The IRS has proposed electronic filing requirements for some information returns and other documents, including returns and documents relevant to retirement plans.
The IRS is proposing rules that would change the rules for electronic filing. This would affect individuals who are required to submit partnership declarations, corporation tax declarations, independent business tax declarations, withholding tax declarations and certain information declarations, registration declarations, disclosure declarations, notices, actuarial reports and certain excise tax declarations.
Information returns regarding the offer include:
- Form 1099-R, annuity distributions, annuity, retirement or profit sharing plans, IRAs, insurance contracts, etc.
- Form 945, Annual Federal Income Tax Withheld Declaration
- Form 5498-SA, HSA, Archer MSA, or Medicare Advantage MSA information
- Form 8955-SSA, Annual Registration Statement to Identify Disconnected Participants with Deferred Vested Benefits
- Form 5500 Annual Refund / Employee Retirement Plan Report
- Form 5500-SF, Abbreviated Annual Return / Small Worker Benefit Plan Report
- Form 5500-EZ, Annual Return of an Individual Participant (Owner / Partner and their Spouse) Retirement Plan or a Foreign Plan
- Form 5330, Excise Duty Refunds Related to Employee Benefit Plans
Why?
“Electronic filing has become more common, accessible, and economical,” says the IRS, “as evidenced by the proliferation of tax return makers and third-party providers.” They report the percentage of returns filed electronically and find that in 2018 approximately 98.5% of information returns were filed this way. Additionally, they argue that “electronic filing increases the timeliness and accuracy of the IRS in processing tax returns, which in turn provides taxpayers with faster and better customer service regarding those tax returns”.
The IRS says that given the proliferation of electronic filing and the enactment of the Taxpayer First Act of 2019 (TFA, Public Law 116-250), which expanded the powers of the Treasury Secretary to enact regulations that require electronic filing, the IRS and Treasury are proposing changes to the filing rules to better address electronic filing.
What the proposal would do
These proposed changes will withdraw the proposed ordinances published in the Federal Register on May 31, 2018, which changed the rules for determining whether returns of information must be submitted electronically. They also reflect the changes made by the TFA and are in line with this law’s emphasis on increased electronic filing.
The changes include the following.
The IRS notes that the procedures for processing paper returns and electronically filed returns are different and this can create major complications. For example, if a paper return requires corrections and the corrected form is submitted electronically, the IRS may not even have processed the original paper return before it has received the corrected return. Similar problems arise when an electronically submitted return is corrected on paper. The IRS advises that if they are submitted in different formats, it will not be able to quickly level out differences between the forms. The proposed regulations would require that amended and corrected forms be submitted in the same format in which they were originally submitted.
Currently, the rules in force state that no one is required to submit certain information reports electronically unless that person is required to submit 250 or more declarations in a calendar year. The proposed rules would change the requirements of Section 6011 on Required Use of an Electronic Form, which sets standards for determining whether certain information returns must be submitted electronically for:
- Returns (1) in respect of cash in excess of US $ 10,000 received in a deal or business or in excess of US $ 10,000 received as security deposit by court officials; (2) through partnerships, small business choices, small business choices, organizations required to make declarations under Section 6033; and (3) in relation to corporate income tax;
- Information about real estate transactions completed on or after January 1, 1991 and relating to individuals receiving contracts from certain federal agencies;
- Registration requirements for deferred vested benefits, information required in connection with certain deferred compensation plans; and regular actuary report;
- Required explanations for certain compensation payments; and
- Failure to submit correct information returns, which is the penalty for failure to submit correct information returns.
Section 3101 of the TFA amended Section 6011 to require electronic filing by any charity or other organization that is required to file an annual return under Code Section 511 on Unrelated Corporate Taxable Income. Currently, no person is required to submit declarations electronically under Section 6011, unless that person is required to submit 250 or more declarations in a calendar year. The proposed rules would change the threshold for declarations to be submitted in calendar year 2022 from 250 to 100 and for declarations to be submitted in calendar years thereafter to 10.
Comments welcome
The IRS will accept comments in writing or electronically for 60 days after July 23, 2021, the date the proposed regulations appeared on the federal register.
Electronic filings should be made through the federal eRulemaking portal at http://www.regulations.gov; you should indicate IRS and REG-102951-16. Paper comments should be sent to: CC: PA: LPD: PR (REG– 102951–16), Room 5203, Internal Revenue Service, PO Box 7604, Ben Franklin Station, Washington, DC 20044.