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Focus on Taxation: IRS E-Filing Requirements and Mailing Prohibition

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As tax season kicks off, RubinBrown reminds our clients of the IRS e-filing requirements, as well as the IRS’ prohibition on specified tax return preparers mailing individual income tax returns to the IRS on behalf of clients after December 31, 2011.
February 9, 2012

As tax season kicks off, RubinBrown reminds our clients of the IRS e-filing requirements, as well as the IRS’ prohibition on specified tax return preparers mailing individual income tax returns to the IRS on behalf of clients after December 31, 2011.

Announced during the President’s signing of new tax legislation in 2009, the IRS has issued final regulations and subsequent guidance related to mandatory e-filing in March 2011.

The final regulations and subsequent guidance addresses:

  • Mandatory E-filing

The mandatory e-filing requirement applies to any income tax return for an individual, estate or trust. However, certain returns that the IRS cannot accept electronically are currently exempt from the requirement.

Examples include: Form 990-T, Exempt Organization Business Income Tax Return; Form 1040-NR, U.S. Nonresident Alien Income Tax Return; Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts; and all amended individual income tax returns.

  • Undue hardship waivers

The final regulations adopt a provision allowing the IRS to waive the e-filing requirement where the requirement would create an undue hardship for the return preparer.

The IRS noted in the revenue procedure that it will ordinarily grant hardship waivers only in rare circumstances.

It was also noted that when technological issues affect a range of return preparers, the IRS will generally provide an administrative exemption (see below) and not a hardship waiver. The fact that a return preparer does not have a computer or appropriate software will not, standing alone, constitute grounds for a hardship waiver.

  • Administrative exemptions

Exemptions include; specified tax return preparers who are members of certain religious groups that are conscientiously opposed to electronic technology;

Certain foreign preparers without Social Security numbers (but such preparers must have applied for a preparer tax identification number);

Specified tax return preparers who are currently ineligible to e-file because of an IRS e-file sanction;

Returns that have been rejected by the IRS e-file system where the preparer attempted to but could not resolve the reject condition or code;

Returns prepared using software that does not support e-filing of one or more forms or schedules that are part of the return;

Returns not e-filed due to short-term, verifiable and documented technological problems; and

Returns the IRS currently does not accept electronically (as noted above) or returns with attachments or required documentation that the IRS cannot accept electronically.

  • Allows taxpayers to opt out of having their returns e-filed if they follow prescribed procedures

Under Revenue Procedure 2011-25, taxpayers would be able to choose to file their own returns on paper, but the return preparer must obtain from the taxpayer wishing to do so a signed and dated written statement from the taxpayer (before the return is filed) stating that the taxpayer chooses to file the return in paper format and that the taxpayer, not the return preparer, will submit the paper return to the IRS. The Revenue Procedure states that, for married taxpayers who wish to paper file a joint return, one spouse’s signature on the taxpayer choice statement will be sufficient.

The signed statement needs to contain the following language:

“My tax return preparer, RubinBrown LLP, has informed me that RubinBrown LLP may be required to electronically file my 2011 individual tax return, Form 1040, if RubinBrown LLP files it with the Internal Revenue Service on my behalf. I understand that electronic filing may provide a number of benefits to taxpayers, including an acknowledgement that the Internal Revenue Service received the returns, a reduced chance of errors in processing the returns and faster refunds. I do not want to have my return electronically filed and I choose to file my return on paper forms. I will mail or otherwise submit my paper return to the Internal Revenue Service myself. My preparer will not file or otherwise mail or submit my paper return to the Internal Revenue Service.

  • Mailing of individual tax returns by specified tax return preparers

IRS Notice 2011-27, allowed specified return tax return preparers a one-year transition rule for mailing taxpayer’s individual income tax returns for them (e.g., for 2011 only). However, effective January 1, 2012, specified tax return preparers can no longer mail their client’s individual income tax returns to the IRS.

This prohibition is directly connected to the IRS’ mandatory e-filing requirement placed on tax practitioners as a way to increase the number of e-filings.

RubinBrown’s policy is to e-file all eligible tax returns. This process is relatively painless and only requires the client to sign Form 8879, IRS e-file Signature Authorization, after reviewing their tax return. Once RubinBrown receives the signed Form 8879, we will electronically file the client’s tax return, which removes the need to mail the tax return to the IRS. This process is very similar for most state income tax filings and RubinBrown can e-file those states that have established e-filing capabilities.

 

Under U.S. Treasury Department guidelines, we hereby inform you that any tax advice contained in this communication is not intended or written to be used, and cannot be used by you for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service, or for the purpose of promoting, marketing or recommending to another party any transaction or matter addressed within this tax advice. Further, RubinBrown LLP imposes no limitation on any recipient of this tax advice on the disclosure of the tax treatment or tax strategies or tax structuring described herein.

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