Tax alert

Late filing penalties may apply when e-file mandate not met

Jul 20, 2022
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Tax controversy Nonprofit

Executive summary

Penalties for failure to timely file a return under sections 6651(a) and 6652(c) will apply to paper-filed Forms 5330, 4720, 5227, 1042, and 1120-POL if the taxpayer was required to e-file such returns. Taxpayers will have to demonstrate reasonable cause for relief.

Background

On July 23, 2021, Treasury and the IRS promulgated proposed regulations that would require electronically filing Forms 5330, 4720, 5227, and 1120-POL if the filer is required to file at least 10 returns of any type during the calendar year. The forms are not subject to mandatory electronic filing until the regulations are published as final regulations (except for Forms 4720 filed by private foundations, as set forth in Notice 2021-01). Read RSM Tax Alert. Forms 1042 will be subject to an e-file mandate if the filer is required to file 250 returns of any time during the calendar year or is a financial institution (regardless of number of returns filed).

Program manager technical advice

As noted in PMTA 2022-05, a taxpayer is required to comply with filing requirements, including mandates to file forms electronically. A filer that paper files a return that is required to be filed electronically has failed to file that form in accordance with the form and regulations. Therefore, the filer may be subject to the addition to tax for failure to timely file under section 6651(a) or 6652(c) unless able to demonstrate reasonable cause.

How RSM can help

We will continue to monitor developments in this area, including changes to the proposed regulations or promulgation of final regulations and will issue a tax alert when the e-file mandate is effective. We can also help affected taxpayers respond to notices from the IRS and request abatements of penalties due to reasonable cause.

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