US Internal Revenue Service: i1099--1997

8/14/2019 US Internal Revenue Service: i1099--1997

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97Department of the TreasuryInternal Revenue Service

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-LTC, 1099-MISC,1099-MSA, 1099-OID, 1099-PATR, 1099-R, 1099-S,5498-MSA, and 5754)Section references are to the Internal Revenue Code unless otherwise noted.

Paperwork Reduction Act Notice. Weask for the information on these forms tocarry out the Internal Revenue laws of theUnited States. You are required to giveus the information. We need it to ensurethat you are complying with these lawsand to allow us to figure and collect theright amount of tax.

You are not required to provide theinformation requested on a form that is

subject to the Paperwork Reduction Actunless the form displays a valid OMBcontrol number. Books or records relatingto a form or its instructions must beretained as long as their contents maybecome material in the administration ofany Internal Revenue law. Generally, taxreturns and return information areconfidential, as required by section 6103.

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

If you have comments concerning theaccuracy of these time estimates or

suggestions for making these formssimpler, we would be happy to hear fromyou. You can write to the Tax FormsCommittee, Western Area DistributionCenter, Rancho Cordova, CA95743-0001. DO NOT send these formsto this address. Instead, see Where ToFile on page 6.

Items You Should Note

New Forms

Form 1099-LTCLong-Term Care andAccelerated Death Benefits

For 1997 and later years, Form1099-LTC, Long-Term Care andAccelerated Death Benefits, has beendeveloped to report payments underlong-term care insurance contracts and toreport all accelerated death benefits paidunder life insurance contracts includingpayments by a viatical settlementprovider. For more information, see Form1099-LTC under Specific Instructionslater.

Form 1099-MSADistributions FromMedical Savings Accounts

For 1997 and later years, Form1099-MSA, Distributions From MedicalSavings Accounts, has been developedto report distributions from medicalsavings accounts. For more information,see Form 1099-MSA under Specific

Instructions later. For 1997 and lateryears, Form 8851, Summary of MedicalSavings Accounts, was also developedfor trustees to report the number ofmedical savings accounts established.See the instructions on the back of Form8851 for more information.

Form 5498-MSAMedical SavingsAccount Information

For 1997 and later years, Form5498-MSA, Medical Savings AccountInformation, has been developed toreport contributions, receipt of rolloversand the fair market value of an account.For more information, see Form

5498-MSA under Specific Instructionslater.

Phone Numbers on Statements toRecipients

Because of a new law enacted in 1996,you are now required to include thetelephone number of a person to contacton certain statements to recipients. Youmust include the telephone number in thefiler name and address area on thefollowing statements to recipients: W-2G,1098, 1099-A, 1099-B, 1099-DIV, 1099-G

(excluding state and local income taxrefunds), 1099-INT, 1099-MISC(excluding fishing boat proceeds),1099-OID, 1099-PATR, and 1099-S. Thisnumber must provide direct access to anindividual who can answer questionsabout the statement. Although notrequired, payers reporting on other Forms1099 and 5498 are encouraged to furnishtelephone numbers. The telephone

number is not required on Copy A ofpaper forms nor on magnetic media filedwith the IRS.

New Voluntary Withholding for1997

Beginning January 1, 1997, states mustallow unemployment compensationrecipients to elect to have Federal incometax withheld at a 15% rate. Recipientspaid under the Railroad UnemploymentInsurance Act may also elect withholdingat 15%.

In addition, recipients of any of thefollowing Federal payments may elect tohave Federal income tax withheld at a

rate of 7%, 15%, 28%, or 31%: (1) certaincrop disaster payments, (2) CommodityCredit Corporation loans, and (3) socialsecurity and Tier I railroad retirementbenefits.

Form 1099-C Changes

Regulations under section 6050Peliminated the separate reporting ofpenalties, fines, and administrative costswhen reporting a canceled debt.Therefore, box 4, previously titledPenalties, fines, admin. costs included inbox 2 was eliminated. Although theregulations do not require that interest bereported, box 3, Interest included in box

2, was retained for filers who want toinclude interest in the canceled debtreported in box 2, Amount of debtcanceled. Interest must be reported inbox 3 if it is included in box 2.

New rules apply for 1997. Pleasecarefully read the Form 1099-Cinstructions that begin on page 15.

Form 1099-MISC Changes

The reporting of excess golden parachutepayments (EPP) was deleted from box 7and moved to a new box 13. See theinstructions for box 13 on page 24.

Insts. beginon page

1098 .. ... .. ... ... ... ... ... ... ... ... . 7 minutes . ... .. 101099-A .. .. ... ... ... ... ... ... ... ... . 10 minutes . ... 131099-B .. .. ... ... ... ... ... ... ... ... . 15 minutes . ... 141099-C ... ... ... ... ... ... ... ... ... . 10 minutes . ... 151099-DIV ... ... ... ... ... ... ... ... . 14 minutes . ... 161099-G ... ... ... ... ... ... ... ... ... . 11 minutes . ... 171099-INT ... ... ... ... ... ... ... ... . 12 minutes . ... 181099-LTC .. ... ... ... ... ... ... ... . 11 minutes . ... 191099-MISC. ...................... 14 m inutes .... 201099-MSA . ... ... ... ... ... ... ... . 7 minutes . ... .. 241099-OID ... ... ... ... ... ... ... ... . 10 minutes . ... 241099-PATR. ...................... 11 m inutes .... 251099-R ... ... ... ... ... ... ... ... ... . 20 minutes . ... 261099-S .. .. ... ... ... ... ... ... ... ... . 8 minutes . ... .. 335498 .. ... .. ... ... ... ... ... ... ... ... . 10 minutes . ... 355498-MSA . ... ... ... ... ... ... ... . 10 minutes . ... 36W-2G . ... .. ... ... ... ... ... ... ... ... . 19 minutes . ... 371096 .......... ...................... 10 minutes.... (see form)5754 .. ... .. ... ... ... ... ... ... ... ... . (see form) . .. .. 39

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Generally, for payments after August20, 1996, punitive damages and damagesfor nonphysical injuries or sickness arereportable. See the instructions for box 3on page 22.

Form 1099-PATR Changes

Box 7, previously titled Energyinvestment credit, was retitledInvestment credit. Box 8, previouslytitled Jobs credit, was retitled Workopportunity credit. See the instructions

on page 26.Form 1099-R Changes

Reporting requirements for Form 1099-Rhave been modified. Distributions are notreportable unless they aggregate $10 ormore in any calendar year.

SIMPLE was added to the checkboxin box 7 to designate a distribution froma SIMPLE retirement account.

Distribution Code L was added to box7 to identify loans treated as deemeddistributions, and distribution Code S wasadded to box 7 to identify an earlydistribution (i.e., in the first 2 years) froma SIMPLE, which may be subject to a

25% penalty.The $5,000 death benefit exclusion was

repealed for payments made because ofthe death of an employee who died afterAugust 20, 1996. Therefore, do not useCode B (or C) in box 7 if the employeedied after August 20, 1996. You maycontinue to use those codes foremployees who died before August 21,1996.

If an annuity starting date for a qualifiedplan is after November 18, 1996,generally, you must use the newsimplified method to compute the taxableamount. The recovery factors (the numberof monthly payments) you use to figure

the nontaxable amount have changed.See section 72(d) and Pub. 575, Pensionand Annuity Income (Including SimplifiedGeneral Rule).

The penalty provisions of sections 6721through 6724 have been amended toinclude Form 1099-R and statements torecipients.

Form 5498 Changes

Beginning in 1997, the form will be usedto report contributions to three types ofretirement plans: individual retirementarrangements (IRAs), simplified employeepensions (SEPs), and savings incentivematch plans for employees of small

employers (SIMPLEs). Therefore, the titleof the form was changed to IRA, SEP,or SIMPLE Retirement Plan Information.The title of box 2 was changed to IRA,SEP, or SIMPLE rollover contributions.IRA and SIMPLE checkboxes were addedto box 5 to designate the type of account.Box 6, titled SEP contributions, wasadded to report SEP contributions, andbox 7, titled SIMPLE contributions, wasadded to report SIMPLE contributions.

Form 945Withholding Tax Return

Report backup withholding andwithholding from gambling winnings,pensions, annuities, IRAs, militaryretirement, Indian gaming profits, andvoluntary withholding on Form 945,Annual Return of Withheld FederalIncome Tax. Generally, file Form 945 for1997 by February 2, 1998. Any incometax withheld reported on Forms 1099 orW-2G must be reported on Form 945. Anyincome tax withheld reported on Form

W-2, including withholding on distributionsto plan participants from nonqualifiedplans, must be reported on Form 941,Employer's Quarterly Federal Tax Return.For more information, including thedeposit requirements for Form 945, seethe separate Instructions for Form 945,and Cir. E, Employer's Tax Guide.

Use Form 1096 To Send Forms tothe IRS

You must send Copies A of all paperForms 1099, 1098, 5498, and W-2G tothe IRS with Form 1096, AnnualSummary and Transmittal of U.S.Information Returns. Instructions for

completing Form 1096 are contained onForm 1096.

REMINDERSubstituteStatements to Recipients

If you are not using the official IRS form(generally Copy B) to furnish statementsto recipients, be sure your substitutestatements comply with the rules in Pub.1179, Rules and Specifications for PrivatePrinting of Substitute Forms 1096, 1098,1099 series, 5498, and W-2G. Pub. 1179,which is revised annually, is a revenueprocedure that explains the requirementsfor format and content of substitutestatements to recipients. If you are using

a substitute form to furnishinformation to recipients, it mustcomply with the requirements in Pub.1179.Caution: All substitute statements torecipients must contain the tax year, formnumber, and form name prominentlydisplayed together in one area of thestatement. For example, they could beshown in the upper right part of thestatement.

Guide to Information Returns

See the chart on pages 39 and 40 for abrief summary of information returnreporting rules.

Need Help?

Information Reporting Call Site. TheIRS operates a centralized call site toanswer questions about reporting oninformation returnsForms 1096, 1098,1099, 5498, W-2, W-2G, and W-3. If youhave questions related to reporting on anyof these forms, you may call304-263-8700. If you use TTY/TDDequipment, call 304-267-3367. The hoursof operation are Monday through Fridayfrom 8:30 a.m. to 4:30 p.m. eastern time.

Forms and Publications. You can findFederal forms, instructions, publications,and other helpful information at the IRSInternet Web Site:http://www.irs.ustreas.gov

Or you can use:q Telnet at iris.irs.ustreas.govq File Transfer Protocol atftp.irs.ustreas.govq Direct Dial (by modem)1. Internal Revenue Information

Services (IRIS) at 7033218020.2. Bulletin Board Service (IRP-BBS) at3042647070; this electronic bulletinboard offers changes and updates thataffect information reporting. Also seePub. 1220, Specifications for Filing Forms1098, 1099 series, 5498 and W-2GMagnetically or Electronically.Caution: Because paper forms are readby machines (optical characterrecognition equipment), you cannotdownload and file Form 1096, Copy A ofForms 1098, 1099, or 5498.

You may also order forms, instructions,and publications by calling1-800-TAX-FORM (1-800-829-3676); or if

you use TTY/TDD equipment, you maycall 1-800-829-4059.Internal Revenue Bulletin. TheInternal Revenue Bulletin (IRB), publishedweekly, contains newly issuedregulations, as well as notices,announcements, legislation, courtdecisions, and other items of generalinterest. You may find this publicationuseful to keep you up to date with currentdevelopments. The IRB is sold by theSuperintendent of Documents, U.S.Government Printing Office, Washington,DC 20402, and is available on asubscription basis. To order the IRB, youcan write to the Superintendent of

Documents or call 202-512-1800 (voice)or 2025121387 (modem). The IRB isalso available on the Internet.

Backup WithholdingInterest, dividends, rents, royalties,commissions, nonemployeecompensation, and certain otherpayments (including broker and barterexchange transactions, and certainpayments made by fishing boat operators)may be subject to backup withholding ata 31% rate. To be subject to backupwithholding, a payment must be areportable interest or dividend payment

under section 6049(a), 6042(a), or 6044(if the patronage dividend is paid inmoney or qualified check), or an otherreportable payment under section 6041,6041A(a), 6045, 6050A, or 6050N. If thepayment is one of these reportablepayments, backup withholding will applyif:1. The payee fails to furnish his or hertaxpayer identification number (TIN) toyou, OR2. The IRS notifies you to imposebackup withholding because the payee

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furnished an incorrect TIN (B notice),OR3. You are notified that the payee issubject to backup withholding (undersection 3406(a)(1)(C), C notice), OR4. For interest and dividend accountsopened or instruments acquired after1983, the payee fails to certify to you,under penalties of perjury, that he or sheis not subject to backup withholding under3 above, OR5. For interest, dividend, broker, or

barter exchange accounts opened orinstruments acquired after 1983, or brokeraccounts considered inactive in 1983, thepayee fails to certify, under penalties ofperjury, that the TIN provided is correct.

Except as explained in 5 above,reportable other payments are subjectto backup withholding only if 1 or 2 aboveapplies.

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,and the separate Instructions for theRequester of Form W-9.

The following are not subject to backupwithholding:1. Real estate transactions reportableunder section 6045(e),2. Canceled debts reportable undersection 6050P,3. Distributions from medical savingsaccounts,4. Long-term care benefits,5. Distributions from an IRA, SEP, orSIMPLE retirement account, and6. Section 404(k) distributions from anemployee stock ownership plan (ESOP).

Generally, the period for which the 31%should be withheld is as follows:1. Failure to furnish TIN in the mannerrequired. Withhold on payments madeuntil the TIN is furnished in the mannerrequired. Special backup withholdingrules may apply if the payee has appliedfor a TIN. The payee may certify to thison Form W-9 by noting Applied For inthe TIN block and by signing the form.This form then becomes an awaiting-TINcertificate, and the payee has 60 days toobtain a TIN and furnish it to you. If youdo not receive a TIN from the payeewithin 60 days and you have not alreadybegun backup withholding, begin backupwithholding and continue until the TIN isprovided.

Note: The 60-day exemption frombackup withholding on presentation of anawaiting-TIN certificate applies only tointerest and dividend payments, andcertain payments made with respect toreadily tradable instruments. Therefore,any other payment, such as nonemployeecompensation, is subject to backupwithholding even if the payee has appliedfor a TIN. For information about whetherbackup withholding applies during the

60-day period, see Regulations section31.3406(g)-3.2. Notice from the IRS that payee's TINis incorrect (B notice). You mayelect to withhold on any reportablepayment made to the account(s) subjectto backup withholding after receipt of theB notice, but you must withhold on anyreportable payment made to the accountmore than 30 business days after youreceived the B notice. Stop withholdingwithin 30 days after you receive a certified

Form W-9 (or acceptable substitute).Note: The IRS will furnish a notice toyou, and you are required to promptlyfurnish a copy of such notice, or anacceptable substitute, to the payee. Forfurther information, see Regulationssection 31.3406(d)-5 and Rev. Proc.93-37, 1993-2 C.B. 477.

If you receive two incorrect TIN noticeswithin 3 years for the same account,follow the procedures in Regulationssection 31.3406(d)-5(g) and Rev. Proc.93-37.3. Notice from the IRS that payee issubject to backup withholding due tonotified payee underreporting (C

notice). Start withholding on paymentsmade on the 31st day after the date youreceive notification from the IRS, or youmay elect to withhold any time before the31st day. The IRS will notify you in writingwhen to stop withholding, or the payeemay furnish you a written certification fromthe IRS stating when withholding is tostop. In most cases, the stop date will beJanuary 1 of the year following the yearof the notice.Note: You must notify the payee whenwithholding under this procedure starts.For further information, see Regulationssection 31.3406(c)-1(d).4. Payee failure to certify that he or she

is not subject to backup withholding.Withhold on reportable interest anddividends until certification has beenreceived.

For exceptions to these general timingrules, see section 3406(e).Note: For information about backupwithholding on gambling winnings, seethe Specific Instructions for Form W-2Gfor the specific type of gambling winningslater.Reporting Backup Withholding.Backup withholding must be reported onForm 945, Annual Return of WithheldFederal Income Tax. For moreinformation, see the Instructions forForm 945. Also report backup withholdingon each Form W-2G, 1099-B, DIV, G,INT, MISC, OID, or PATR used to reportthe payment.Additional Information. For moreinformation about backup withholding, seePub. 1679, A Guide to BackupWithholding, and Pub. 1281, BackupWithholding on Missing and IncorrectTINs.

PenaltiesThe following penalties generally apply tothe person required to file informationreturns. The penalties apply to paper filersas well as magnetic media/electronicfilers.

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

If you fail to file a correct informationreturn by the due date and you cannotshow reasonable cause, you may besubject to a penalty. The penalty appliesif you fail to file timely, you fail to includeall information required to be shown on areturn, or you include incorrectinformation on a return. The penalty alsoapplies if you file on paper when you wererequired to file on magnetic media, youreport an incorrect TIN or fail to report aTIN, or you fail to file paper forms that aremachine readable.

The amount of the penalty is based onwhen you file the correct informationreturn. The penalty is:q $15 per information return if youcorrectly file within 30 days (by March 30if the due date is February 28); maximumpenalty $75,000 per year ($25,000 forsmall businesses, defined later).q $30 per information return if youcorrectly file more than 30 days after thedue date but by August 1; maximumpenalty $150,000 per year ($50,000 forsmall businesses).q $50 per information return if you fileafter August 1 or you do not file requiredinformation returns; maximum penalty$250,000 per year ($100,000 for smallbusinesses).

Exceptions to the Penalty.1. The penalty will not apply to anyfailure that you can show was due toreasonable cause and not to willfulneglect.2. An inconsequential error or omissionis not considered a failure to includecorrect information. An inconsequentialerror or omission does not prevent orhinder the IRS from processing the return,from correlating the information requiredto be shown on the return with theinformation shown on the payee's taxreturn, or from otherwise putting the returnto its intended use. Errors and omissionsthat are never inconsequential are those

relating to (a) a TIN, (b) a payee'ssurname, and (c) any money amounts.3. De Minimus Rule for Corrections.Even though you cannot show reasonablecause, the penalty for failure to file correctinformation returns will not apply to acertain number of returns if:a. You filed those information returns,b. Either you failed to include all theinformation required to be shown on areturn or you included incorrectinformation, andc. You filed corrections of theseinformation returns by August 1.

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If you meet all the conditions in athrough c, the penalty for filing incorrectreturns (but not for filing late) will notapply to the greater of 10 informationreturns or 1/2 of 1% of the total number ofinformation returns you are required to filefor 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 3most recent tax years (or for the periodyou were in existence, if shorter) endingbefore the calendar year in which theinformation returns were due are $5million or less.Intentional Disregard of FilingRequirements. If any failure to file acorrect information return is due tointentional disregard of the filing or correctinformation requirements, the penalty isat least $100 per information return withno maximum penalty.

Failure To Furnish Correct PayeeStatements (Section 6722)

If you fail to provide correct payeestatements and you cannot showreasonable cause, you may be subject toa penalty. The penalty applies if you failto provide the statement by January 31(see part H under General Instructionslater), you fail to include all informationrequired to be shown on the statement,or you include incorrect information on thestatement. Payee statement has thesame meaning as statement torecipient as used in part H underGeneral Instructions.

The penalty is $50 per statement,regardless of when the correct statementis furnished, with a maximum of $100,000per year. There is no reduction in thepenalty for furnishing a correct statementby August 1.Exception. An inconsequential error oromission is not considered a failure toinclude correct information. Aninconsequential error or omission cannotreasonably be expected to prevent orhinder the payee from timely receivingcorrect information and reporting it on hisor her income tax return or from otherwiseputting the statement to its intended use.Errors and omissions that are neverinconsequential are those relating to (a)a dollar amount, (b) a payee's address,(c) the appropriate form for theinformation provided (i.e., whether theform is an acceptable substitute for the

official IRS form), and (d) whether thestatement was furnished in person or bystatement mailing, when required.Intentional Disregard of PayeeStatement Requirements. If anyfailure to provide a correct payeestatement is due to intentional disregardof the requirements to furnish a correctpayee statement, the penalty is at least$100 per payee statement with nomaximum penalty.

Forms 1099-LTC, 1099-MSA,1099-R, 5498, and 5498-MSA

The penalties under sections 6721 and6722 now apply to Form 1099-R. Theyalso apply to new Form 1099LTC.

The penalties under sections 6721 and6722 do not apply to Forms 1099-MSAand 5498-MSA, which are filed undersection 220(h). The penalty for failure totimely file Form 1099-MSA or 5498-MSAis $50 per return with no maximum,unless the failure is due to reasonable

cause. See section 6693.The penalties under sections 6721 and

6722 do not apply to Form 5498, which isfiled under section 408(i). The penalty forfailure to timely file Form 5498 is $50 perreturn with no maximum, unless thefailure is due to reasonable cause. Seesection 6693.

Civil Damages for Fraudulent Filingof Information Returns

After July 30, 1996, if you willfully file afraudulent information return for paymentsyou claim you made to another person,that person may be able to sue you fordamages. You may have to pay $5,000

or more.

Magnetic Media/ElectronicReportingMagnetic media reporting may berequired for filing all information returnsdiscussed in this publication. Acceptableforms of magnetic media are magnetictape, tape cartridge, 31/2- and 51/4inchdiskette. Pub. 1220, Specifications forFiling Forms 1098, 1099 series, 5498 andW-2G Magnetically or Electronically, isthe revenue procedure for magneticmedia and electronic reporting. Different

types of payments, such as interest,dividends, and rents, may be reported onthe same tape or other submission.

Electronic submissions are filed usingthe Information Reporting Bulletin BoardSystem (IRP-BBS). The IRP-BBSoperates 24 hours a day, 7 days a week,and is accessed using your personalcomputer and modem at 304-264-7070.For more information, see Pub. 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 paper

document reporting.Extension of Time To File. Forinformation about requesting an extensionof time to file, see part B under GeneralInstructions later.Caution: If you file on magnetic media,do not file the same returns on paper.Who Must File on Magnetic Media. Ifyou are required to file 250 or moreinformation returns, you must file onmagnetic media. The 250-or-morerequirement applies separately to eachtype of form. For example, if you must file500 Forms 1098 and 100 Forms 1099-A,

you are not required to file Forms 1099-Aon magnetic media, but you must fileForms 1098 on magnetic media.Note: Even if you are not required to fileon magnetic media, the IRS encouragesyou to do so. Also, you may fileelectronically even if you are not requiredto file on magnetic media.

The magnetic media filing requirementdoes not apply if you apply for and receivea hardship waiver. See How To Requesta Waiver From Filing on MagneticMedia below.Filing Requirement Applies Separatelyto Originals and Corrections. Themagnetic media filing requirements belowapply separately to original returns andcorrected returns. Originals andcorrections are not aggregated todetermine whether you are required to fileon magnetic media. For example, if youfile 400 Forms 1098 on magnetic mediaand you are making 75 corrections, yourcorrections can be filed on paper becausethe number of corrections for Form 1098is less than the 250 filing requirement.However, if you were filing 250 or moreForm 1098 corrections, they would haveto be filed on magnetic media.How To Get Approval To File onMagnetic Media. File Form 4419,Application for Filing Information ReturnsMagnetically/Electronically, at least 30days (45 days for some electronic filing)before the due date of the returns. Onlyone Form 4419 need be filed for all typesof returns that will be filed on magneticmedia. Once you have received approval,you need not reapply each year. The IRSwill provide a written reply to the applicantand further instructions at the time ofapproval, usually within 30 days. Amagnetic media reporting package, whichincludes all the necessary transmittalsand instructions, will be mailed to allapproved filers.How To Request a Waiver From Filingon Magnetic Media. To receive awaiver from the required filing ofinformation returns on magnetic media,submit Form 8508, Request for WaiverFrom Filing Information Returns onMagnetic Media, requesting a hardshipwaiver from filing on magnetic media. Youcannot apply for a waiver for more than 1tax year at a time. If you need a waiver formore than 1 tax year, you must reapplyat the appropriate time each year.

If a waiver for original returns isapproved, any corrections for the sametypes of returns will be covered under thewaiver. However, if you submit originalreturns on magnetic media but you wantto submit your corrections on paper, awaiver must be approved for thecorrections if the corrections exceed the250 filing requirement.

Waiver requests generally must be filedat least 45 days before the due date of thereturns.

If you are seeking, in a singleapplication, approval for filing returns onmagnetic media and, if approval is notgranted, a waiver from the magnetic

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media filing requirement, submit bothForms 4419 and 8508.

If you receive an approved waiver, donot send a copy of it to the service centerwhere you file your paper returns. Keepthe waiver for your records only.Penalty. If you are required to file onmagnetic media but fail to do so, and youdo not have an approved waiver onrecord, you may be subject to a penaltyof $50 per return for failure to fileinformation returns on magnetic media

unless you establish reasonable cause.However, you can file up to 250 returnson paper; those returns will not be subjectto a penalty for failure to file on magneticmedia.

The penalty applies separately tooriginal returns and corrected returns.See Filing Requirement AppliesSeparately to Originals andCorrections earlier.

Paper Document ReportingIf you are required to file 250 or moreinformation returns, see Magnetic

Media/Electronic Reporting earlier.Common Errors. Please be sure tocheck your returns to prevent thefollowing common errors:1. Duplicate filing. Sending the sameinformation to the IRS more than once.2. Filer's name, address, and taxpayeridentification number are not the same onForm 1096 and Forms 1099, 1098, 5498,or W-2G.3. Omitted decimal point to showdollars and cents. For example, $123.00is correct (not $123 nor $123.).4. Two or more types of returnssubmitted with one Form 1096 (e.g.,Forms 1099-INT and 1099-MISC with one

Form 1096). You must submit a separateForm 1096 with each type of document.5. Failure to make an entry in box 1a,Gross dividends and other distributionson stock, on Form 1099-DIV. An amountmust be entered in box 1a if any amountis entered in box 1b, 1c, 1d, or 1e.Required Format. Because paperforms are read by machines (opticalcharacter recognition equipment), allForms 1096, and Copies A of Forms1098, 1099, and 5498 must be preparedin accordance with the followinginstructions. If these instructions are notfollowed, you may be subject to a penaltyof $50 for each incorrectly filed document.

1. Do not cut or separate Copies Aof the forms that are printed two or threeto a sheet (except Form W-2G). Forms1098, 1099, and 5498 are printed two orthree to an 8- by 11-inch sheet. Form1096 is printed one to an 8- by 11-inchsheet. These forms must be submitted tothe IRS on the 8- by 11-inch sheet. If atleast one form on the page is correctlycompleted, you must submit the entirepage. Forms W-2G may be separated andsubmitted as single forms.

Send the forms to the IRS in a flatmailing (not folded). Note: Largeenvelopes may require extra postage.2. No photocopies of any forms areacceptable. Official forms are availablefrom your IRS district office or by calling1-800-TAX-FORM (1-800-829-3676).3. Do not staple, tear, or tape any ofthese forms. It will interfere with the IRS'sability to scan the documents.4. Pinfeed holes on the form are notacceptable. Pinfeed strips outside the 8-

by 11-inch area must be removed beforesubmission, without tearing or ripping theform. Substitute forms prepared incontinuous or strip form must be burst andstripped to conform to the size specifiedfor a single sheet (8 by 11 inches) beforethey are filed with the IRS.5. Do not change the title of any boxon any form. Do not use a form to reportinformation that is not properly reportableon that form. If you are unsure of whereto report the data, call 304-263-8700.6. 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 unlessyou are reporting prior year information;do not use subsequent year forms for thecurrent year. Because forms are readby machine, you must use the currentyear form to report current yearinformation.9. Use the official forms or substituteforms that meet the specifications in the1997 Pub. 1179, Rules and Specificationsfor Private Printing of Substitute Forms1096, 1098, 1099 series, 5498, andW-2G. If you submit substitute forms thatdo not meet the current specifications andthat are not machine scannable, you maybe subject to a penalty of $50 for eachreturn for improper format.10. Do not use dollar signs ($) (theyare preprinted on the forms), ampersands(&), asterisks (*), commas (,), or otherspecial characters in money amountboxes.Suggested Format. Below aresuggestions that will allow the IRS toprocess the submitted forms in the mosteconomical manner:1. Although handwritten forms areacceptable, the IRS prefers that you typeor machine print data entries using 10

pitch (pica) or 12 pitch (elite) black type.Use block print, not script characters.Insert data in the middle of the blocks wellseparated from other printing andguidelines, and take other measures toguarantee a dark black, clear, sharpimage.2. Do not enter 0 (zero) or None inmoney amount boxes when no entry isrequired. Leave the boxes blank unlessthe instructions specifically require thatyou enter a zero. For example, in somecases, you must enter zero to make

corrections. See Corrected Returnslater.3. You may use the account numberbox for an account number designation.This number must not appear anywhereelse on the form, and this box may not beused for any other item. Showing theaccount number is optional. However, itmay be to your benefit to include therecipient's account number on paperdocuments if your system of records usesthe account number rather than the name,

social security number, or employeridentification number for identificationpurposes. If you furnish the accountnumber, the IRS will include it in futurenotices to you about backup withholding.If you are using window envelopes to mailstatements to recipients, and if you areusing reduced rate mail, be sure theaccount number does not appear in thewindow 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 InstructionsA. Who Must File. See the SpecificInstructions for each form.Nominee/Middleman Returns.Generally, if you receive a Form 1099 foramounts that actually belong to anotherperson, you are considered a nomineerecipient. You must file a Form 1099 (thesame type of Form 1099 you received) foreach of the other owners showing theamounts allocable to each. You must alsofurnish a Form 1099 to each of the otherowners. File Form 1099 with Form 1096,Annual Summary and Transmittal of U.S.Information Returns, with the InternalRevenue Service Center for your area.

On each Form 1099, list yourself as thepayer and the other owner as therecipient. On Form 1096, list yourself asthe filer. A husband or wife is notrequired to file a nominee return to showamounts owned by the other. Thenominee, not the original payer, isresponsible for filing the subsequentForms 1099 to show the amount allocableto each owner.Mergers. If two corporations merge andthe surviving corporation becomes theowner of all the assets and assumes allthe liabilities of the absorbed corporation,the reporting requirements explained inthis publication will be met if the surviving

corporation files Forms 1098, 1099, 5498,and/or W-2G for reportable payments ofboth corporations. See Rev. Rul. 69-556,1969-2 C.B. 242.

For information on filing Form 1099-INTfor a successor/predecessor corporation,see Form 1099-INT later.Qualified Settlement Funds. Aqualified settlement fund must fileinformation returns for distributions toclaimants if any transferor to the fundwould have been required to file if thetransferor had made the distributionsdirectly to the claimants.

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For distributions to transferors, a fundis subject to the information reportingrequirements of sections 6041 and 6041Aand may be required to file Form1099-MISC. For payments made by thefund on behalf of a claimant or transferor,the fund is subject to these same rulesand may have to file Form 1099-MISC forthe payment to a third party. Forinformation reporting purposes, apayment made by the fund on behalf of aclaimant or transferor is considered a

distribution to the claimant or transferorand is also subject to informationreporting requirements.

The same filing requirements,exceptions, and thresholds apply toqualified settlement funds as apply to anyother payer. That is, the fund mustdetermine the character of the payment(e.g., interest, fixed and determinableincome, or gross proceeds from brokertransactions) and to whom the paymentis made (e.g., corporation or individual).

For more information, see Regulationssection 1.468B-2(l).Payments to Foreign Persons. Seethe Instructions for Form 1042-S,

relating to U.S. source income of foreignpersons, for reporting requirementsrelating to payments of income items toforeign persons.B. When To File. File Form 1096 withForms 1098, 1099, or W-2G by March 2,1998. Brokers may file Forms 1096 and1099-B anytime after the reporting periodthey elect to adopt (month, quarter, oryear), but not later than March 2, 1998.File Form 1096 with Forms 5498 by June1, 1998. You will meet the requirement tofile if the form is properly addressed andmailed on or before the due date. If theregular due date falls on a Saturday,Sunday, or legal holiday, file on the next

business day. A business day is any daythat is not a Saturday, Sunday, or legalholiday. See part H later about providingForms 1098, 1099, 5498, and W-2G orstatements to recipients.

Reporting period.Forms 1098,1099, and W-2G are used to reportamounts received, paid, credited, orcanceled in the case of Form 1099-C,during the calendar year. Forms 5498 and5498MSA are used to report amountscontributed and the fair market value ofan account for the calendar year.

Extension.For paper or magneticmedia filing, you may request anextension of time to file by sending Form

8809, Request for Extension of Time ToFile Information Returns, to the addressshown on the form. You must request theextension by the due date of the returnsfor your request to be considered. If yourrequest for an extension is approved, youwill have an additional 30 days to file. Youmay request an additional extension. SeeForm 8809. For information on extensionsfor providing statements to recipients, seepage 8.Note: If you are requesting extensionsof time to file for more than 50 payers, youmust submit the extension requests

magnetically or electronically. Forinstructions, see Pub. 1220.C. Where To File. Send all informationreturns filed on paper to the following:

If you have no legal residence, principalplace of business, or principal office oragency in any Internal Revenue district,file your return with the Internal RevenueService Center, Cincinnati, OH 45999.

Send all information returns filedmagnetically to IRS-MartinsburgComputing Center, Information Reporting

Program, P.O. Box 1359, MS-360,Martinsburg, WV 25402-1359.D. Filing Returns With the IRS. TheIRS strongly encourages the qualityreview of data before filing to preventerroneous notices being mailed to payees(or others for whom information is beingreported).

If you must file any Form 1098, 1099,5498, or W-2G with the IRS, and you arefiling paper documents, you must send aForm 1096, Annual Summary andTransmittal of U.S. Information Returns,with each type of form as the transmittaldocument. You must group the forms byform number and submit each group with

a separate Form 1096. For example, ifyou file Forms 1098, 1099-A, and1099-MISC, complete one Form 1096 totransmit Forms 1098, another Form 1096to transmit Forms 1099-A, and a thirdForm 1096 to transmit Forms 1099-MISC.Specific instructions for completing Form1096 are included on Form 1096. Alsosee Transmitters, paying agents, etc.below. For information about filingcorrected returns, see CorrectedReturns later.

If you are filing on magnetic media,Form 4804, Transmittal of InformationReturns Reported Magnetically/Electronically, must accompany yoursubmissions.

For information on the preparation oftransmittal documents for magnetic mediaand paper document reporting (Forms4804 and 1096), see Rev. Proc. 84-24,1984-1 C.B. 465, or other current revenueprocedure.

Report payments on the appropriate

form, as explained in the SpecificInstructions later.

See Pub. 1179 on specifications forprivate printing of substitute informationreturns. You may not request specialconsideration. Only forms that conformwith the official form and the specificationsin Pub. 1179 are acceptable.

Transmitters, paying agents, etc.A transmitter, service bureau, payingagent, or disbursing agent (hereafterreferred to as agent) may sign Form1096 or 4804 on behalf of any personrequired to file (hereafter referred to aspayer) if the conditions in items 1 and 2below are met:

1. The agent has the authority to signthe form under an agency agreement(oral, written, or implied) that is validunder state law, and2. The agent signs the form and addsthe caption For: (Name of payer).

Signing of the form by an authorizedagent on behalf of the payer does notrelieve the payer of the liability forpenalties for not filing a correct, complete,and timely Form 1096 or 4804 andaccompanying returns.

Forms 1098, 1099, 5498, W-2G, orother statements to recipients issued bya service bureau or agent should showthe same payer's name as shown on theinformation returns filed with the IRS.

For information about the election toreport and deposit backup withholdingunder the agent's TIN and how to prepareforms if the election is made, see Rev.Proc. 84-33, 1984-1 C.B. 502 (Pub.1272).

Keeping copies.Generally, keepcopies of information returns you filed withthe IRS or have the ability to reconstructthe data for at least 3 years from the duedate of the returns. If backup withholdingwas imposed and for Form 1099-C, keepcopies of information returns for 4 years.E. Shipping and Mailing. If you are

sending many forms, you may send themin conveniently sized packages. On eachpackage write your name and TIN,number the packages consecutively, andplace Form 1096 in package number one.Postal regulations require forms andpackages to be sent by First-Class Mail.F. Recipient Names and TaxpayerIdentification Numbers. Taxpayeridentification numbers (TINs) are used toassociate and verify amounts reported tothe IRS with corresponding amounts ontax returns. Therefore, it is important thatyou furnish correct names, social security

If your principalbusiness, office or

agency, or legalresidence in the case

of an individual, islocated in

Use the followingInternal Revenue

Service 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 ofColumbia, 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

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numbers (SSNs), individual taxpayeridentification numbers (ITINs), oremployer identification numbers (EINs) forrecipients on the forms or magnetic mediasent to the IRS.

Use Form W-9 to request the recipient'sTIN. (You may be subject to a penalty foran incorrect or missing TIN. SeePenalties on page 3.) You are requiredto maintain the confidentiality ofinformation obtained on Form W-9relating to the taxpayer's identity

(including SSNs and ITINs), and you mayuse such information only to comply withthe tax laws.Note: If the recipient does not provide aTIN, leave the box for providing the TINto the IRS blank on the Form 1098, 1099,5498, or W-2G. SeeBackupWithholdingon page 2. Only onerecipient TIN can be entered on theform.

The TIN for individual recipients ofinformation returns is the socialsecurity number. See the informationabout sole proprietors below. For otherrecipients, including corporations,partnerships, and estates, the TIN is the

EIN.SSNs have nine digits separated by two

hyphens (000-00-0000), and EINs havenine digits separated by only one hyphen(00-0000000).

Show the full name and address in thesection provided on the return. Ifpayments have been made to morethan one recipient or the account is inmore than one name, show as theONLY name on the first name line thename of the recipient whose TIN isshown on the return. Show the namesof any other individual recipients in thearea below the first line, if desired. FormW-2G filers see Form 5754 later.

For sole proprietors, show theindividual's name on the first name line;on the second name line, you may enterthe business name. You may not enteronly the business name. For the TIN,enter either the individual's SSN or theEIN of the business (sole proprietorship).G. Filer's Name, Identification Number,and Address. The TIN for filers ofinformation returns, including soleproprietors and nominees/middlemen, isthe Federal EIN. However, soleproprietors and nominees/middlemen whoare not otherwise required to have an EINshould use their social security numbers.A sole proprietor is not required to have

an EIN unless he or she must file exciseor employment tax returns. See Pub. 583,Starting a Business and KeepingRecords.

The filer's name and TIN should beconsistent with the name and numberused on the filer's other tax returns. Thename of the filer's paying agent or servicebureau must not be used in place of thename of the filer.

To obtain an EIN, file Form SS-4,Application for Employer IdentificationNumber, with the IRS. If you do not haveyour EIN by the time you must file

information returns, enter Applied For inany space where the number must beentered.

Enter your street address including theroom, suite, or other unit number.H. Statements to Recipients(Borrowers, Debtors, Insureds,Participants, Payers/Borrowers,Policyholders, Transferors, or Winnerson Certain Forms). If you are requiredto file a return discussed in theseinstructions, you also must furnish

statements to recipients containinginformation furnished to the IRS. Be surethat the statements you provide torecipients are clear and legible.

If you are not using the official IRS formto furnish statements to recipients, seePub. 1179, Rules and Specifications forPrivate Printing of Substitute Forms 1096,1098, 1099 series, 5498, and W-2G, forspecific rules about providing substitutestatements to recipients. Generally, asubstitute is any statement other thanCopy B (generally) of the official form.You may develop them yourself or buythem from a private printer. However, thesubstitutes must comply with the format

and content requirements specified inPub. 1179.

Different rules apply to furnishingstatements to recipients depending on thetype of payment (or contribution) you arereporting and the form you are filing. Seethe heading below for the type of paymentyou are reporting. The headings are (1)Interest, dividend, and royaltypayments; (2) Real estate transactions;and (3) Other payments.Interest, dividend, and royaltypayments. For payments of dividends(including patronage dividends) undersection 6042 or 6044 (reported on Form1099-DIV or 1099-PATR), interest

(including original issue discount) undersection 6049 (reported on Form 1099-INTor 1099-OID), or royalties under section6050N (reported on Form 1099-MISC or1099-S), you are required to furnish anofficial or acceptable substitute Form1099 to a recipient either in person or ina statement mailing by First-Class Mail tothe recipient's last known address.Statements may be sent by intraofficemail if you use intraoffice mail to sendaccount information and othercorrespondence to the recipient.

Statement mailing requirements forForms 1099-DIV, 1099-INT, 1099-OID,and 1099-PATR, and forms reporting

royalties only.The statement mailingrequirements apply only to Forms1099-DIV (except for section 404(k)dividends), 1099-INT (except for interestreportable under section 6041),1099-OID, 1099-PATR, and royaltiesreported under section 6050N (on Form1099-MISC or 1099-S). The mailing mustcontain the Form 1099 or acceptablesubstitute and may also contain thefollowing enclosures: (1) Forms W-2,W-8, W-9, or other Forms W-2G, 1098,1099, and 5498 statements, (2) a checkfrom the account being reported, (3) a

letter explaining why no check isenclosed, (4) a statement of the person'saccount shown on Form 1099, and (5) aletter explaining the tax consequences ofthe information shown on the recipientstatement.

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 offeredby the payer is not permitted. Logos are

permitted on the envelope and on anynontax enclosures (items 2 through 5above).Note: The IRS intends to amend theregulations to allow the use of certainlogos and identifying slogans onsubstitute statements to recipients thatare subject to the statement mailingrequirements. Until the new regulationsare issued, the IRS will not assesspenalties for the use of a logo (includingthe name of the payer in any typeface,font, or stylized fashion and/or a symbolicicon) or slogan on a statement to arecipient if the logo or slogan is used bythe payer in the ordinary course of its

trade or business. In addition, use of thelogo or slogan must not make it less likelythat a reasonable payee will recognize theimportance of the statement for taxreporting purposes. See Notice 96-62,1996-49 I.R.B. 8.

A recipient statement may beperforated to a check or to a statementof the recipient's specific account (items2 and 4 above). The check or accountstatement to which the recipientstatement is perforated must contain, ina bold and conspicuous type, the legendImportant Tax Return DocumentAttached.

The legend Important Tax Return

Document Enclosed must appear in abold and conspicuous manner on theoutside of the envelope and on each letterexplaining why no check is enclosed, orcheck or account statement that is notperforated to the recipient statement. Thelegend is not required on any tax form, taxstatement, or permitted letter of taxconsequences included in a statementmailing. Further, you need not pluralizethe word document in the legend simplybecause more than one recipientstatement is enclosed.Note: If you provide recipient statementsin a separate mailing that contains onlyrecipient statements, Forms W-8 and

W-9, and a letter explaining the taxconsequences of the information shownon a recipient statement included in theenvelope, you are not required to includethe legend Important Tax ReturnDocument Enclosed on the envelope.

Substitute forms.You may furnishto the recipient Copy B of the official form,or you may use substitute Forms1099-DIV, 1099-INT, 1099-OID,1099-PATR, 1099-MISC (for royalties), or1099-S (for royalties), if they contain thesame language as the official forms andthey comply with the rules in Pub. 1179,

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relating to substitute Forms 1099.Applicable box captions and numbersmust be clearly identified, using the samewording and numbering as the officialform. However, for Form 1099-INT, ifyour substitute does not contain box 3,Interest on U.S. Savings Bonds andTreas. obligations, you may omit notincluded in box 3 from the box 1 caption.Note: All substitute statements torecipients must contain the tax year, formnumber, and form name prominently

displayed together in one area of thestatement. For example, they could beshown in the upper right part of thestatement.

If you are using substitutes, the IRSencourages you to use boxes so that thesubstitute has the appearance of a form.The substitute form must contain theapplicable instructions as on the front andback of Copy B of the official form. SeePub. 1179 for additional requirements.

Certain composite statements arepermitted. See Pub. 1179.Real estate transactions. You mustfurnish a statement to the transferorcontaining the same information reported

to the IRS on Form 1099-S. You may useCopy B of Form 1099-S or a substituteform that complies with Pub. 1179 andRegulations section 1.6045-4(m). Youmay use a Uniform Settlement Statement(under RESPA) as the written statementif it is conformed by including on thestatement the legend shown on Form1099-S and by designating whichinformation is reported to the IRS on Form1099-S. You may furnish the statement tothe transferor in person or by mail.Furnish the statement at or after closingbut by January 31 of the following year.The statement mailing requirementsexplained earlier do not apply to

statements to transferors for proceedsfrom real estate transactions reported onForm 1099-S. However, the statementmailing requirements do apply tostatements to transferors for timberroyalties reportable under section 6050Non Form 1099-S.Other payments. Statements torecipients for Forms 1098, 1099-A,1099-B, 1099-C, 1099-G, 1099-LTC,1099-MISC, 1099-MSA, 1099-R, 5498,5498-MSA, W-2G, 1099-DIV only forsection 404(k) dividends reportable undersection 6047, or 1099-INT only for interestreportable under section 6041 need notbe, but can be, a copy of the paper form

filed with the IRS. If you do not use a copyof the paper form, the form number andtitle of your substitute must be the sameas the official form. All informationrequired to be reported must benumbered and titled on your substitute insubstantially the same manner as on theofficial form. However, if you are reportinga payment as Other income in box 3 ofForm 1099-MISC, you may substituteappropriate explanatory language for thebox title. For example, for payments ofaccrued wages to a beneficiary of adeceased employee required to be

reported on Form 1099-MISC by Rev.Rul. 86-109, you might change the title ofbox 3 to Beneficiary payments orsomething similar.Note: All substitute statements torecipients must contain the tax year, formnumber, and form name prominentlydisplayed together in one area of thestatement. For example, they could beshown in the upper right part of thestatement.

Appropriate instructions to the recipient,

similar to those on the official form, mustbe provided to aid in the proper reportingof the items on the recipient's income taxreturn. For payments reported on Form1099-B, rather than furnish appropriateinstructions with each Form 1099-Bstatement, you may furnish to therecipient one set of instructions for allstatements required to be furnished to arecipient in a calendar year.

The statement mailing requirementsexplained earlier do not apply tostatements to recipients for informationreported on Forms 1098, 1099-A, 1099-B,1099-C, 1099-G, 1099-LTC, 1099-MISC(except for royalties), 1099-MSA, 1099-R,

5498, 5498-MSA, W-2G, 1099-DIV forsection 404(k) dividends only, and1099-INT for interest reportable undersection 6041 only. You may combine thestatements with other reports or financialor commercial notices, or expand them toinclude other information of interest to therecipient. Be sure that all copies of theforms are legible.

Certain composite statements arepermitted. See Pub. 1179.Time for furnishing forms orstatements. Generally, you mustfurnish Forms 1098, 1099, and W-2Ginformation by February 2, 1998.However, you may issue them earlier in

some situations, as provided by theregulations. For example, you may furnishForm 1099-INT to the recipient onredemption of U.S. Savings Bonds at thetime of redemption. Brokers and barterexchanges may furnish Form 1099-Banytime but not later than February 2.

Trustees or issuers of IRAs or SEPsmust furnish participants with a statementof the value of the participant's accountby February 2, 1998. IRA, SEP, orSIMPLE contribution information must befurnished to the participant by June 1,1998.

Trustees of a SIMPLE must furnish astatement of the account balance and the

account activity during the year byFebruary 2, 1998.

For real estate transactions, you mayfurnish the statement to the transferor atclosing or by mail on or before February2, 1998.

Filers of Form 1099-G who report stateor local income tax refunds, credits, oroffsets must furnish the statements torecipients during January 1998.

You will meet the requirement to furnishthe statement if it is properly addressed,and mailed on or before the due date. If

the regular due date falls on a Saturday,Sunday, or legal holiday, the due date isthe next business day. A business day isany day that is not a Saturday, Sunday,or legal holiday.

Extension.You may request anextension of time to provide thestatements to recipients by sending aletter to IRS-Martinsburg ComputingCenter, Information Reporting Program,P.O. Box 1359, MS-360, Martinsburg, WV25402-1359 or to your district director.

The letter must include (a) your name, (b)your TIN, (c) your address, (d) type ofreturn, (e) a statement that you arerequesting an extension for providingstatements to recipients, (f) reason fordelay, and (g) the signature of the payeror authorized agent. Your request mustbe postmarked by the date on which thestatements are due to be furnished torecipients. If your request for an extensionis approved, generally you will be granteda maximum of 30 extra days to furnish therecipient statements.I. Corrected Returns. If you filed areturn with the IRS and later discover youmade an error on it, you must correct it

as soon as possible. For somecorrections, you must file two returns(Form 1099, 1098, 5498, or W-2G) withForm 1096 and for some only one returnwith Form 1096.

In addition, you must providestatements to recipients showing thecorrections as soon as possible.Note: If you fail to file correct informationreturns or furnish a correct payeestatement, you may be subject to apenalty. SeeFailure To File CorrectInformation Returns by the Due Date(Section 6721)on page 3 andFailure ToFurnish Correct Payee Statements(Section 6722)on page 4.

To determine whether you are requiredto submit corrections on magnetic media,see Magnetic Media/ElectronicReporting earlier and Pub. 1220.

When making a correction, be sure youcomplete all appropriate information onthe returns. Then file Copy A of the formand Form 1096 with your InternalRevenue Service Center. Pleaseremember not to cut or separate the formsthat are two or three to a page. Submit theentire page even if only one of the formson the page is completed. Do not staplethe forms to Form 1096. You must use aseparate Form 1096 for each type ofreturn you are correcting, but you may

use one Form 1096 for both originals andcorrections of the same type of return.On all Forms 1098, 1099, and 5498, a

box is provided for the account number.If the account number was provided onthe original return, use this number on thecorrected return to help identify theappropriate incorrect return filed whenmore than one return was filed for aparticular individual. The account numbermay be a checking account number,savings account number, serial number,or any other number assigned to thepayee by the filer that is unique and will

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Step-by-Step Chart for Filing Corrected 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 at

the 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.

Error (on OriginalReturn)

How To File the CorrectedReturn on Paper Forms

STEP 2: Report correctinformation.

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


2. Do not enter an X in

the CORRECTEDbox at the top of theform. Prepare 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 andCopies A of thereturns with theappropriate servicecenter.

5. Do not include copiesof the original returnthat was filedincorrectly.

2. Incorrect moneyamount(s), incorrectaddress, or a returnwas filed when oneshould not havebeen filed. Thiserror requires onlyone return to makethe correction.

(Follow theinstructions underError 1, instead ofthese instructions,if you must correctan address 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 informationexactly 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 returnwith the appropriateservice center.

3. Do not include a copyof the original returnthat was filedincorrectly.

3. Original return filedusing WRONG typeof return. Forexample, a Form1099-DIV was filedwhen a Form1099-INT shouldhave been filed.This will requiretwo separate

returns 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.

Forms above to determine when youshould mark the CORRECTED box.

The above chart gives step-by-stepinstructions for filing corrected returns forthree of the most frequently made errors.Correction of errors may require thesubmission of more than one return. Besure to read each section thoroughly.Note: Regulations section 301.6724-1(relating to information return penalties)does not require you to file correctedreturns for missing or incorrect TINs if you

meet the reasonable cause criteria. Youare merely required to include the correctTIN on the next original return you arerequired to file. However, if you do notmeet the reasonable cause criteria, youshould file corrected returns by August 1to be subject to a reduced penalty.

In addition, even if you meet thereasonable cause criteria, the IRSencourages you to file corrections forincorrect or missing TINs so that the IRScan update the payees' records.J. Void Returns. An X in the VOIDbox at the top of the form will not correcta previously filed return. See part I abovefor instructions for making corrections.

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 typingor printing a form, you should void it. Thereturn will then be disregarded duringprocessing by the IRS. Go to the nextform on the page, or to another page, andenter the correct information; but do notmark the CORRECTED box. Pleaseremember not to cut or separate the formsthat are two or three to a page. Submit theentire page even if only one of the formson the page is a good return.

K. Other Information Returns. Theincome information you report on thefollowing returns must not be repeated onthe returns discussed in the SpecificInstructions in this publication: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 reportingdistributions to beneficiaries of trusts orestates.6. Schedule K-1 of Form 1120Sreporting distributive shares toshareholders of S corporations.7. Schedule K of Form 1120-IC-DISCreporting actual and constructivedistributions to shareholders and deferredDISC income.8. Schedule Q of Form 1066 reportingincome from a REMIC to a residualinterest holder.

distinguish the specific account. If you didnot provide the account number on theoriginal return, do not include it on thecorrected return. The account numbermust appear on both the original andcorrected return to properly identify andprocess the correction.

CORRECTED box.Each Form 1099,1098, 5498, and W-2G contains aCORRECTED box at the top of the form.Enter an X in the CORRECTED boxon Copy A only when you are correcting

a form you previously submitted to theIRS. Enter an X in the CORRECTEDbox on the copies you give to the recipient(generally, Copy B) only when you arecorrecting a form previously furnished tothe recipient. When the type of errorrequires two returns to make thecorrection, you will mark theCORRECTED box only on one of thereturns. Refer to the Step-by-Step Chartfor Filing Corrected Returns on Paper

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L. Payments to Corporations andPartnerships. Reporting of paymentsto corporations is required only for thefollowing:1. Medical payments (Form1099-MISC),2. Withheld Federal income tax orforeign tax,3. Barter exchange transactions (Form1099-B),4. Substitute payments in lieu ofdividends and tax-exempt interest (Form1099-MISC),5. Interest or original issue discountpaid or accrued to a regular interestholder of a REMIC (Form 1099-INT or1099-OID),6. Acquisitions or abandonments ofsecured property (Form 1099-A),7. Cancellation of debt (Form 1099-C).

However, reporting generally isrequired for payments to partnerships. Forexample, payments of $600 or moremade in the course of your trade orbusiness to a law firm that is a partnershipare reportable on Form 1099-MISC.M. Earnings on an IRA, SEP, or

SIMPLE. Generally, any income withrespect to an IRA, SEP, or SIMPLE, suchas interest or dividends, is not reportedon Forms 1099. However, distributionsshould be reported on Form 1099-R.N. Certain Grantor Trusts. Certaingrantor trusts may choose to file Forms1099 rather than a separate statementattached to Form 1041. If you have filedForm 1041 for a grantor trust in the pastand you want to choose the Form 1099filing method for 1997, you must havefiled a final Form 1041 for 1996. SeeRegulations section 1.671-4 and theInstructions for Form 1041 andSchedules A, B, D, G, I, J, and K-1.

Specific InstructionsIf a distribution includes noncashproperty, show the fair market value of theproperty at the time of payment.

Although, generally, you are notrequired to report payments smaller thanthe minimum described for each form, youmay prefer, for economy and your ownconvenience, to file Copies A for allpayments. The IRS encourages this.

Form 1098

Use Form 1098, Mortgage InterestStatement, to report mortgage interest(including points, defined later) of $600or more received by you during the yearin the course of your trade or businessfrom an individual, including a soleproprietor. Report only interest onmortgages defined below. The $600threshold applies separately to eachmortgage; thus, file a separate Form 1098for each mortgage. You may, at youroption, file Form 1098 to report mortgageinterest of less than $600, but you aresubject to the rules in these instructions.

If an overpayment of interest on anadjustable rate mortgage (ARM) or othermortgage was made in a prior year andyou refund (or credit) such overpayment,you may have to file Form 1098 to reportthe refund (or credit) of the overpayment.See Reimbursement of OverpaidInterest later.Exceptions. You need not file Form1098 for interest received from acorporation, partnership, trust, estate,association, or company (other than a

sole proprietor) even though an individualis a coborrower and all the trustees,beneficiaries, partners, members, orshareholders of the payer of record areindividuals.Mortgage Defined. An obligationincurred after 1987 is a mortgage if realproperty that is located inside or outsidethe United States secures all or part of theobligation. This applies even though theinterest recipient classifies the obligationas other than a mortgage, for example,as a commercial loan.

An obligation incurred after 1984 butbefore 1988 is a mortgage only if securedprimarily by real property.

An obligation in existence on December31, 1984, is not a mortgage if, at the timethe obligation was incurred, the interestrecipient reasonably classified theobligation as other than a mortgage, realproperty loan, real estate loan, or othersimilar type of obligation. For example, ifan obligation incurred in 1983 wassecured by real property, but the interestrecipient reasonably classified theobligation as a commercial loan becausethe proceeds were used to finance theborrower's business, the obligation is notconsidered a mortgage for purposes ofthis reporting requirement. However, ifover half of the obligations in a class

established by the interest recipient areprimarily secured by real property, it is notreasonable to classify those obligationsas other than mortgages for purposes ofthis 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 customarilyused at a fixed location, including certainmobile homes. See section 25(e)(10).

If property that secures the loan is notreal property, you are not required to fileForm 1098. However, the borrower maybe entitled to a deduction for qualifiedresidence interest, such as may be the

case for a boat, which has sleeping spaceand cooking and toilet facilities, that theborrower uses as a home.

Lines of credit and credit cardobligations.Interest (other than points)received on any mortgage that is in theform of a line of credit or credit cardobligation is reportable regardless of howyou classified the obligation. A borrowerincurs a line of credit or credit cardobligation when the borrower first has theright to borrow against the line of creditor credit card, whether or not the borroweractually borrows an amount at that time.

Who Must File. File this form if you areengaged in a trade or business and, in thecourse of such trade or business, youreceive from an individual $600 or moreof mortgage interest on any one mortgageduring the calendar year. You are notrequired to file this form if the interest isnot received in the course of your tradeor business. For example, you hold themortgage on your former personalresidence. The buyer makes mortgagepayments to you. You are not required to

file Form 1098.If you receive $600 or more ofmortgage interest in the course of yourtrade or business, you are subject to therequirement to file Form 1098, even if youare not in the business of lending money.For example, if you are a real estatedeveloper and you provide financing toan individual to buy a home in yoursubdivision, and that home is security forthe financing, you are subject to thisreporting requirement. However, if youare a physician not engaged in any otherbusiness and you lend money to anindividual to buy your home, you are notsubject to this reporting requirement

because you did not receive the interestin the course of your trade or business asa physician.

A governmental unit (or anysubsidiary agency) receiving mortgageinterest from an individual of $600 or moremust 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 Interestlater.

Cooperative housing corporation.A cooperative housing corporation is aninterest recipient and must file Form 1098

to report an amount received from itstenant-stockholders that represents thetenant-stockholders' proportionate shareof interest described in section 216(a)(2).This rule applies only totenant-stockholders who are individualsand from whom the cooperative hasreceived at least $600 of interest duringthe year. (See the Note under Box 1.)

Collection agents.Generally, if youreceive reportable interest payments(other than points) on behalf of someoneelse and you are the first person toreceive the interest, for example, if youare a servicing bank collecting paymentsfor a lender, you must file this form. Enter

your name, address, and TIN in therecipient entity area. You must file thisform even though you do not include theinterest received in your income but youmerely transfer it to another person. If youwish, you may enter the name of theperson for whom you collected theinterest in box 4. The person for whomyou collected the interest need not fileForm 1098.

However, there is an exception to thisrule for any period that (1) the first personto receive or collect the interest does nothave the information needed to report on

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Form 1098 and (2) the person for whomthe interest is received or collected wouldreceive the interest in its trade or businessif the interest were paid directly to suchperson. If (1) and (2) apply, the personon whose behalf the interest is receivedor collected is required to report on Form1098. If interest is received or collectedon behalf of another person other than anindividual, such person is presumed toreceive the interest in a trade or business.

Foreign interest recipient.If you

are not a U.S. person, you must file Form1098 if the interest is received in theUnited States. A U.S. person is a citizenor resident of the United States, adomestic partnership or corporation, or anonforeign estate or trust. If the interestis received outside the United States, youmust file Form 1098 if (1) you are acontrolled foreign corporation or (2) atleast 50% of your gross income from allsources for the 3-year period ending withthe close of the tax year preceding thereceipt of interest (or for such part of theperiod as you were in existence) waseffectively connected with the conduct ofa trade or business in the United States.

Designation agreement.An interestrecipient, including a recipient of points,can designate a qualified person to fileForm 1098, to provide a statement to thepayer of record, and to provide the Ruleof 78s notice. A qualified person is either(1) a trade or business in which theinterest recipient is under common controlas specified in Regulations section1.414(c)-2 or (2) a designee, named bythe lender of record or by a qualifiedperson, who either was involved in theoriginal loan transaction or is asubsequent purchaser of the loan. Alender of record is the person who, atthe time the loan is made, is named as

the lender on the loan documents andwhose right to receive payment from thepayer of record is secured by the payerof record's principal residence. Even ifthe 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 thelender of record.

The agreement must be in writing,identify the mortgage(s) and calendaryears for which the qualified person is toreport, and be signed by the designatorand the designee. A designee may reportpoints on Form 1098 (as having been paiddirectly by the payer of record) only if thedesignation agreement contains thedesignator's representation that it did notlend such amount to the payer of recordas part of the overall transaction. Theagreement need not be filed with the IRS,but the designator must keep a copy of itfor 4 years after the close of the year inwhich the loan is made.

A designated qualified person is subjectto any applicable penalties as if it werethe interest recipient. Thus, a designatoris relieved from liability for any applicablepenalties.

Reimbursement of Overpaid Interest.You are required to reportreimbursements of overpaid interestaggregating $600 or more to a payer ofrecord on Form 1098. You are notrequired to report reimbursements ofoverpaid interest aggregating less than$600 unless you are otherwise requiredto file Form 1098. That is, if you did notreceive at least $600 of mortgage interestduring the year of reimbursement from theperson to whom you made the

reimbursement, you are not required tofile Form 1098 merely to report thereimbursement. However, you may reportany reimbursement of overpaid interestthat you are not otherwise required toreport, but you are subject to the rules inthese instructions.

The reimbursement must be reportedon Form 1098 for the year in which thereimbursement is made. No changeshould be made to the prior year Form1098 because of this reimbursement.Report the total reimbursement even if itis for overpayments made in more than 1year.

Example.In 1995, you received

$5,000 of mortgage interest from thepayer/borrower and reported that amounton Form 1098 for 1995. In 1997, youdetermined that interest due on themortgage for 1995 was $4,500, and thepayer/borrower had overpaid $500. Yourefunded the $500 overpayment to thepayer/borrower in 1997. If you received$600 or more of interest on the mortgagefrom the payer/borrower in 1997, youmust report the $500 refund in box 3 ofthe 1997 Form 1098. No change to the1995 Form 1098 is required. If, insteadof refunding the $500 overpayment, youcredited the payer/borrower's 1997mortgage interest payments due, $500 is

still shown in box 3, and the interestreceived from the payer/borrower in 1997shown in box 1 must include the $500credit.

To be reportable, the reimbursementmust be a refund or credit of mortgageinterest received in a prior year that wasrequired to be reported for that prior yearby any interest recipient on Form 1098.Only the person who makes thereimbursement is required to report it onForm 1098. For example, if you bought amortgage on which interest was overpaidin a prior year, you made areimbursement of the overpaid interest,and the previous mortgage holder wasrequired to report mortgage interest onForm 1098 in the prior year, you must fileForm 1098 to report the reimbursementbecause you are the one making thereimbursement.

If you reimburse interest in the sameyear it is overpaid, do not report theoverpayment on Form 1098 as interestreceived during the year or as areimbursement of overpaid interest. Forexample, if the borrower paid $5,000 andyou reimbursed $500 of that amount in1997, $4,500 should appear in box 1 as

interest paid by the borrower. The $500reimbursement must not appear in box 3.

Interest on reimbursement.Afinancial institution (or its middleman) thatpays interest of $10 or more on thereimbursement must report that interest(under section 6049) on Form 1099-INT,Interest Income. Others that pay interestof $600 or more on the reimbursementmust report that interest (under section6041) on Form 1099-INT. Do not includesuch interest on Form 1098.

Nonresident Alien Interest Payer.You must file Form 1098 to report interestpaid by a nonresident alien only if all orpart of the security for the mortgage isreal property located in the United States.Payer of Record. The payer of recordis the individual carried on your books andrecords as the principal borrower. If yourbooks and records do not indicate whichborrower is the principal borrower, youmust designate one.

If you permit a subsequent purchaserof the property to assume the loan withoutreleasing the first purchaser frompersonal liability, the subsequentpurchaser is the payer of record. Such

subsequent purchaser's name, address,and TIN must appear on Form 1098.Multiple Borrowers. Even thoughthere may be more than one borrower onthe mortgage, you are required to prepareForm 1098 only for the payer of record,and only if such payer of record is anindividual, showing the total interestreceived on the mortgage. Even if anindividual is a coborrower, no Form 1098is required unless the payer of record isalso an individual.Payments by Third Party. Report allinterest received on the mortgage asreceived from the borrower, except asexplained under Seller Payments below.

For example, if the borrower's mothermakes payments on the mortgage, theinterest received from the mother isreportable on Form 1098 as received fromthe borrower.

However, do not report mortgageinterest received from any governmentalunit (or any subsidiary agency). Forexample, do not report any interestreceived as housing assistance paymentsfrom the Department of Housing andUrban Development (HUD) on mortgagesinsured under section 235 of the NationalHousing Act.Seller Payments. Do not report in box1 of Form 1098 any interest paid by a

seller on a purchaser's-borrower'smortgage, such as on a buy-downmortgage. For example, if a real estatedeveloper deposits an amount in escrowand tells you to draw on that escrowaccount to pay interest on the borrower'smortgage, do not report in box 1 theinterest received from that escrowaccount. As another example, do notreport in box 1 any lump sum paid by areal estate developer to pay interest on apurchaser's-borrower's mortgage.However, if you wish, you may use box 4to report to the payer of record any

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interest paid by the seller. See Pointslater for information about reportingseller-paid points in box 2.Rule of 78s Method of Accounting. Ifyou are permitted by Rev. Proc. 83-40,1983-1 C.B. 774, or any other revenueprocedure, to use the Rule of 78s methodto calculate interest earned with respectto a transaction, you may report interestearned under the Rule of 78s method onthat transaction as interest received fromthe borrower in a calendar year. In this

case, you must notify borrowers that theRule of 78s method was used to calculateinterest received and that the borrowersmay not deduct the amount reportedunless the borrowers are also properlyusing the Rule of 78s method todetermine interest deductions. Thenotification must also state that the Ruleof 78s method may be used only in thecase of a self-amortizing consumer loanthat requires level payments, at regularintervals (at least annually), over a periodnot in excess of 5 years (with no balloonpayment at the end of the loan term), andonly when the loan agreement providesfor use of the Rule of 78s method to

determine interest earned (see Rev. Proc.83-40 and Rev. Rul. 83-84, 1983-1 C.B.97). The notice must be furnished to thepayer of record on or with the statementof the interest received.Points. You must report certain pointspaid for the purchase of the payer ofrecord's principal residence on Form1098. You must report points if the points,plus other interest on the mortgage, are$600 or more. For example, if a borrowerpays points of $300 and other mortgageinterest of $300, the lender has received$600 of mortgage interest and must fileForm 1098.

Who must report points.The lender

of record or a qualified person must fileForm 1098 to report all points paid by thepayer of record in connection with thepurchase of the principal residence. If adesignation agreement is in effect for amortgage, only the person designated inthe agreement must file Form 1098 toreport all points on that mortgage. SeeDesignation agreement earlier.

Amounts received directly or indirectlyby a mortgage broker are treated aspoints to the same extent they would betreated as points if paid to and retainedby the lender of record. The lender ofrecord must report those points paid to amortgage broker.

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

Reportable points.Report on Form1098 points that meet all the followingconditions:1. They are clearly designated on theUniform Settlement Statement (FormHUD-1) as points; for example, loanorigination fee (including amounts for VAand FHA loans), loan discount, discountpoints, or points.

2. They are computed as apercentage of the stated principal loanamount.3. They are charged under anestablished business practice ofcharging points in the area where the loanwas issued and do not exceed the amountgenerally charged in that area.4. They are paid for the acquisitionof the payer of record's principalresidence, and the loan is secured bythat residence. You may rely on a signed

written statement from the payer of recordthat states whether the proceeds of theloan are for the purchase of the payer ofrecord's principal residence.5. They are paid directly by the payerof record. Points are paid directly if:a. The payer of record provides fundsthat were not borrowed from the lenderof record for this purpose as part of theoverall transaction. The funds mayinclude down payments, escrow deposits,earnest money applied at closing, andother funds actually paid over by thepayer of record at or before closing; ORb. The seller pays points on behalf ofthe payer of record. Points paid by the

seller to the interest recipient on behalfof the payer of record are treated as paidto the payer of record and then paiddirectly by the payer of record to theinterest recipient.

Report points paid under 5a and 5b onthe payer of record's Form 1098 in box2.

Do not report on Form 1098 pointspaid (1) for loans to improve a principalresidence, (2) for loans to purchase orimprove a residence that is not the payerof record's principal residence, such as asecond home, vacation, investment, ortrade or business property even thoughthe borrower may be entitled to amortizepoints paid for the purchase of a secondhome, vacation home, etc. and deductthem over the life of the loan, (3) for ahome equity or line of credit loan, even ifsecured by the principal residence, (4) fora refinancing (but see Constructionloans below), including a loan torefinance a debt owed by the borrowerunder a land contract, a contract for deed,or similar forms of seller financing, (5) inlieu of items ordinarily stated separatelyon the Form HUD-1, such as appraisalfees, inspection fees, title fees, attorneyfees, and property taxes, and (6) toacquire a principal residence to the extentthe points are allocable to an amount of

principal in excess of $1 million.Construction loans.Points paid on

a loan to construct a residence(construction loan) or to refinance a loanincurred to construct a residence arereportable on Form 1098 if they:1. Are clearly designated on the loandocuments as points incurred inconnection with the loan, such as loanorigination fees, loan discount, discountpoints, or points,2. Are computed as a percentage of thestated principal loan amount,

3. Conform to an established businesspractice of charging points i