IRS issues final regs. and guidance on mandatory e-filing requirements.

• Author: Nevius, Alistair M.

The IRS issued final regulations (T.D. 9518) and several pieces of guidance relating to the requirement that return preparers e-file tax returns, starting this year. The final regulations adopt, with minor amendments, proposed regulations (REG-100194-10) that were published last December, and they require specified tax return preparers to e-file if they reasonably expect to file 100 or more income tax returns in 2011.

The final regulations clarify the definition of "specified tax return preparer," define the term "file," allow taxpayers to opt out of having their returns e-filed if they follow prescribed procedures, provide for undue hardship waivers and administrative exemptions, and provide a two-year transition rule. The final regulations are effective upon their publication in the Federal Register.

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. These exempt forms 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.

The IRS received 53 written comments on the proposed regulations and made amendments to the final regulations based on some of the comments.

Specified Tax Return Preparer and Two-Year Transition

For 2011, the regulations define a "specified tax return preparer" as a tax return preparer who reasonably expects to file 100 or more individual income tax returns during the year. If the return preparer is a member of a firm, the 100-return limit applies in the aggregate to all the firm's members. Starting in 2012, the 100-return limit will be reduced to 11 returns.

The final regulations specify that the determination of whether a return preparer reasonably expects to file enough returns to fall within the e-filing mandate is made each calendar year for that year. The determination is "based on all relevant, objective, and demonstrable facts and circumstances prior to the time the tax return preparer and the preparer's firm first file an individual income tax return during the calendar year" (Regs. Sec. 301.6011-7(d)(2)).

The regulations provide five examples of when a return preparer reasonably expects to meet the return-filing threshold.

Mailing by the Preparer

Some commentators...