More returns will need to be e-filed, though timing unclear

| 10/14/2021
More returns will need to be e-filed, though timing unclear

Proposed regulations were published this summer that, if finalized, could require additional business returns to be electronically filed as early as this spring. Comments on the proposed regulations requested additional time before the expanded e-file mandate becomes effective, noting challenges for certain filers to comply with the new rules.

Background

Prior to recent legislation, taxpayers were not required to electronically file returns if they were required to file fewer than 250 returns during a calendar year, although a special rule required partnerships with 100 or more partners to electronically file. For corporations with $10 million or more in assets, current regulations require aggregating the number of all return types required to be filed (such as Form 1120, “U.S. Corporation Income Tax Return,” and Form W-2, “Wage and Tax Statement”) when determining whether the filing threshold is met. For most information returns, current regulations provide that the 250-return threshold is determined separately for each type of information return. The IRS has the authority to provide e-file hardship waivers. Penalties may apply if returns required to be electronically filed are not e-filed.

Sign up to receive the latest tax insights as well as tax regulatory and administrative updates.

Proposed regulations

The proposed regulations would implement many changes to increase the number of returns required to be electronically filed. Some of these changes remove limitations on electronic filing that were included in the regulations in the early days of electronic filing to avoid imposing a burden on smaller taxpayers that might not have the resources or technology required to electronically file. Other changes implement recent legislation that provides the IRS with specific authority to reduce the filing thresholds. Following are highlights of the changes proposed to be effective with respect to returns due in 2022:

  • Corporations
    • Reduce the electronic filing mandate threshold to 100 for corporate returns required to be filed during 2022 and to 10 for corporate returns required to be filed during 2023 and later years.
    • Remove the $10 million asset limitation for corporations required to electronically file, which would require all C corporations and S corporations to electronically file when the return threshold is met.
  • Partnerships
    • Reduce the electronic filing mandate threshold to 10 for partnership returns required to be filed during 2023 and later years.
    • Require partnerships to aggregate all types of returns required to be filed, including employment tax and excise tax returns, when determining if the return threshold is met.
  • Most information returns
    • Reduce the electronic filing threshold to 100 for information returns required to be filed during 2022 and to 10 for returns required to be filed during 2023 and later years.
    • Require filers to aggregate all types of information returns required to be filed when determining if the 10-return threshold is met.
    • Require corrected information returns to be filed in the same manner as the original information return. For instance, if the filer was required to electronically file its information returns during the calendar year, then corrected information returns for that calendar year would be required to be filed electronically. However, if information returns were permitted to be, and were, filed on paper during a calendar year, then corrected information returns for that calendar year would be required to be filed on paper.

Looking ahead

It is unclear whether the proposed regulations will be effective for 2021 returns required to be filed in 2022 given that it is now October and final regulations have not yet been published. Commenters made compelling arguments for delaying implementation of the effective date, and final regulations will have to address these comments. Taxpayers that have not previously electronically filed certain returns covered by the proposed expanded e-file mandate should think about how to comply if the rules are effective for 2021 returns. Making changes to systems and obtaining access to software or e-file providers likely will take time. Even if these changes are not applicable to returns required to be filed in 2022, the changes are coming. As such, taxpayers should plan for how they will comply.

Related topics

Get an overview of important tax provisions for the year along with strategies to help taxpayers effectively manage their 2021 tax obligation.

Stay up to speed on regulatory and legislative tax changes with timely updates from Crowe.

No matter what happens with the bipartisan infrastructure bill and the Build Back Better bill, we’ll share the latest with you. Up to 2 CPE credits available.

Get an overview of important tax provisions for the year along with strategies to help taxpayers effectively manage their 2021 tax obligation.

Stay up to speed on regulatory and legislative tax changes with timely updates from Crowe.

No matter what happens with the bipartisan infrastructure bill and the Build Back Better bill, we’ll share the latest with you. Up to 2 CPE credits available.

Contact us

Our experienced tax professionals can help you tackle your most pressing tax challenges. Contact the Crowe tax team today
Rochelle Hodes
Rochelle Hodes
Principal, Washington National Tax
people
Lauren Owens