Here’s what HIVE AI had to say about “E-filing mandate compliance for tax preparers”:
E-filing Mandate Compliance for Tax Preparers
Overview of E-filing Requirements
The electronic filing mandate for tax preparers represents a comprehensive regulatory framework designed to modernize tax administration and improve processing efficiency. For purposes of paragraph (2)(A), the applicable number shall be— (i) except as provided in subparagraph (B), in the case of calendar years before 2021, 250, (ii) in the case of calendar year 2021, 100, and (iii) in the case of calendar years after 2021, 10. 1 This progressive reduction in the threshold demonstrates the IRS’s commitment to achieving widespread electronic filing adoption across the tax preparation industry.
The current e-filing mandate applies to tax return preparers who reasonably expect to prepare and file more than 10 individual income tax returns during a calendar year. Preparers or firms that expect to prepare and file more than 10 income tax returns for individuals, trusts or estates must use IRS e-file to transmit the tax returns unless a waiver or a particular exemption 2 applies. This threshold represents a significant expansion from previous requirements and captures the vast majority of professional tax preparation operations.
Statutory Authority and Regulatory Framework
Congressional Policy and Implementation
The electronic filing mandate stems from Congressional policy established in the IRS Restructuring and Reform Act of 1998. Congress enacted the IRS Restructuring and Reform Act of 1998 (RRA 1998), Pub. L. No. 105-206, sec. 2001, 112 Stat. at 723, which provides, inter alia, that it is Congress’ policy that the IRS implement guidelines for electronic filings with the hope that the IRS would achieve 80% electronic filing by 2007. 3 This legislative foundation established the framework for progressive expansion of electronic filing requirements.
The statutory requirements have evolved significantly over time, with the most recent changes implementing much lower thresholds for mandatory electronic filing. Tax return preparers who meet the definition of a specified tax return preparer, as defined in section 6011(e)(3)(B) and § 301.6011-7(a)(3), generally must electronically file all federal income tax returns that they prepare and file for individuals, trusts, and estates (individual income tax returns). 4
Definition of Filing by Preparers
The regulations provide specific guidance on what constitutes “filing” by a tax return preparer for purposes of the e-filing mandate. Submission of an individual income tax return by a tax return preparer or a specified tax return preparer in non-electronic form includes the transmission, sending, mailing or otherwise delivering of the paper individual income tax return to the IRS by the preparer, any member, employee, or agent of the preparer, or any member, employee, or agent of the preparer’s firm. 5
However, preparers can avoid the e-filing requirement through proper taxpayer election procedures. An individual income tax return will not be considered to be filed, as defined in paragraph (a)(4)(i) of this section, by a tax return preparer or specified tax return preparer if the tax return preparer or specified tax return preparer who prepared the return obtains, on or prior to the date the individual income tax return is filed, a hand-signed and dated statement from the taxpayer (by either spouse if a joint return) that states the taxpayer chooses to file the individual income tax return in paper format, and that the taxpayer, and not the preparer, will submit the paper individual income tax return to the IRS. 5
Scope of Coverage and Applicable Returns
Individual Income Tax Returns
The e-filing mandate primarily focuses on individual income tax returns, including returns for individuals, trusts, and estates. The regulations establish clear parameters for which returns are subject to the electronic filing requirements and provide specific procedures for compliance verification.
Business and Information Returns
Beyond individual returns, the e-filing requirements extend to various business and information returns based on volume thresholds. An actuarial report required under section 6059 with respect to an employee benefit plan must be filed electronically if the filer is required by the Internal Revenue Code or regulations to file at least 10 returns during the calendar year that includes the first day of the plan year. 6 This demonstrates the broad application of electronic filing requirements across different types of tax documents.
The Taxpayer First Act has significantly expanded e-filing mandates for tax-exempt organizations. Taxpayers who file Form 990, Form 990-EZ, Form 990-PF, and Form 990-T are mandated to e-file effective for tax years beginning on or after July 2, 2019. Any 2020, and any future year, Form 4720 filed by a private foundation with a due date on or after July 15, 2021, must be filed electronically and not on paper. 7
Exceptions and Waivers
Hardship Waivers
The IRS provides mechanisms for preparers to obtain relief from e-filing requirements in cases of undue hardship. The Commissioner may grant waivers of the requirements of this section in cases of undue hardship. One principal factor in determining hardship will be the amount, if any, by which the cost of filing the return electronically in accordance with this section exceeds the cost of filing the return on paper. 8
Preparers seeking hardship waivers must follow specific procedures and documentation requirements. Specified tax return preparers use Form 8944 to request an undue hardship waiver from the section 6011(e)(3) requirement to electronically file returns of income tax imposed by subtitle A on individuals, estates, and trusts. Unless the IRS approves an applicant’s Form 8944 hardship waiver request or some other exception applies (see the instructions for Form 8948, Preparer Explanation for Not Filing Electronically), any covered return prepared by a specified tax return preparer must be filed electronically if the return is filed by the specified tax return preparer. 9
Geographic Exceptions
The regulations recognize that certain geographic areas may lack adequate internet infrastructure to support electronic filing requirements. The Secretary may waive the requirement of subparagraph (A) if the Secretary determines, on the basis of an application by the tax return preparer, that the preparer cannot meet such requirement by reason of being located in a geographic area which does not have access to internet service (other than dial-up or satellite service). 1
Administrative Exemptions
Beyond hardship waivers, the IRS may provide administrative exemptions to promote effective tax administration. The Commissioner may provide exemptions from the requirements of this section to promote effective and efficient tax administration. A submission claiming an exemption must be made in accordance with applicable IRS revenue procedures, publications, forms, instructions, or other guidance, including postings to the IRS.gov website. 8
Compliance Procedures and Documentation
Taxpayer Choice Statements
When preparers choose not to electronically file returns, they must obtain proper documentation from taxpayers. This information [taxpayer choice statement] can be used by tax return preparers and specified tax return preparers, if necessary, to demonstrate to the IRS that the related individual income tax returns filed in paper format were not required to be filed electronically pursuant to section 6011(e)(3) and §301.6011-6. The collection of information is voluntary to obtain a benefit. 10
The IRS provides guidance on proper documentation procedures to ensure compliance with e-filing requirements while respecting taxpayer preferences for paper filing when appropriate.
Record Retention Requirements
Preparers must maintain comprehensive records to demonstrate compliance with e-filing requirements. A person who is a signing tax return preparer of any return of tax or claim for refund of tax under the Internal Revenue Code shall furnish a completed copy of the return or claim for refund to the taxpayer (or nontaxable entity) not later than the time the return or claim for refund is presented for the signature of the taxpayer (or nontaxable entity). The signing tax return preparer may, at its option, request a receipt or other evidence from the taxpayer (or nontaxable entity) sufficient to show satisfaction of the requirement of this paragraph (a). 11
Electronic Return Content Requirements
For electronically filed returns, preparers must ensure that taxpayers receive complete copies that include all submitted information. In the case of an electronically filed return, a complete copy of a taxpayer’s return or claim for refund consists of the electronic portion of the return or claim for refund, including all schedules, forms, pdf attachments, and jurats, that was filed with the IRS. The copy provided to the taxpayer must include all information submitted to the IRS to enable the taxpayer to determine what schedules, forms, electronic files, and other supporting materials have been filed with the return. 11
Enforcement and Penalties
Civil Penalties for Non-Compliance
Preparers who fail to comply with e-filing requirements face specific penalties under the Internal Revenue Code. In addition to the penalty imposed by section 7203 (relating to willful failure to file return, supply information, or pay tax) any person required to supply information or to file a return under section 6011(c) who fails to supply such information or file such return at the time prescribed by the Secretary, or who files a return which does not show the information required, shall pay a penalty of $100 for each failure to supply information (but the total amount imposed on the delinquent person for all such failures during any calendar year shall not exceed $25,000) or a penalty of $1,000 for each failure to file a return, unless it is shown that such failure is due to reasonable cause. 12
Professional Responsibility Standards
Under Circular 230, willful failure to comply with e-filing requirements can constitute disreputable conduct. Tax return preparers are only subject to sanction under §10.51(a)(16) of the final regulations for not electronically filing if such a failure is willful. Accordingly, §10.51(a)(16) is sufficiently narrowly tailored to only apply to these tax return preparers who willfully fail to comply with the electronic filing requirement. 13
Impact on E-file Program Participation
Penalties and compliance issues can affect a preparer’s eligibility to participate in the IRS e-file program. Penalties asserted against tax return preparers are a factor in determining suitability for the IRS e-file program. RPCs will notify electronic filing coordinators (EFCs) of all penalties asserted on tax return preparers. 14
Recent Developments and Future Changes
Taxpayer First Act Implications
The Taxpayer First Act has significantly expanded e-filing requirements across various types of returns and organizations. The Internal Revenue Service will hold a free webinar at 1 p.m. ET on Thursday, Nov. 16, to update employers, tax professionals and others on the most recent developments of the e-file requirements for information returns that take effect Jan. 1, 2024. The hour-long session will explain the changes mandated by the Taxpayer First Act (TFA) provision 2301, how they affect taxpayers and how to comply with the information returns e-file requirement. 15
One Big Beautiful Bill Act Provisions
The One Big Beautiful Bill Act includes provisions that may affect the future of electronic filing systems and preparer requirements. Task force on the replacement of Direct File…to deliver to Congress, within 90 days following the date of the enactment of this Act, a report on— (1) the cost of enhancing and establishing public-private partnerships which provide for free tax filing for up to 70 percent of all taxpayers calculated by adjusted gross income, and to replace any direct e-file programs run by the Internal Revenue Service 16
This provision suggests potential changes to the electronic filing landscape and the relationship between private preparers and government-operated filing systems.
Practical Implementation Considerations
Technology Requirements and Standards
Preparers subject to e-filing mandates must ensure their technology systems meet IRS specifications and security requirements. Returns filed electronically must be made in accordance with the applicable revenue procedures, publications, forms, instructions, or other guidance. 17 This requirement encompasses both technical specifications and procedural compliance standards.
Client Communication and Service Delivery
The e-filing mandate affects how preparers interact with clients and deliver services. For several reasons, it is often much more difficult for taxpayers to verify that a return preparer has e-filed a return than to verify that a return has been paper-filed. “Penalizing taxpayers who engage preparers and do their best to comply with their tax obligations is grossly unfair and undermines the congressional policy that the IRS encourage e-filing,” the report says. 18
This observation highlights the importance of clear communication between preparers and clients regarding filing status and confirmation procedures.
Quality Control and Risk Management
Preparers must implement robust quality control procedures to ensure compliance with e-filing requirements while maintaining accuracy and client service standards. The complexity of determining when e-filing is required, when exceptions apply, and how to properly document taxpayer choices requires systematic approaches to compliance management.
Professional Development and Training
Continuing Education Requirements
Tax preparers must stay current with evolving e-filing requirements and technology standards. While continuing education is mandatory for credentialed tax return preparers, CE is encouraged for all tax return preparers. Enrolled agents and Annual Filing Season Program participants must take courses from IRS approved CE providers. 2
Industry Standards and Best Practices
The e-filing mandate has created industry-wide standards for technology adoption and client service delivery. Preparers must balance compliance requirements with practical considerations such as client preferences, technology limitations, and cost-effectiveness.
Strategic Considerations for Tax Practices
Business Model Implications
The e-filing mandate affects how tax preparation businesses operate, from technology investments to client service procedures. Practices must evaluate their systems, training needs, and compliance procedures to ensure they meet current requirements while positioning themselves for future changes.
Client Relationship Management
E-filing requirements create new dimensions in client relationships, including technology support, filing confirmation procedures, and documentation requirements. Preparers must develop clear policies and procedures for managing these aspects of client service.
Risk Assessment and Mitigation
Compliance with e-filing mandates requires ongoing risk assessment and mitigation strategies. This includes monitoring threshold calculations, maintaining proper documentation, and ensuring staff training remains current with regulatory changes.
The e-filing mandate compliance framework represents a fundamental shift in tax preparation practices, requiring preparers to adapt their operations, technology, and client service approaches to meet evolving regulatory requirements. Success in this environment requires comprehensive understanding of the rules, systematic compliance procedures, and ongoing attention to regulatory developments and industry best practices.
Sources
1 IRC § 6107(a)
2 IRC § 4481(e)
3 IRC § 6060(a)
4 IRC § 6686
5 IRC § 6011(e)
6 Treasury Regulation 1.6107-1
7 Treasury Regulation 301.6011-7
8 Treasury Regulation 301.6059-2
9 Treasury Regulation 301.6011-5
10 Treasury Regulation 301.6012-2
11 Dawson U.S. Tax Court Opinions Michael L. Cantrell
12 Dawson U.S. Tax Court Opinions Robin J. Fowler
13 Dawson U.S. Tax Court Opinions Valentine C. Anyanwu
14 Dawson U.S. Tax Court Opinions Abdiwali Suldan Mohamed
15 Dawson U.S. Tax Court Opinions Farid Rafiee & Misuk P. Rafiee
16 Notice 2011-27
17 T.D. 9518
18 T.D. 9527
19 IRS IRM 20.1.6 Preparer and Promoter Penalties
20 IRS IRM 3.42.4 IRS e-file for Business Tax Returns
21 IRS – Publication 4938 Federal Tax Return Preparers What You Should Know
22 IRS – Form 8944 Preparer e-file Hardship Waiver Request
23 IRS Newsroom – IR-2024-07
24 IRS Newsroom – IR-2023-31
25 IRS Newsroom – IR-2023-213
26 One Big Beautiful Bill Act Sec. 70607. Task force on the replacement of Direct File
Sources
1 IRC § 6011(e)
2 IRS – Publication 4938 Federal Tax Return Preparers What You Should Know
3 Dawson U.S. Tax Court Opinions Michael L. Cantrell
4 Notice 2011-27
5 Treasury Regulation 301.6011-7
6 Treasury Regulation 301.6059-2
7 IRS IRM 3.42.4 IRS e-file for Business Tax Returns
8 Treasury Regulation 301.6012-2
9 IRS – Form 8944 Preparer e-file Hardship Waiver Request
10 T.D. 9518
11 Treasury Regulation 1.6107-1
12 IRC § 6686
13 T.D. 9527
14 IRS IRM 20.1.6 Preparer and Promoter Penalties
15 IRS Newsroom – IR-2023-213
16 One Big Beautiful Bill Act Sec. 70607. Task force on the replacement of Direct File
17 Treasury Regulation 301.6011-5
18 IRS Newsroom – IR-2024-07
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