin, TX 73301

Arkansas, Connecticut,Kentucky, Maine,Massachusetts, NewHampshire, New York,Ohio, Rhode Island,Vermont, West Virginia

Cincinnati, OH 45999

Illinois, Indiana, Iowa,Kansas, Michigan,Minnesota, Missouri,Nebraska, North Dakota,Oklahoma, South Dakota,Wisconsin

Kansas City, MO 64999

Delaware, District of

Columbia, Maryland, NewJersey, North Carolina,Pennsylvania, SouthCarolina, Tennessee,Virginia

Memphis, TN 37501

Alaska, California, Colorado,Hawaii, Idaho, Montana,Nevada, Oregon, Utah,Washington, Wyoming

Ogden, UT 84201

If you have no legal residence, principal placeof business, or principal office or agency inany Internal Revenue district, file your returnwith the Internal Revenue Service Center,Cincinnati, OH 45999.

Send all information returns filedmagnetically to IRS-Martinsburg Computing

Center, P.O. Box 1359, Martinsburg, WV25401-1359.

D. Filing Returns With the IRS.The IRSstrongly encourages the quality review of databefore filing to prevent erroneous noticesbeing mailed to payees (or others for whominformation is being reported).

If you must file any Form 1098, 1099, 5498,or W-2G with the IRS, and you are filingpaper documents, you must send a Form1096, Annual Summary and Transmittal ofU.S. Information Returns, with each type ofform as the transmittal document. You mustgroup the forms by form number and submit

each group with a separate Form 1096. Forexample, if you file Forms 1098, 1099-A, and1099-MISC, complete one Form 1096 totransmit Forms 1098, another Form 1096 totransmit Forms 1099-A, and a third Form1096 to transmit Forms 1099-MISC. Specificinstructions for completing Form 1096 areincluded on Form 1096. Also seeTransmitters, paying agents, etc. below. Forinformation about filing corrected returns, seeCorrected Returns later.

If you are filing on magnetic media, Form4804, Transmittal of Information Returns

Reported Magnetically/ Electronically, mustaccompany your submissions.

For information on the preparation oftransmittal documents for magnetic mediaand paper document reporting (Forms 4804and 1096), see Rev. Proc. 84-24, 1984-1 C.B.465, or other current revenue procedure.

If you use paper forms, report payments onthe appropriate form, as explained in theSpecific Instructions later.

See Pub. 1179 on specifications for privateprinting of information documents. You maynot request special consideration. Only formsthat conform with the official form and thespecifications in Pub. 1179 are acceptable.

Transmitters, paying agents, etc.A

transmitter, service bureau, paying agent, ordisbursing agent (hereafter referred to asagent) may sign Form 1096 or 4804 onbehalf of any person required to file (hereafterreferred to as payer) if the conditions initems 1 and 2 below are met:

1. The agent has the authority to sign theform under an agency agreement (oral,written, or implied) that is valid under statelaw, and

2. The agent signs the form and adds thecaption For: (Name of payer).

Signing of the form by an authorized agenton behalf of the payer does not relieve thepayer of the liability for penalties for not filinga correct, complete, and timely Form 1096 or4804 and accompanying returns.

Forms 1098, 1099, 5498, W-2G, or otherstatements to recipients issued by a servicebureau or agent should show the samepayers name as shown on the informationreturns filed with the IRS.

For information about the election to reportand deposit backup withholding under theagents TIN and how to prepare forms if theelection is made, see Rev. Proc. 84-33,1984-1 C.B. 502 (Pub. 1272).

Keeping copies.Generally, keep copiesof information returns you filed with the IRSor have the ability to reconstruct the data forat least 3 years from the due date of thereturns. If backup withholding was imposedand for Form 1099-C, keep copies of

information returns for 4 years.

E. Shipping and Mailing.If you are sendingmany forms, you may send them inconveniently sized packages. On eachpackage write your name and TIN, numberthe packages consecutively, and place Form1096 in package number one. Postalregulations require forms and packages to besent by First-Class Mail.

F. Recipient Names and TaxpayerIdentification Numbers.Taxpayeridentification numbers (TINs) are used toassociate and verify amounts reported to theIRS with corresponding amounts on tax

returns. Therefore, it is important that youfurnish correct names, social securitynumbers (SSNs) or employer identificationnumbers (EINs) for recipients on the forms ormagnetic media sent to the IRS.

Use Form W-9 to request the recipientsTIN. (You may be subject to a penalty for anincorrect or missing TIN. See Penalties onpage 2.) You are required to maintain theconfidentiality of information obtained onForm W-9 relating to the taxpayers identity(including SSNs), and you may use suchinformation only to comply with the tax laws.

Note: If the recipient does not provide a TIN,leave the box for providing the TIN to the IRSblank on the Form 1098, 1099, 5498, orW-2G. SeeBackup Withholdingon page 2.Only one recipient TIN can be entered onthe form.

The TIN for individual recipients ofinformation returns is the social securitynumber. But see the information about soleproprietors below. For other recipients,including corporations, partnerships, andestates, it is the EIN.

SSNs have nine digits separated by twohyphens (000-00-0000), and EINs have ninedigits separated by only one hyphen(00-0000000).

Show the full name and address in thesection provided on the return. If paymentshave been made to more than onerecipient or the account is in more thanone name, show as the ONLY name on thefirst name line the name of the recipientwhose TIN is shown on the return. Showthe names of any other individual recipients inthe area below the first line, if desired. FormW-2G filers see Form 5754 later.

For sole proprietors, show the individualsname on the first name line; on the secondname line, you may enter the business name.You may not enter only the business name.For the TIN, enter either the individuals SSNor the EIN of the business (soleproprietorship).

G. Filers Name, Identification Number, andAddress.The TIN for filers of informationreturns, including sole proprietors andnominees/middlemen, is the Federal EIN.However, sole proprietors andnominees/middlemen who are not otherwiserequired to have an EIN should use theirsocial security numbers. A sole proprietor isnot required to have an EIN unless he or shemust file excise or employment tax returns.See Pub. 583, Starting a Business andKeeping Records.

The filers name and TIN should beconsistent with the name and number usedon the filers other tax returns. The name ofthe filers paying agent or service bureaumust not be used in place of the name of thefiler.

To obtain an EIN, file Form SS-4,Application for Employer IdentificationNumber, with the IRS. If you do not have yourEIN by the time you must file informationreturns, enter Applied For in any spacewhere the number must be entered.

Include the room, suite, or other unitnumber after the street address.

H. Statements to Recipients (Borrowers,Debtors, Participants, Payers/Borrowers,Transferors, or Winners on CertainForms).If you are required to file a return


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discussed in this publication, you also mustfurnish statements to recipients containinginformation furnished to the IRS. Be sure thatthe statements you provide to recipients areclear and legible.

If you are not using the official IRS form tofurnish statements to recipients, see Pub.1179, Rules and Specifications for PrivatePrinting of Substitute Forms 1096, 1098,1099 Series, 5498, and W-2G, for specificrules about providing substitute statementsto recipients. A substitute is any statementother than Copy B (generally) of the official

form. You may develop them yourself or buythem from a private printer. However, thesubstitutes must comply with the format andcontent requirements specified in Pub. 1179.

Different rules apply to furnishingstatements to recipients depending on thetype of payment you are reporting and theform you are filing. See the heading below forthe type of payment you are reporting. Theheadings are (1) Interest, dividend, androyalty payments; (2) Real estatetransactions; and (3) Other payments.

Interest, dividend, and royalty payments.For payments of dividends or interest(including original issue discount) undersection 6042, 6044, or 6049 (reported onForms 1099-DIV, 1099-PATR, 1099-INT, or

1099-OID), you are required to furnish anofficial or substitute Form 1099 to a recipienteither in person or in a statement mailing byFirst-Class Mail. Payers of royalties are alsorequired to furnish the statement in person orin a statement mailing by First-Class Mail, butthe statement need not be the official form.Statements may be sent by intraoffice mail ifyou use intraoffice mail to send accountinformation and other correspondence to therecipient.

Statement mailing requirements forForms 1099-DIV, 1099-INT, 1099-OID, and1099-PATR, and forms reporting royaltiesonly.The statement mailing requirementsapply only to Forms 1099-DIV (except forsection 404(k) dividends), 1099-INT (exceptfor interest reportable under section 6041),1099-OID, 1099-PATR, and royalties reportedunder section 6050N (on Form 1099-MISC or1099-S). In addition to Forms W-2, W-8, W-9,or other 1098, 1099, and 5498 statements,the following enclosures are permitted in astatement mailing: (1) a check, (2) a letterexplaining why no check is enclosed, (3) astatement of the persons account shown onForm 1099, and (4) a letter limited to anexplanation of the tax consequences of theinformation shown on a recipient statement.

A recipient statement may be perforated toa check with respect to the account reportedon the recipient statement or to a statementof the recipients specific account if payments

on such account are reflected on therecipients statement. The check or accountstatement to which the recipient statement isperforated must contain, in a bold andconspicuous type, the legend Important TaxReturn Document Attached.

No additional enclosures, such asadvertising, promotional material, or aquarterly or annual report, are permitted.Even a sentence or two on the yearendstatement describing new services offered bythe payer is not permitted. However, logosare permitted on the envelope and on anyenclosures.

For a statement mailing, the legendImportant Tax Return Document Enclosedmust appear in a bold and conspicuousmanner on the outside of the envelope andon each letter, or check or account statementthat is not perforated to the recipientstatement. This legend is not required on anytax form, tax statement, or permitted letter oftax consequences included in a statementmailing. Further, you need not pluralize theword document in the legend simplybecause more than one recipient statement isenclosed.

Note: If you provide recipient statements in aseparate mailing that contains only recipientstatements, Forms W-8 and W-9, and a letterlimited to the explanation of the taxconsequences of the information shown on arecipient statement included in the envelope,you are not required to include the legendImportant Tax Return Document Enclosedon the envelope.

Substitute forms.You may furnish to therecipient Copy B of the official form, or youmay use substitute Forms 1099-DIV,1099-INT, 1099-OID, and 1099-PATR if theycontain the same language as the officialforms and they comply with the rules in Pub.1179, relating to substitute Forms 1099.Applicable box captions and numbers must

be clearly identified, using the same wordingand numbering as the official form. However,for Form 1099-INT, if your substitute does notcontain box 3, Interest on U.S. SavingsBonds and Treas. obligations, you may omitnot included in box 3 from the box 1caption. The substitute must show the formnumber (e.g., Form 1099-INT), form title (e.g.,Interest Income), and tax year (e.g., 1996).

New Requirement: All substitute statementsto recipients must contain the tax year, formnumber, and form name prominentlydisplayed together in one area of thestatement. For example, they could be shownin the upper right part of the statement.

If you are using substitutes, the IRSencourages you to use boxes so that thesubstitute has the appearance of a form. Thesubstitute form must contain the applicableinstructions as on the front and back of CopyB of the official form. See Pub. 1179 foradditional requirements. For information aboutsubstitute Form 1099-MISC for royalties, seeOther payments below.

Certain composite statements arepermitted. See Pub. 1179.

Real estate transactions.You must furnisha statement to the transferor containing thesame information reported to the IRS onForm 1099-S. You may use Copy B of Form1099-S or a substitute form that complieswith Pub. 1179 and Regulations section1.6045-4(m). You may use a Uniform

Settlement Statement (under RESPA) as thewritten statement if it is conformed byincluding on the statement the legend shownon Form 1099-S and by designating whichinformation is reported to the IRS on Form1099-S. You may furnish the statement to thetransferor in person or by mail. Furnish thestatement at or after closing but by January31 of the following year. The statementmailing requirements explained earlier do notapply to statements to transferors forproceeds from real estate transactionsreported on Form 1099-S. However, thestatement mailing requirements do apply tostatements to transferors for timber royalties

reportable under section 6050N on Form1099-S.

Other payments.Statements to recipientsfor Forms 1098, 1099-A, 1099-B, 1099-C,1099-G, 1099-MISC, 1099-R, 5498, W-2G,1099-DIV only for section 404(k) dividendsreportable under section 6047, or 1099-INTonly for interest reportable under section6041 need not be, but can be, a copy of thepaper form filed with the IRS. If you do notuse a copy of the paper form, the formnumber and title of your substitute must bethe same as the official form. All information

required to be reported must be numberedand titled on your substitute in substantiallythe same manner as on the official form.However, if you are reporting a payment asOther income in box 3 of Form 1099-MISC,you may substitute appropriate explanatorylanguage for the box title. For example, forpayments of accrued wages to a beneficiaryof a deceased employee required to bereported on Form 1099-MISC by Rev. Rul.86-109, you might change the title of box 3to Beneficiary payments or somethingsimilar.

New Requirement: All substitute statementsto recipients must contain the tax year, formnumber, and form name prominentlydisplayed together in one area of the

statement. For example, they could be shownin the upper right part of the statement.

Appropriate instructions to the recipient,similar to those on the official form, must beprovided to aid in the proper reporting of theitems on the recipients income tax return.For payments reported on Form 1099-B,rather than furnish appropriate instructionswith each Form 1099-B statement, you mayfurnish to the recipient one set of instructionsfor all statements required to be furnished toa recipient in a calendar year.

The statement mailing requirementsexplained earlier do not apply to statementsto recipients for information reported onForms 1098, 1099-A, 1099-B, 1099-C,1099-G, 1099-MISC (except for royalties),1099-R, 5498, W-2G, 1099-DIV for section404(k) dividends only, and 1099-INT forinterest reportable under section 6041 only.You may combine the statements with otherreports or financial or commercial notices, orexpand them to include other information ofinterest to the recipient. Be sure that allcopies of the forms are legible.

Certain composite statements arepermitted. See Pub. 1179.

Time for furnishing forms or statements.Generally, you must furnish Forms 1098,1099, and W-2G information by January 31,1997. However, you may issue them earlier insome situations, as provided by theregulations. For example, you may furnish

Form 1099-INT to the recipient on redemptionof U.S. Savings Bonds at the time ofredemption. Brokers and barter exchangesmay furnish Form 1099-B anytime but notlater than January 31.

Trustees or issuers of IRAs or SEPs mustfurnish participants with a statement of thevalue of the participants account by January31, 1997. IRA contribution information mustbe furnished to the participant by June 2,1997.

For real estate transactions, you mayfurnish the statement to the transferor at


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closing or by mail on or before January 31,1997.

Filers of Form 1099-G who report state orlocal income tax refunds, credits, or offsetsmust furnish the statements to recipientsduring January 1997.

You will meet the requirement to furnish thestatement if it is properly addressed, mailed,and postmarked on or before the due date. Ifthe regular due date falls on a Saturday,Sunday, or legal holiday, the due date is thenext business day. A business day is any daythat is not a Saturday, Sunday, or legal

holiday.Extension.You may request an extension

of time to provide the statements torecipients by sending a letter toIRS-Martinsburg Computing Center, P.O. Box1359, Martinsburg, WV 25401-1359 or to yourdistrict director. The letter must include (a)your name, (b) your TIN, (c) your address, (d)type of return, (e) a statement that you arerequesting an extension for providingstatements to recipients, (f) reason for delay,and (g) the signature of the payer orauthorized agent. Your request must bepostmarked by the date on which thestatements are due to be furnished torecipients. If your request for an extension isapproved, you will be granted an extra 15

days to furnish the recipient statements.I. Corrected Returns.If you filed a returnwith the IRS and later discover you made anerror on it, you must correct it as soon aspossible. For some corrections, you must filetwo returns (Form 1099, 1098, 5498, orW-2G) with Form 1096 and for some only onereturn with Form 1096. See the chart thatfollows for step-by-step instructions forcorrecting three common errors on paperforms.

To determine whether you are required tosubmit corrections on magnetic media, seeMagnetic Media/Electronic Reporting earlierand Pub. 1220.

Follow the step-by-step instructions below

for the type of error you need to correct. Besure you complete all appropriate informationon the returns as stated in those instructions.Then file Copy A of the form and Form 1096with your Internal Revenue Service Center.Please remember not to cut or separate theforms that are two or three to a page. Submitthe entire page even if only one of the formson the page is completed. And do not staplethe forms to Form 1096. You must use aseparate Form 1096 for each type of returnyou are correcting, but you may use oneForm 1096 for both originals and correctionsof the same type of return.

In addition, you must provide statements torecipients showing the corrections as soon aspossible.

Note: If you fail to file correct informationreturns or furnish a correct payee statement,you may be subject to a penalty. SeeFailureTo File Correct Information Returns by theDue Date (Section 6721)on page 2 andFailure To Furnish Correct PayeeStatements (Section 6722)on page 3.

On all Forms 1098, 1099, and 5498, a boxis provided for the account number. If theaccount number was provided on the originalreturn, use this number on the correctedreturn to help identify the appropriateincorrect return filed when more than onereturn was filed for a particular individual. Theaccount number may be a checking accountnumber, savings account number, serialnumber, or any other number assigned to thepayee by the filer that is unique and willdistinguish the specific account. This numbermust appear on both the original andcorrected returns to properly identify andprocess the correction.

CORRECTED box.Enter an X in theCORRECTED box on Copy A only whenyou are correcting a form you previouslysubmitted to the IRS. Enter an X in theCORRECTED box on the copies you give tothe recipient (generally, Copy B) only whenyou are correcting a form previously furnishedto the recipient. When the type of errorrequires two returns to make the correction,you will mark the CORRECTED box only onone of the returns. Refer to the step-by-stepinstructions chart that follows to determinewhen you should mark the CORRECTEDbox.

The following chart gives step-by-step

instructions for filing corrected returns forthree of the most frequently made errors.Correction of errors may require thesubmission of more than one return. Be sureto read each section thoroughly.

Note: Regulations section 301.6724-1(relating to information return penalties) doesnot require you to file corrected returns formissing or incorrect TINs if you meet thereasonable cause criteria. You are merelyrequired to include the correct TIN on thenext original return you are required to file.However, if you do not meet the reasonablecause criteria, you should file correctedreturns by August 1 to be subject to areduced penalty.

In addition, even if you meet the reasonablecause criteria, the IRS encourages you to filecorrections for incorrect or missing TINs sothat the IRS can update the payees records.

Step-by-Step Instructions for FilingCorrected Returns on Paper Forms

Error (on OriginalReturn)

How To File the CorrectedReturn on Paper Forms

1. No payee TIN (SSNor EIN) or incorrectpayee TIN, orincorrect name andaddress. This willrequire twoseparate returns tomake thecorrection properly.

Read and follow allinstructions forboth Steps 1 and2.

STEP 1: Identify incorrectreturn submitted.

Form 1098, 1099, 5498, orW-2G:

1. Prepare a newinformation return.

2. Enter an X in theCORRECTED box atthe top of the form.

3. Enter the payer,recipient, and accountnumber informationexactly as it appearedon the originalincorrect return;HOWEVER, enter 0(zero) for all moneyamounts.



STEP 2: Report correctinformation.

A. Form 1098, 1099, 5498,or W-2G:


2. Do NOT enter an Xin the CORRECTEDbox at the top of theform. Submit the newreturn as though itwas an original.

3. Include all the correctinformation on theform including thecorrect TIN and nameand address.

B. Form 1096:

1. Prepare a newtransmittal Form 1096.

2. Enter the words FiledTo Correct TIN, Name,and/or Address in thebottom margin of theform.

3. Provide all requestedinformation on theform as it applies tothe returns preparedin Steps 1 and 2.

4. File Form 1096 and

Copies A of thereturns with theappropriate servicecenter.

5. Do NOT includecopies of the originalreturn that was filedincorrectly.

2. Incorrect moneyamount(s) orincorrect address.Follow theseinstructions if youfiled a return whenone should nothave been filed.This error requiresonly one return tomake thecorrection. (Followthe instructionsunder Error 1,instead of theseinstructions, if youmust correct anaddress AND aname or TIN.)

A. Form 1098, 1099, 5498,or W-2G:


2. Enter an X in theCORRECTED box atthe top of the form.

3. Enter the payer,recipient, and accountnumber information

exactly as it appearedon the originalincorrect return;HOWEVER, enter allcorrect moneyamounts in thecorrect boxes as theyshould have appearedon the original return,and enter therecipients correctaddress.

B. Form 1096:

1. Follow the instructionsunder Error 1, Step 2B, but ignore item B2.

2. File Form 1096 andCopy A of the return

with the appropriateservice center.

3. Do NOT include acopy of the originalreturn that was filedincorrectly.


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3. Original return wasfiled using theWRONG type ofreturn. Forexample, a Form1099-DIV was filedwhen a Form1099-INT shouldhave been filed.This will requiretwo separatereturns to make thecorrection properly.

Read and follow allinstructions forboth Steps 1 and2.

STEP 1: Identify incorrectreturn submitted.

Form 1098, 1099, 5498, orW-2G:

Follow the instructionsunder Error 1, Step 1,using the same type ofform that was usedinitially.

STEP 2: Report correctinformation on the correcttype of return.

A. Form 1098, 1099, 5498,or W-2G:

Follow the instructionsunder Error 1, Step 2A,using the proper type ofform.

B. Form 1096:

Follow the instructionsunder Error 1, Step 2B,except enter the wordsFiled To CorrectDocument Type in thebottom margin of Form1096.

J. Void Returns.An X in the VOID boxwill not correct a previously filed return. Seepart I above for instructions for makingcorrections.

VOID box.If a completed or partiallycompleted Form 1098, 1099, or 5498 isincorrect and you want to void it beforesubmission to the IRS, enter an X in theVOID box at the top of the form. Forexample, if you make an error while typing orprinting a form, you should void it. The returnwill then be disregarded during processing bythe IRS. Go to the next form on the page, orto another page, and enter the correctinformation; but do not mark theCORRECTED box. Please remember not tocut or separate the forms that are two orthree to a page. Submit the entire page evenif only one of the forms on the page is a goodreturn.

K. Other Information Returns.The income

information you report on the followingreturns must not be repeated on the returnsdiscussed in the Specific Instructions in thispublication:

1. Form W-2 reporting wages and otheremployee compensation.

2. Forms 1042-S and 1000 reportingincome.

3. Form 2439 reporting undistributedlong-term capital gains of a regulatedinvestment company.

4. Schedule K-1 of Form 1065 reportingdistributive shares to members of apartnership.

5. Schedule K-1 of Form 1041 reporting

distributions to beneficiaries of trusts orestates.

6. Schedule K-1 of Form 1120S reportingdistributive shares to shareholders of Scorporations.

7. Schedule K of Form 1120-IC-DISCreporting actual and constructive distributionsto shareholders and deferred DISC income.

8. Schedule Q of Form 1066 reportingincome from a REMIC to a residual interestholder.

L. Payments to Corporations andPartnerships.Reporting generally is notrequired for payments to corporations except

in the case of (1) medical payments (Form1099-MISC), (2) withheld Federal income taxor foreign tax, (3) barter exchangetransactions (Form 1099-B), (4) substitutepayments in lieu of dividends and tax-exemptinterest (Form 1099-MISC), (5) interest ororiginal issue discount paid or accrued to aregular interest holder of a REMIC (Form1099-INT or 1099-OID), (6) acquisitions orabandonments of secured property (Form1099-A), and (7) cancellation of debt (Form1099-C). For example, reporting is notrequired for payments of architectural fees tocorporations.

However, reporting generally is required forpayments to partnerships. For example,payments of $600 or more made in thecourse of your trade or business to a law firmthat is a partnership are reportable on Form1099-MISC.

M. Earnings on an IRA or SEP.Generally,any income with respect to an IRA or SEP,such as interest or dividends, is not reportedon Forms 1099. But distributions should bereported on Form 1099-R.

Specific Instructions

If a distribution includes noncash property,

show the fair market value of the property atthe time of payment.

Although, generally, you are not required toreport payments smaller than the minimumdescribed for each form, you may prefer, foreconomy and your own convenience, to fileCopies A for all payments. The IRSencourages this.

Form 1098

Use Form 1098, Mortgage InterestStatement, to report mortgage interest(including points, defined later) of $600 ormore received by you during the year in thecourse of your trade or business from anindividual, including a sole proprietor. The$600 threshold applies separately to eachmortgage; thus, file a separate Form 1098 foreach mortgage. You may, at your option, fileForm 1098 to report mortgage interest of lessthan $600, but you are subject to the rules inthese instructions.

If an overpayment of interest on anadjustable rate mortgage (ARM) or othermortgage was made in a prior year and yourefund (or credit) such overpayment, you mayhave to file Form 1098 to report the refund (orcredit) of the overpayment. SeeReimbursement of Overpaid Interest later.

Exceptions.You need not file Form 1098for interest received from a corporation,

partnership, trust, estate, association, orcompany (other than a sole proprietor) eventhough an individual is a coborrower and allthe trustees, beneficiaries, partners,members, or shareholders of the payer ofrecord are individuals.

Mortgage Defined.An obligation incurredafter 1987 is a mortgage if real property thatis located inside or outside the United Statessecures all or part of the obligation. Thisapplies even though the interest recipientclassifies the obligation as other than amortgage, for example, as a commercial loan.

An obligation incurred after 1984 but before1988 is a mortgage only if secured primarilyby real property.

An obligation in existence on December 31,1984, is not a mortgage if, at the time theobligation was incurred, the interest recipientreasonably classified the obligation as otherthan a mortgage, real property loan, realestate loan, or other similar type of obligation.For example, if an obligation incurred in 1983was secured by real property, but the interestrecipient reasonably classified the obligationas a commercial loan because the proceeds

were used to finance the borrowersbusiness, the obligation is not considered amortgage for purposes of this reportingrequirement. However, if over half of theobligations in a class established by theinterest recipient are primarily secured by realproperty, it is not reasonable to classify thoseobligations as other than mortgages forpurposes of this reporting requirement.

Real property includes a manufacturedhome with a minimum living space of 400square feet and a minimum width of morethan 102 inches of a kind customarily used ata fixed location, including certain mobilehomes. See section 25(e)(10).

Lines of credit and credit cardobligations.Interest (other than points)

received on any mortgage that is in the formof a line of credit or credit card obligation isreportable regardless of how you classifiedthe obligation. A borrower incurs a line ofcredit or credit card obligation when theborrower first has the right to borrow againstthe line of credit or credit card, whether ornot the borrower actually borrows an amountat that time.

Who Must File.File this form if you areengaged in a trade or business and, in thecourse of such trade or business, you receivefrom an individual $600 or more of mortgageinterest on any one mortgage during thecalendar year. You are not required to file thisform if the interest is not received in thecourse of your trade or business. Forexample, you hold the mortgage on yourformer personal residence. The buyer makesmortgage payments to you. You are notrequired to file Form 1098.

If you receive $600 or more of mortgageinterest in the course of your trade orbusiness, you are subject to the requirementto file Form 1098, even if you are not in thebusiness of lending money. For example, ifyou are a real estate developer and youprovide financing to an individual to buy ahome in your subdivision, and that home issecurity for the financing, you are subject tothis reporting requirement. However, if youare a physician not engaged in any otherbusiness and you lend money to an individual

to buy your home, you are not subject to thisreporting requirement because you did notreceive the interest in the course of yourtrade or business as a physician.

A governmental unit (or any subsidiaryagency) receiving mortgage interest from anindividual of $600 or more must file this form.

For information about who must file toreport points, see Points later. Forinformation about who must file to reportreimbursements of overpaid interest, seeReimbursement of Overpaid Interest later.

Cooperative housing corporation.Acooperative housing corporation is an interest


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recipient and must file Form 1098 to reportan amount received from itstenant-stockholders that represents thetenant-stockholders proportionate share ofinterest described in section 216(a)(2). Thisrule applies only to tenant-stockholders whoare individuals and from whom thecooperative has received at least $600 ofinterest during the year. (See the Note underBox 1.)

Collection agents.Generally, if youreceive reportable interest payments (otherthan points) on behalf of someone else and

you are the first person to receive theinterest, for example, if you are a servicingbank collecting payments for a lender, youmust file this form. Enter your name, address,and TIN in the recipient entity area. You mustfile this form even though you do not includethe interest received in your income but youmerely transfer it to another person. If youwish, you may enter the name of the personfor whom you collected the interest in box 4.The person for whom you collected theinterest need not file Form 1098.

However, there is an exception to this rulefor any period that (1) the first person toreceive or collect the interest does not havethe information needed to report on Form1098 and (2) the person for whom the interest

is received or collected would receive theinterest in its trade or business if the interestwere paid directly to such person. If (1) and(2) apply, the person on whose behalf theinterest is received or collected is required toreport on Form 1098. If interest is received orcollected on behalf of another person otherthan an individual, such person is presumedto receive the interest in a trade or business.

Foreign interest recipient.If you are nota U.S. person, you must file Form 1098 if theinterest is received in the United States. AU.S. person is a citizen or resident of theUnited States, a domestic partnership orcorporation, or a nonforeign estate or trust. Ifthe interest is received outside the UnitedStates, you must file Form 1098 if (1) you are

a controlled foreign corporation or (2) at least50% of your gross income from all sourcesfor the 3-year period ending with the close ofthe tax year preceding the receipt of interest(or for such part of the period as you were inexistence) was effectively connected with theconduct of a trade or business in the UnitedStates.

Designation agreement.An interestrecipient, including a recipient of points, candesignate a qualified person to file Form1098, to provide a statement to the payer ofrecord, and to provide the Rule of 78s notice.A qualified person is either (1) a trade orbusiness in which the interest recipient isunder common control as specified inRegulations section 1.414(c)-2 or (2) adesignee, named by the lender of record orby a qualified person, who either wasinvolved in the original loan transaction or is asubsequent purchaser of the loan. A lenderof record is the person who, at the time theloan is made, is named as the lender on theloan documents and whose right to receivepayment from the payer of record is securedby the payer of records principal residence.Even if the lender of record intends to sell orotherwise transfer the loan to a third partyafter the close of the transaction, suchintention does not change who is the lenderof record.

The agreement must be in writing, identifythe mortgage(s) and calendar years for whichthe qualified person is to report, and besigned by the designator and the designee. Adesignee may report points on Form 1098 (ashaving been paid directly by the payer ofrecord) only if the designation agreementcontains the designators representation thatit did not lend such amount to the payer ofrecord as part of the overall transaction. Theagreement need not be filed with the IRS, butthe designator must keep a copy of it for 4years after the close of the year in which theloan is made.

A designated qualified person is subject toany applicable penalties as if it were theinterest recipient. Thus, a designator isrelieved from liability for any applicablepenalties.

Reimbursement of Overpaid Interest.Youare required to report reimbursements ofoverpaid interest aggregating $600 or more toa payer of record on Form 1098. You are notrequired to report reimbursements of overpaidinterest aggregating less than $600 unlessyou are otherwise required to file Form 1098.That is, if you did not receive at least $600 ofmortgage interest during the year ofreimbursement from the person to whom youmade the reimbursement, you are not

required to file Form 1098 merely to reportthe reimbursement. However, you may reportany reimbursement of overpaid interest thatyou are not otherwise required to report, butyou are subject to the rules in theseinstructions.

The reimbursement must be reported onForm 1098 for the year in which thereimbursement is made. No change shouldbe made to the prior year Form 1098 becauseof this reimbursement. Report the totalreimbursement even if it is for overpaymentsmade in more than 1 year.

To be reportable, the reimbursement mustbe a refund or credit of mortgage interestreceived in a prior year that was required tobe reported for that prior year by any interestrecipient on Form 1098. Only the person whomakes the reimbursement is required toreport it on Form 1098. For example, if youbought a mortgage on which interest wasoverpaid in a prior year, you made areimbursement of the overpaid interest, andthe previous mortgage holder was required toreport mortgage interest on Form 1098 in theprior year, you must file Form 1098 to reportthe reimbursement because you are the onemaking the reimbursement.

If you reimburse interest in the same yearit is overpaid, do not report the overpaymenton Form 1098 as interest received during theyear or as a reimbursement of overpaidinterest. For example, if the borrower paid

$5,000 and you reimbursed $500 of thatamount in 1996, $4,500 should appear in box1 as interest paid by the borrower. The $500reimbursement must not appear in box 3.

Example.In 1994, you received $5,000 ofmortgage interest from the payer/borrowerand reported that amount on Form 1098 for1994. In 1996, you determined that interestdue on the mortgage for 1994 was $4,500,and the payer/borrower had overpaid $500.You refunded the $500 overpayment to thepayer/borrower in 1996. If you received $600or more of interest on the mortgage from thepayer/borrower in 1996, you must report the$500 refund in box 3 of the 1996 Form 1098.

No change to the 1994 Form 1098 isrequired. If, instead of refunding the $500overpayment, you credited thepayer/borrowers 1996 mortgage interestpayments due, $500 is still shown in box 3,and the interest received from thepayer/borrower in 1996 shown in box 1 mustinclude the $500 credit.

Interest on reimbursement.A financialinstitution (or its middleman) that paysinterest of $10 or more on the reimbursementmust report that interest (under section 6049)on Form 1099-INT, Interest Income. Others

that pay interest of $600 or more on thereimbursement must report that interest(under section 6041) on Form 1099-INT. Donot include such interest on Form 1098.

Nonresident Alien Interest Payer.Youmust file Form 1098 to report interest paid bya nonresident alien only if all or part of thesecurity for the mortgage is real propertylocated in the United States.

Payer of Record.The payer of record is theindividual carried on your books and recordsas the principal borrower. If your books andrecords do not indicate which borrower is theprincipal borrower, you must designate one.

If you permit a subsequent purchaser of theproperty to assume the loan without releasingthe first purchaser from personal liability, thesubsequent purchaser is the payer of record.Such subsequent purchasers name, address,and TIN must appear on Form 1098.

Multiple Borrowers.Even though there maybe more than one borrower on the mortgage,you are required to prepare Form 1098 onlyfor the payer of record, and only if suchpayer of record is an individual, showing thetotal interest received on the mortgage. Evenif an individual is a coborrower, no Form 1098is required unless the payer of record is alsoan individual.

Payments by Third Party.Report allinterest received on the mortgage as receivedfrom the borrower, except as explained underSeller Payments below. For example, if the

borrowers mother makes payments on themortgage, the interest received from themother is reportable on Form 1098 asreceived from the borrower.

However, do not report mortgage interestreceived from any governmental unit (or anysubsidiary agency). For example, do notreport any interest received as housingassistance payments from the Department ofHousing and Urban Development (HUD) onmortgages insured under section 235 of theNational Housing Act.

Seller Payments.Do not report in box 1 ofForm 1098 any interest paid by a seller on apurchasers-borrowers mortgage, such as ona buy-down mortgage. For example, if areal estate developer deposits an amount inescrow and tells you to draw on that escrowaccount to pay interest on the borrowersmortgage, do not report in box 1 the interestreceived from that escrow account. Asanother example, do not report in box 1 anylump sum paid by a real estate developer topay interest on a purchasers-borrowersmortgage. However, if you wish, you may usebox 4 to report to the payer of record anyinterest paid by the seller. See Points laterfor information about reporting seller-paidpoints in box 2.

Rule of 78s Method of Accounting.If youare permitted by Rev. Proc. 83-40, 1983-1


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C.B. 774, or any other revenue procedure, touse the Rule of 78s method to calculateinterest earned with respect to a transaction,you may report interest earned under theRule of 78s method on that transaction asinterest received from the borrower in acalendar year. In this case, you must notifyborrowers that the Rule of 78s method wasused to calculate interest received and thatthe borrowers may not deduct the amountreported unless the borrowers are alsoproperly using the Rule of 78s method todetermine interest deductions. Thenotification must also state that the Rule of78s method may be used only in the case ofa self- amortizing consumer loan that requireslevel payments, at regular intervals (at leastannually), over a period not in excess of 5years (with no balloon payment at the end ofthe loan term), and only when the loanagreement provides for use of the Rule of 78smethod to determine interest earned (seeRev. Proc. 83-40 and Rev. Rul. 83-84, 1983-1C.B. 97). The notice must be furnished to thepayer of record on or with the statement ofthe interest received.

Points.You must report certain points paidfor the purchase of the payer of recordsprincipal residence on Form 1098. You mustreport points if the points, plus other interest

on the mortgage, are $600 or more. Forexample, if a borrower pays points of $300and other mortgage interest of $300, thelender has received $600 of mortgage interestand must file Form 1098.

Who must report points.The lender ofrecord or a qualified person must file Form1098 to report all points paid by the payer ofrecord in connection with the purchase of theprincipal residence. If a designationagreement is in effect for a mortgage, onlythe person designated in the agreement mustfile Form 1098 to report all points on thatmortgage. See Designation agreementearlier.

Amounts received directly or indirectly by amortgage broker are treated as points to the

same extent they would be treated as pointsif paid to and retained by the lender ofrecord. The lender of record must reportthose points paid to a mortgage broker.

Report the total points on Form 1098 forthe year of closing regardless of theaccounting method you use to report thepoints as income for Federal income taxpurposes.

Reportable points.Report on Form 1098points that meet all the following conditions:

1. They are clearly designated on theUniform Settlement Statement (FormHUD-1) as points; for example, loanorigination fee (including amounts for VA andFHA loans), loan discount, discount

points, or points.2. They are computed as a percentage of

the stated principal loan amount.

3. They are charged under an establishedbusiness pract ice of charging points in thearea where the loan was issued and do notexceed the amount generally charged in thatarea.

4. They are paid for the acquisition of thepayer of records principal residence, andthe loan is secured by that residence. Youmay rely on a signed written statement fromthe payer of record that states whether the

proceeds of the loan are for the purchase ofthe payer of records principal residence.

5. They are paid directly by the payer ofrecord. Points are paid directly if:

a. The payer of record provides funds thatwere not borrowed from the lender of recordfor this purpose as part of the overalltransaction. The funds may include downpayments, escrow deposits, earnest moneyapplied at closing, and other funds actuallypaid over by the payer of record at or beforeclosing; OR

b. The seller pays points on behalf of the

payer of record. Points paid by the seller tothe interest recipient on behalf of the payer ofrecord are treated as paid to the payer ofrecord and then paid directly by the payer ofrecord to the interest recipient.

Report points paid under 5a and 5b on thepayer of records Form 1098 in box 2.

Do not report on Form 1098 points paid(1) for loans to improve a principal residence,(2) for loans to purchase or improve aresidence that is not the payer of recordsprincipal residence, such as a second home,vacation, investment, or trade or businessproperty, (3) for a home equity or line ofcredit loan, even if secured by the principalresidence, (4) for a refinancing (but see

Construction loans below), including a loanto refinance a debt owed by the borrowerunder a land contract, a contract for deed, orsimilar forms of seller financing, (5) in lieu ofitems ordinarily stated separately on the FormHUD-1, such as appraisal fees, inspectionfees, title fees, attorney fees, and propertytaxes, and (6) to acquire a principal residenceto the extent the points are allocable to anamount of principal in excess of $1 million.

Construction loans.Points paid on aloan to construct a residence (constructionloan) or to refinance a loan incurred toconstruct a residence are reportable on Form1098 if they:

1. Are clearly designated on the loandocuments as points incurred in connection

with the loan, such as loan origination fees,loan discount, discount points, or points,

2. Are computed as a percentage of thestated principal loan amount,

3. Conform to an established businesspractice of charging points in the area wherethe loan is issued and do not exceed theamount generally charged in the area,

4. Are paid in connection with a loanincurred by the payer of record to construct(or refinance construction of) a residence thatis to be used, when completed, as theprincipal residence of the payer of record,

5. Are paid directly by the payer of record,and

6. Are not allocable to an amount ofprincipal in excess of $1 million.

Amounts paid to refinance a loan toconstruct a residence are not points to theextent they are allocable to debt that exceedsthe debt incurred to construct the residence.

Prepaid Interest.Report prepaid interest(other than points) only in the year in which itproperly accrues. For example, interestreceived on December 20, 1996, that accruesby December 31 but is not due until February1, 1997, is reportable on the 1996 Form 1098.

Exception.Interest received during thecurrent year that will properly accrue in full by

January 15 of the following year may beconsidered received in the current year, atyour option, and is reportable on Form 1098for the current year. However, if any part ofan interest payment accrues after January 15,then only the amount that properly accruesby December 31 of the current year isreportable on Form 1098 for the current year.For example, if you receive a payment ofinterest that accrues for the period December20 through January 20, you cannot report anyof the interest that accrues after December31 for the current year. You must report theinterest that accrues after December 31 onForm 1098 for the following year.

Statements to Payers of Record.Forinformation about the requirement to furnish astatement to the payer of record, see part Hunder General Instructions earlier.

Recipients/Lenders Name and AddressBox.Enter the name and address of the filerof Form 1098. Use this same name andaddress on Form 1096.

Payers/Borrowers Name and AddressBox.Enter the name and address of theperson who paid the interest (payer ofrecord).

Note: Be careful to enter the recipients andpayers information in the proper boxes.

Box 1.Enter the interest (not includingpoints) received on the mortgage fromborrowers during the calendar year. Includeinterest on a mortgage, a home equity loan,or a line of credit or credit card loan securedby real property. Do not include governmentsubsidy payments, seller payments, orprepaid interest that does not meet theexception explained earlier under PrepaidInterest. Interest includes prepaymentpenalties and late charges unless the latecharges are for a specific mortgage service.

Note: A cooperative housing corporation thatreceives any cash part of a patronagedividend from the National ConsumerCooperative Bank must reduce the interest tobe reported on each tenant- stockholders

Form 1098 by a proportionate amount of thecash payment in the year the cooperativereceives the cash payment. See Rev. Proc.94-40, 1994-1 C.B. 711.

Box 2.Enter points paid on the purchase ofthe payer of records principal residence. Foran explanation of reportable points, seePoints earlier.

Box 3.Enter the total refund or credit of aprior year(s) overpayment of interest. SeeReimbursement of Overpaid Interest earlier.

Box 4.Enter any other item you wish toreport to the payer, such as real estate taxes,insurance, or if you are a collection agent, thename of the person for whom you collectedthe interest. This box is optional and is

provided only for your convenience. You donot have to report to the IRS any informationprovided in this box. You are not required toreport the average balance of the mortgage.

Form 1099-A

File Form 1099-A, Acquisition orAbandonment of Secured Property, foreach borrower if you lend money inconnection with your trade or business and,in full or partial satisfaction of the debt, youacquire an interest in property that is securityfor the debt, or you have reason to know that


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the property has been abandoned. You neednot be in the business of lending money to besubject to this reporting requirement.

Coordination With Form 1099-C.If, in thesame calendar year, a debt is canceled inconnection with the acquisition orabandonment of secured property and youwould be required to file both Form 1099-Aand Form 1099-C, Cancellation of Debt, forone debtor, you may file Form 1099-C only.You will meet your Form 1099-A filingrequirement for the debtor by makingappropriate entries in boxes 5 and 7 on Form

1099-C. You may file both Forms 1099-A and1099-C; if you do, make no Form 1099-Arelated entries in boxes 5 and 7 on Form1099-C.

Property.Property means real property(such as a personal residence), intangibleproperty, or tangible personal property heldfor investment or used in a trade or business.No reporting is required for a loan made to anindividual and secured by an interest intangible personal property that is neither heldfor investment nor used in a trade orbusiness. However, you must file Form1099-A if the personal property is held forboth personal use and either for use in atrade or business or for investment.

No reporting is required if the property

securing the loan is located outside theUnited States and the borrower has furnishedthe lender a statement, under penalties ofperjury, that the borrower is an exemptforeign person (unless the lender knows thatthe statement is false).

Who Must File.In addition to the generalrule specified above, the following rulesapply.

If there are multiple owners of undividedinterests in a single loan, such as in pools,fixed investment trusts, or other similararrangements, the trustee, record owner, orperson acting in a similar capacity must fileForm 1099-A on behalf of all the owners ofbeneficial interests or participations. In this

case, only one form for each borrower mustbe filed on behalf of all owners with respectto the loan. Similarly, in the case of bondissues, only the trustee or similar person isrequired to report.

A governmental unit, or any of itssubsidiary agencies, that lends moneysecured by property must file Form 1099-A.

A subsequent holder of a loan is treatedas the lender for purposes of the reportingrequirement for events occurring after theloan is transferred to the new holder.

If more than one person lends moneysecured by property and one lenderforecloses or otherwise acquires an interest inthe property and the sale or other acquisitionterminates, reduces, or otherwise impairs theother lenders security interests in theproperty, the other lenders must file Form109