Information-reporting developments.

• Author: Smith, Annette B.
• Position: Electronic filing rules

The Job Creation and Worker Assistance Act of 2002 (the Act) created some new electronic-filing rules affecting Forms 1098, Mortgage Interest Statement, and 1099. Letter Ruling 200131027 concerns reporting cancellation of debt (COD) income.

Electronic Payee Statements

Act Section 401 allows payors to furnish most Forms 1098 and 1099 electronically, rather than on paper, effective for 2002 forms to be provided in January 2003. Under the new law, the recipient must consent to electronic receipt of the payee statement in a manner similar to that currently permitted under Sec. 6051 for electronic receipt of Form W-2.

The Form W-2 regulations anticipate the use of a website-based technology for delivery. Under the regulations:

* A recipient must consent to receiving the information return electronically;

* All the information required for the form's paper version must be provided in its electronic version;

* The information-return filer must "post" the information return on the website by January 31; and

* The filer must provide notice to the recipient that the information has been posted.

According to the regulations, the recipient's consent must be made electronically, in a manner that reasonably demonstrates that the recipient will be able to access the statement in the electronic format in which it will be furnished. Alternatively, the consent may be made in a different manner if it is confirmed electronically. For example, a bank could not obtain consent from a customer to furnish Form 1099-INT, Interest Income, electronically if the customer does not have access to a computer or to the bank's website on which Forms 1099-INT will be posted.

Before a recipient can consent, the filer must furnish a dear and conspicuous disclosure statement informing the recipient that the return will be provided on paper if the recipient does not consent to receive it electronically. The recipient must also be informed of the scope and duration of the consent (e.g., whether the consent will apply to every future year until it is withdrawn or only for one year). Finally, the recipient must be informed that the consent can be withdrawn at any time by furnishing the withdrawal in writing (either electronically or on paper) to the filer.

As mentioned, the filer, on or before January 31 of the year following the calendar year to which the statement relates, must notify the recipient that the statement is posted on the applicable website. This notice may be...