On February 21, 2023, Treasury and the IRS issued T.D. 9972, finalizing regulations implementing the requirement to e-file certain information and tax returns. These regulations affect filers of partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports and certain excise tax returns. Starting with filings in 2024, taxpayers filing over 10 returns (in total) will be required to file electronically. Corrected returns must also be filed electronically.
The final regulations implement the Taxpayer First Act, enacted in 2019, which amended section 6011(e) to authorize regulations to decrease the number of returns a taxpayer may file without being required to file electronically. The IRS has long planned for a requirement for the majority of returns to be e-filed, beginning more than 10 years ago.
Treas. Reg. 301.6011-2(b), which specifies the returns required to be filed electronically, as well as several related regulations, are amended by these final regulations. Although the IRS has not published a comprehensive list of forms required to be e-filed, the regulation affects virtually every type of return, including partnership returns, corporate income tax returns, unrelated business taxable income returns, withholding tax returns, information returns, registration statements, disclosure statements, notifications, actuarial reports and certain excise tax returns.
Failure to e-file an information return, where required, may subject the filer to section 6721 information reporting penalties, and failure to e-file a tax return, where required, may subject the filer to failure to file penalties under section 6651 and 6652. (In PMTA 2022-05 (July 8, 2022), the IRS Chief Counsel opined that filers who submit specified returns on paper when required to file electronically, are subject to the addition to tax for failure to timely file under sections 6651 and 6652.)
Effect on non-US filers
In 2021, the IRS announced changes to the authentication procedures required to create an account to apply for a Transmitter Control Code (TCC), which is required to electronically file information returns directly in the IRS Filing Information Returns Electronically (FIRE) system. However, these authentication procedures are still difficult for non-US filers to satisfy, because the authentication procedures require the filer to have US-based information, such as a US taxpayer identification number, US telephone number or US financial account, to authenticate their identity.
Commenters had suggested excluding qualified intermediaries (QIs) and other non-US filers from the FIRE system authentication requirements. The final regulations did not adopt this suggestion, but instead contemplate development of alternative authentication requirements in accordance with standards set forth by the US Department of Commerce, National Institute of Standards and Technology, which are not yet available.
New IRIS platform for 1099 reporting
The Taxpayer First Act also required the IRS to create an electronic filing portal for Forms 1099 that is substantially similar to the Social Security Administration’s Business Services Online system (which is used for filing electronic Forms W-2). On January 23, 2023, the IRS launched its new information reporting portal, the Information Returns Intake System (IRIS). Using the IRIS portal requires a new TCC, obtained through a separate application process from the IRS FIRE system. The IRIS portal is currently configured to accept filings with up to 100 forms per file, but large-volume capabilities are expected to be tested in May 2023. The IRIS portal provides only limited data review prior to submission (preventing users from advancing if a necessary field is blank or in an incorrect format).
Waivers for undue hardship or religious exemption
Many of the existing e-filing regulations provide for a waiver of the electronic filing requirement for any person who establishes undue hardship. Treasury and the IRS requested comments on how the waiver provisions should be administered.
The preamble to the final regulations states that a principal factor in determining hardship will be the amount, if any, by which the cost of filing the return electronically in accordance with this section exceeds the cost of filing the return on paper. A request for a waiver must be made in on Form 8508, Request for Waiver from Filing Information Returns Electronically, at least 45 days prior to the date the information returns are required to be filed, or in accordance with applicable IRS revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov website. The waiver request will be required to specify the type of filing and the period to which it applies.
In addition to the waiver procedure, the IRS may provide exemptions from the e-filing requirement to promote effective and efficient tax administration, for example for filers for whom using the technology required to file in electronic form conflicts with their religious beliefs. A submission claiming an exemption must be made in accordance with applicable IRS revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov website.
[View source.]
