The IRS issued final regulations (TD 9518) and several pieces of guidance relating to the requirement that return preparers e-file tax returns, starting this year. The final regulations adopt, with minor changes, proposed regulations (REG-100194-10) that were published last December, and they require specified tax return preparers to e-file if they reasonably expect to file 100 or more income tax returns in 2011. Starting in 2012, the 100-return threshold will be reduced to 11 returns.
The final regulations clarify the definition of “specified tax return preparer,” define the term “file,” allow taxpayers to opt out of having their returns e-filed if they follow prescribed procedures, provide for undue hardship waivers and administrative exemptions and provide a two-year transition rule.
The mandatory e-filing requirement applies to any income tax return for an individual, estate or trust, except for certain returns that the IRS cannot accept electronically. For 2011, a tax return preparer who reasonably expects to file 100 or more individual income tax returns during the year must e-file them. If the return preparer is a member of a firm, then the 100-return threshold applies in the aggregate to all the firm’s members.
The number of returns the preparer and other members of a firm reasonably expect to file in a calendar year is “based on all relevant, objective, and demonstrable facts and circumstances prior to the time the tax return preparer and the preparer’s firm first file an individual income tax return during the calendar year” (Treas. Reg. § 301.6011-7(d)(2)).
The proposed regulations made a limited allowance for preparers to give completed paper returns to clients for filing. Some commenters including the AICPA (see article and letter at tinyurl.com/6dlpywq) said practitioners sometimes mail paper returns to the IRS as a service to their clients who are elderly or incapacitated and who cannot conveniently mail their returns themselves.
Responding to these comments, the IRS has provided a transition rule—for 2011 only—to allow return preparers to mail returns for clients under specific circumstances, which are spelled out in Notice 2011-27. The return preparer must obtain a hand-signed and dated statement from the taxpayer containing both the taxpayer’s choice to have the return filed on paper and the taxpayer’s “unambiguous request” that the return preparer mail the return for the taxpayer. The notice provides sample language for this statement.
The proposed regulations had defined submission in paper form by a return preparer to include “any act or acts of assistance beyond providing filing or delivery instructions to the taxpayer.” Commenters asked for clarification of what acts of assistance would amount to filing by the return preparer. In response, the IRS removed the phrase from the final regulations and clarified in the preamble that “providing filing or delivery instructions, an addressed envelope, postage estimates, stamps, or similar acts designed to assist the taxpayer in the taxpayer’s efforts to correctly mail” the return will not constitute filing by the return preparer, “as long as the taxpayer actually mails” the paper return to the IRS. Under the proposed regulations, for taxpayers who choose to file their own returns on paper, the return preparer must obtain a signed and dated written statement from the taxpayer. The final regulations adopt this rule, with the revision (also at the urging of the AICPA and others) that for married taxpayers who wish to paper file a joint return, only one spouse needs to sign the statement, rather than both, as in the proposed regulations.
The IRS also issued guidance in Revenue Procedure 2011-25 on documenting the taxpayer’s choice to paper file, including sample language. An email message from the taxpayer is not sufficient for this purpose, but a copy of the taxpayer’s hand-signed and dated statement can be sent as an email attachment.
Revenue Procedure 2011-25 also provided guidance on waivers where the e-filing requirement creates an undue hardship for the return preparer. A hardship waiver request must be made on Form 8944, Preparer e-file Hardship Waiver Request. The IRS will ordinarily grant hardship waivers only in rare circumstances, which do not include as a sole factor the lack of a computer or appropriate software. The final regulations also allow the IRS to provide administrative exemptions to the e-filing requirement in a few situations detailed in Notice 2011-26.
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