Mandatory large partnership e-filing for 2000.

• Author: Sair, Edward A.

Partnerships with more than 100 partners (i.e., large partnerships) must file their Federal partnership returns electronically (e-file) for tax years ending on or after Dec. 31, 2000. The Taxpayer Relief Act of 1997 amended Sec. 6011(e) to require large partnerships to file their Forms 1065, U.S. Partnership Return of Income, and Schedules K-1 on magnetic media. Regs. Sec. 301.6011-3(f) provides for large partnerships to e-file partnership returns for tax years ending on or after Dec. 31, 2000. A partnership has more than 100 partners if, during the tax year, the partnership had over 100 partners, regardless of whether the partnership had over 100 partners on any particular day in the year (Regs. Sec. 301.6011-3(d)(5)).

Under Regs. Sec. 301.6011-3(f), electing large partnerships are not required to e-file their returns for tax years ending before Jan. 1, 2001. Sec. 775(a)(1) defines an "electing large partnership" as any nonservice large partnership that elects to apply the simplified reporting provisions under Secs. 771-777. The e-filing requirement also does not apply to (1) fiscal-year filers, (2) final-year returns, (3) short-year returns, (4) foreign address partnerships and (5) delinquent and amended returns; see Pub. 1524 (9/15/00) and Draft Announcement of Form 1065, Electronic Filing Waiver Request Procedure (12/13/00).

Partnership E-Filing

The IRS conducted a voluntary e-filing program for partnership returns for the 1999 tax year. For that year, the IRS approved four companies to e-file partnership returns. Of the four companies approved, one was a software vendor; the other companies consisted of two taxpayers and a small practitioner. In total, for 1999, the Service electronically processed 143 partnership returns and 179,553 Schedules K-1.

For the 2000 tax year, the IRS published draft specifications (Draft Pub. 1524) and expected to begin testing vendors and others on or about Dec. 18, 2000. Although testing and approval took several months last year, the Service represented that it expects the testing and approval process to take much less time this year. The IRS had expected to begin accepting electronic partnership returns for 2000 on or after Feb. 26, 2001.

Waivers and Penalties

Waiver of electronic filing. The Service may grant a hardship waiver from the e-filing requirement. Regs. Sec. 301.6011-3(b) allows a waiver based on facts and circumstances. One factor in determining hardship is the reasonableness of the...