United States

IRS proposes new regulations for mandatory e-filing

TAX ALERT  | 

The IRS published new proposed regulations that further the Taxpayer First Act (TFA) electronic filing requirements for businesses, partnerships and exempt organizations. The proposed regulations emphasize increased electronic-filing by lowering the threshold requirement for the number of returns that would trigger mandatory electronic-filing. 

Previously, taxpayers who filed 250 returns or more during a calendar year had to file electronically. 

The Taxpayer First Act allowed the IRS to incrementally reduce that threshold to 10 returns. The proposed regulation would reduce the threshold to 100 for returns filed during calendar year 2022, and to 10 for returns filed after 2022. Although the TFA contained a special rule for partnership thresholds (100 for calendar year 2020 and 50 for calendar year 2021), the preamble explains that the proposed regulations will not contain special thresholds for partnerships because the final regulations are expected to be published after the special rule for partnerships is phased out. Thus, during calendar year 2023, all taxpayer who meet the 10 information return threshold will be required to file those returns electronically. The proposed regulations would aggregate all of an employer’s information returns (e.g., Forms W-2, 1099) to determine if the threshold is met instead of counting each type of form separately.

The proposed regulations would also allow the IRS to create new rules requiring electronic filing for excise tax, withholding tax returns and material adviser disclosure. In addition, the proposed regulations would exclude Form 8300, used to report cash payments over $10,000, from the new aggregation rule. 

The objective behind the incrementally lowered thresholds is to ensure that the IRS will have adequate programming to handle the increased volume of e-filed informational returns. The government suggests that the IRS will be sufficiently prepared to handle the increased volume by calendar year 2023. 

The IRS has withdrawn its previously issued 2018 proposed regulations on electronic filing of information returns and requested submission of comments on the new proposed regulations by Sept. 21, 2021. 

Takeaways:

Taxpayers need to be vigilant concerning the lowered threshold requirements for electronically filing information returns to avoid penalties from the IRS. 

RSM CONTRIBUTORS


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