Mandatory electronic filing of partnership returns delayed.

• Author: Pflieger, Deborah J.

Final regulations published in the Federal Register on Nov. 12, 1999 provide that partnerships with more than 100 partners will not be required to electronically file returns for tax years ending before 2000.

A provision in the Taxpayer Relief Act of 1997 mandated that partnerships with more than 100 partners file their partnership tax returns (Form 1065) and partner Schedules K-1 on magnetic media. Originally, partnerships were required to electronically file for tax years beginning on or after Dec. 31, 1997. However, the effective data of the provision amending Sec. 6011(e)(2) was modified by the Internal Revenue Service Restructuring and Reform Act of 1998 (IRSRRA '98) to apply to partnership tax years beginning after 1997. Further, Notice 97-77 notified taxpayers that the IRSRRA '98's amendment was not self-executing. Rather, the Service would first have to issue regulations that require partnerships with more than 100 partners to file their partnership returns on magnetic media and develop appropriate procedures. On Oct. 22, 1998, the IRS issued proposed regulations under Sec. 6011(e)(2) that would apply to partnership returns for years ending on or after Dec. 31, 1999. However, partnerships and their return preparers expressed concerns that the proposed effective date would place a significant burden on the partnership community. As a result of these concerns, the IRS issued the final regulations postponing the effective date for one more year.

While the language of Sec. 6011(e)(2) and the final regulations require the filing of returns on magnetic media, the Service plans to require partnerships with more than 100 partners to file their returns electronically. Electronic filing requirements will be issued in applicable revenue procedures or publications annually. The final regulations provide that the IRS may waive the requirement to file on magnetic media, to the extent that a partnership can show that the requirement will impose a hardship on the partnership.

Notwithstanding the approval of the final regulations, on March 15, 2000, the Service will be prepared to accept electronically filed partnership returns for tax years ending on or after Dec. 31, 1999. All electronically filed partnership returns must be transmitted to the IRS's Tennessee Computing Center in Memphis, Tennessee. The IRS Andover Service Center will no longer process electronic or magnetic-media-filed partnership returns as it has in the past. Despite the fact...