Electronic filing for specified returns and other documents

The IRS recently issued final regulations addressing the electronic filing requirements for certain informational returns that will take effect during calendar year 2024. The regulations affect persons required to file 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. Common returns covered by this regulation include Forms 1099, 1042 and 1095. Many businesses will need to update technology and processes to accommodate for these changes to the IRS filing requirements.

Key takeaways

• Substantial reduction of the threshold for mandatory electronic filing from 250 returns per year to 10. The electronic filing threshold for returns required to be filed for calendar years 2022 and 2023 remains at 250. However, the final regulations adopt the threshold of 10 returns for any return filed on or after Jan. 1, 2024.  
• Imposition of e-filing requirements for certain returns and other documents not previously required to be e-filed; 
• Aggregation policies for many informational return types covered by the regulation to determine whether a filer meets the 10-return e-filing threshold;
• Elimination of the e-filing income tax returns exception for corporations that report total assets under $10 million at the end of their taxable year; and,  
• Creation of a new requirement for partnerships with more than 100 partners to e-file information returns. Further, partnerships are required to file at least 10 returns of any type during the calendar year to e-file their partnership return.

Background

In recent years, the availability of e-file services and the use of e-file across the tax filing spectrum has experienced tremendous growth. In 2021, approximately 82% of all corporate income tax returns were e-filed, and almost 90% of partnership tax returns were e-filed. Reducing the volume of paper returns filed frees up staff and resources to further enhance services for taxpayers and improves overall efficiencies all while reducing postage, printing, shipping and storage and their associated costs and burdens.

New e-filing requirements

The following forms are all covered by the final regulation and must abide by the new 10-form threshold: 1042-S; 1095-B; 1095-C; 1097-BTC; 1098; 1098-C; 1098-E; 1098-Q; 1098-T; the 1099 series; 3921; 3922; the 5498 series; 8027 and W-2G. The IRS is actively working to implement software that would enable files to electronically attach and submit Forms 1042-S with their Forms 1042 to substantiate a claimed credit. The IRS expects to have programming in place in the near future.

Aggregation policies

Corporate taxpayers that file a Form 1120 must file it electronically if during the calendar year the corporation or the controlled group is required to file at least 10 returns of any kind, including informational returns (W-2, 1099, 1095, etc.). Similarly, a person required to file a Form 4720 excise tax return must file it electronically if that person files at least 10 other returns including informational returns. This applies to a withholding agent filing a Form 1042 as well.

Penalties and waivers

Failure to abide by this regulation will open taxpayers to penalty exposure under section 6651 of the Internal Revenue Code. The IRS will impose a penalty of $250 for every return paper filed above the 10-return threshold. The IRS will entertain penalty relief if the taxpayer can show that its failure to electronically file was due to reasonable cause and not willful neglect.

The final regulations generally provide waivers and administrative exemptions for filers that would experience financial hardship or religious conflicts in complying with the e-filing requirements. In general, exemptions and waivers will be made available on a form-by-form basis rather than on a per filer basis.

We encourage you to reach out to a member of the firm's tax advocacy and controversy services team or the Baker Tilly Vantagen team with any questions.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.