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Businesses face new and revised information return requirements.

Once viewed by many as a backwater of tax law, the area of third-party information reporting has become more important to businesses and tax practitioners. In recent years, Congress has tightened penalties for noncompliance, and the IRS has stepped up its enforcement activities. As one indication of the extent of ongoing developments in this area, the following list outlines information returns introduced in calendar-year 1997, followed by a brief summary of the more significant changes to existing returns.

New Information Returns

* Form 1099-LTC, Long-Term Care and Accelerated Death Benefits: Payments under long-term care insurance contracts and accelerated death benefits paid under life insurance contracts must be reported on Form 1099-LTC. Payors include insurance companies, governmental units and viatical settlement providers.

* Form 1099-MSA, Distributions From Medical Savings Accounts: Distributions from medical savings accounts (MSAs) paid either to a medical service provider or to the account holder must be reported on Form 1099-MSA.

* Form 8851, Summary of Medical Savings Accounts: Trustees of MSAs must report on Form 8851 the number of MSA accounts established. The form was due by June 2, 1997, to report MSAs established between Jan. 1, 1997 and Apr. 30, 1997. A second filing is due by Aug. 1, 1997, to report MSAs established between May 1 and June 30, 1997.

* Form 5498-MSA, Medical Savings Account Information: This form was developed for use by MSA trustees or custodians to report contributions, rollovers and fair market value information. Form 5498-MSA filers must remit Copy B, statement to participants, by June 2, 1998. Participants may be given (but are not required to be given) a statement of the Dec. 31, 1997 value of their accounts by Feb. 2, 1998.

Changes to Existing Information


* Form W-4P, Withholding Certificate for Pension or Annuity Payments: Revisions to this form include the standard annual changes to the personal exemptions claimed on the "Deduction and Adjustments Worksheet," as well as to the tables for calculating the amount included on line 2 of the "Multiple Pension/More than One Income Worksheet."

* Form W-9, Request for Taxpayer Identification Number and Certification: Instructions to Form W-9 were revised to reflect the following changes: 1. The requirement to obtain individual taxpayer identification numbers (TINs) for nonresident aliens who are ineligible to obtain social security numbers. The revisions to the instructions address both the purpose and the manner of obtaining Form W-7. 2. The instructions to Form W-9 clarify that the 60-day exemption from backup withholding on presentation of an awaiting-TIN certificate applies only to interest and dividend payments, and certain payments made with respect to readily tradable instruments. The instructions explain the use of each of three alternative methods for applying backup withholding. 3. New instructions to Form W-9 incorporate the substance of Rev. Proc. 96-26, addressing the separate certification-signature line requirements and related disclosures. The purpose is to distinguish the TIN certification language from unrelated account opening provisions. Substitute statements were required to conform to these provisions, effective Jan. 1, 1997.

* Form 945, Annual Return of Withheld Federal Income Tax: Revisions to the instructions to Form 945 primarily call attention to the electronic deposit requirement and its relation to Form 941, Employer's Quarterly Federal Tax Return. A 10% penalty applies to a failure to make required electronic deposits.

* Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding: Instructions to 1997 Form 1042-S make reference to the Canadian deposit interest reporting requirements. The final regulations generally apply to deposit interest paid after 1996. Withholding agents must include an information contact telephone number in block 9 of the Form 1042-S copy sent to recipients. Payee statements must include a statement that the information on the form is being furnished to the IRS and may be furnished to Canada.

* Form 1099-C, Cancellation of debt: Revisions to the Form 1099-C instructions eliminate the requirement to report separately penalties, fines and administrative costs when reporting a canceled debt. Although the regulations do not require that interest be reported, box 3 was retained to report interest included in the amount of canceled debt reported in box 2.

* Form 1099-MISC, Statement for Recipients of Miscellaneous Income: Reference to excess golden parachute payments was deleted from box 7 and moved to a new box 13.

* Form 1099-R, Statement for Recipients of Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.: Revisions to the form affect the following items: 1. Distributions are not reportable unless they aggregate $10 or more in any calendar year. 2. The title to check box 7 was revised to designate a distribution from a savings incentive match plan for employees (SIMPLE) retirement account. Distribution code "L" was added to those reportable in box 7 to identify loans treated as deemed distributions. Distribution code "S" was added to identify an early distribution (i.e., in the first two years) from a SIMPLE, which may be subject to a 25% penalty. 3. Revisions to the instructions address the repeal of the $5,000 death benefit exclusion attributable to the death of an employee after Aug. 20, 1996. 4. Revisions to the instructions explain that the penalty provisions of Secs. 6721-6724 attributable to the late or incorrect reporting of amounts have been extended to include Form 1099-R information returns. 5. Instructions to recipient Copy B reflect the revisions listed above.

* Form 1099-S, Statement for Recipients of Proceeds From Real Estate Transactions: Copy B, transferor instructions, includes a revision addressing recapture (payback) conditions of all or part of a Federal mortgage subsidy, provided several conditions apply.

* Form 5498, Individual Retirement Arrangement Information: Beginning in 1997, Form 5498 is used to report contributions to three types of retirement plans: individual retirement arrangements (IRAs), simplified employee pensions (SEPs) and SIMPLEs (plans for employees of small employers). Conforming changes were made to the title of the form and to box 2. 1. IRA and SIMPLE check boxes were added to box 5 to designate the type of account. 2. A new box 6 was added to report "SEP contributions." Similarly, a new box 7 was added to report "SIMPLE contributions."
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Article Details
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Author:Fox, George G.
Publication:The Tax Adviser
Date:Jul 1, 1997
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