The IRS released guidance in Notice 2010-85 that will allow return preparers for whom the electronic filing mandate of §6011(e)(3) would be an undue burden to request a waiver, as well as a method to allow clients to elect out of the efiling mandate. The IRS has done so, for now, in the form of a Notice that was released with a proposed Revenue Procedure and proposed regulation §301.6011-6.
The notice makes formal the informal guidance the IRS had previously provided that for 2011 firms that reasonably expect to file fewer than 100 returns will not be subject to mandatory efiling, with the number dropping to the statutory fewer than 11 returns in 2012.
Returns that will be counted for this purpose include any return of income tax imposed by Subtitle A on individuals, estates and trusts, which would include the Form 1040 series, Form 1041 series and Forms 990-Ts for exempt organizations that are a trust.
The rules will provide that any return filed by the preparer must be filed electronically. Paper (meaning disallowed) filing would be defined to include direct and indirect transmission by sending, mailing or delivering the tax return to the IRS by the preparer or any member, employee or agent of the firm, and would include any acts of assisting a client that go beyond providing filing or delivery instructions to the taxpayer.
The preparer will be allowed to prepare a paper return if the client signs a statement that the taxpayer chooses not to electronically file the return, and the return is submitted to the IRS by the taxpayer and not the preparer. The preparer, under this rule, would not be allowed to mail the return as an accommodation the taxpayer. The statement must be signed by both spouses for a joint return and must be signed and dated on or before the date the taxpayer actually files the return. In the proposed procedure the IRS provides safe harbor language that will deemed adequate to be included in such a notice.
The proposed revenue procedure provides that the IRS may grant general administrative waivers from the electronic filing requirements in certain cases, such as when general technology issues would prevent a preparer from filing a return electronically.
The proposed procedure indicates that hardship waivers will be granted only in rare cases, not normally for more than one calendar year, and may be limited to a specified class of returns and/or for a specified period. The only reason the IRS specifically notes would be considered for the waiver are excessive incremental costs to the preparer, though it notes that is not the only reason. Presumably under this standard the IRS might grant a waiver of filing trust returns electronically if the preparer only prepares a single trust return where the cost of efiling software would be significant—but the preparer would still be required to electronically file individual returns and the trust exemption would only be for one year.
The proposed revenue procedure makes clear that the following facts, standing alone, will not qualify for a hardship exemption:
- Preparer does not have a computer
- Preparer does not have software to efile
- Preparer does not wish to use a computer or efile
- Preparer has a personal desire to be exempted
The procedure indicates that any such hardship request, without further explanation, will be denied. Waivers will be requested on Form 8944.
Requests would be submitted between October 1 of the calendar year before the applicable filing year and February 15th of that same year. If a preparer’s request for a hardship exemption is denied, the taxpayer can request reconsideration. However if that reconsideration results in a denial, there is no additional administrative review available, nor is the denial subject to judicial review.
Prior to the earlier of the date the revenue procedure is finalized or the Form 8944 is finalized and approved, preparers wishing to request an undue hardship waiver may submit such requests in writing to the IRS, with the requests containing the information the proposed procedure notes will be on the final Form 8944. The IRS will be releasing information later on processing these requests, including time, place and date information.