Hardship waiver from electronic-filing requirement for large partnerships.

• Author: Packard, Pamela

Recently, the IRS determined that K-1 information reported by partners, S shareholders and beneficiaries was not accurate in approximately 15% of the cases it reviewed. To boost efficiency and enhance compliance and document-matching capabilities, the Service now requires partnerships with more than 100 partners to file their partnership returns electronically. The rule applies to tax years ending after Dec. 30, 2000. The IRS will assess a $50 penalty for each Schedule K-1 over 100 if a partnership fails to comply. However, it might grant a waiver from electronic filing if the partnership can establish hardship in an application made in accordance with applicable revenue procedures authorized by Regs. Sec. 301.6011-3(b). In addition, certain types of partnership returns are exempt from the electronic-filing requirement.

How to Request a Waiver from the Electronic-Filing Requirement

Ann. 2002-3, which provides guidance on how to request a waiver for the tax year ending Dec. 31, 2001, directs partnerships to file a written request containing the following information:

1. A notation at the top of the request stating (in larger letters):"Form 1065 e-file Waiver Request: IRC Section 6011(e)(2)."

2. The partnership's name, Federal tax identification number and mailing address.

3. The tax year for which the taxpayer is requesting the waiver.

4. A detailed statement that lists:

   --The steps the partnership took in attempting to meet its requirement to file its return electronically.

   --The reason(s) why the steps were unsuccessful.

   --The hardship that can result, including any incremental cost to the partnership of complying with the electronic-filing requirements. Incremental costs are costs above and beyond the costs to file on paper. The taxpayer must support the incremental costs with a detailed computation, including a schedule detailing the costs to file on paper and the costs to file electronically.

5. A statement as to what steps the partnership will take to assure its ability to file its partnership return electronically for the next tax year.

6. The following statement, signed by the tax-matters partner:

   "Under penalties of-perjury, I declare that the information contained in this waiver request is true, correct and complete to the best of my knowledge and belief."

   The partnership must file all requests for a waiver with the Ogden Submission. Processing Center, Internal Revenue Service, P.O. Box 9941, Ogden, UT 84409, Attn: Form 1065 e-file...