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- New e-filing requirements, effective January 1, 2024, will affect many taxpayers.
- The threshold of returns filed has been reduced from 250 to 10 in aggregate.
- Amended returns must be filed using the same method as the original return.
The Internal Revenue Service (IRS) recently released final regulations changing the electronic filing (e-filing) requirements for many federal filers.
As a result of these new requirements, the IRS expects to receive approximately 21 million fewer paper returns. The changes are projected to save costs, decrease errors, improve modernization, and alleviate the burden on IRS resources. If you or someone in your organization paper files forms or returns, it is important to determine if the new regulations will require electronic filing going forward.
The new requirements may affect those filing:
- Unrelated business income tax returns
- Withholding tax returns
- Certain information returns (for example, Forms W-2 and 1099)
- Registration statements
- Disclosure statements
- Actuarial reports
- Certain excise tax returns
- Partnership returns
- Corporate income tax returns
The changes are part of the Taxpayer First Act (TFA), signed in 2019.
Threshold Reduced to 10 in Aggregate, Effective January 1, 2024
The new regulations notably reduce the threshold for the number of returns required to be electronically filed. Effective January 1, 2024 (for tax years ending on or after December 31, 2023), the threshold is reduced from 250 to 10 and requires filings to be aggregated. The previous requirement was 250 returns of any one type. This change may affect those who have historically paper filed a limited number of many different returns and forms.
Company A has a December 31, 2023, year-end. In 2024, the company is required to file five 1099–INT Forms and five 1099–DIV Forms, for a total of 10 returns. When aggregated, Company A has 10 returns to file in calendar year 2024 and must file all the forms electronically.
Prior to January 1, 2024, Company A would not have an e-filing requirement because the 250-return threshold of any one type was not met.
Exemptions, Waivers, & Paper Filing
Exemptions and waivers are available in limited situations. Exemptions will be allowed for members of certain religious communities that prohibit technology use.
In certain circumstances, waivers will be allowed for those experiencing limited access to the Internet, economic hardship due to e-filing, or lack of digital technology adoption and proficiency. To be approved, these groups are expected to make a good faith effort to e-file and if they are unable, prove that e-filing would cause an undo financial hardship. Request for waiver is filed on Form 8508, Application for a Waiver from Electronic Filing of Information Returns.
In the event paper forms must be used, forms must meet IRS requirements to be machine readable. Forms can be ordered on the irs.gov website or printed from home using paper and ink that meet IRS specifications.
Summary of Additional e-Filing Guidance
The regulations also provide specific filing requirements for certain forms and additional guidance.
- If a taxpayer is filing an amended return, the amended return must be filed using the same method as the original return.
- In limited circumstances, the IRS does not support e-filing. For example, the IRS does not support electronic filing of a final Form 941. Therefore, paper filings will be accepted if an employer is required to file a final Form 941.
- Partnerships with more than 100 partners at any time during the year must e-file.
- Form 5500, and applicable actuarial reports, must be e-filed through the U.S. Department of Labor. However, paper Form 5500-EZ may be filed if the entity has fewer than 10 filings in aggregate.
- If the aggregate number of returns for all members of a controlled group of corporations is 10 or more, all members must e-file returns that are subject to the aggregation rules (including income tax returns and Form 5500-EZ, not information returns).
- Information returns must be e-filed if the 10-return aggregate threshold is met. Forms include Form 1042–S, Form 1094 series, Form 1095–B, Form 1095–C, Form 1097–BTC, Form 1098, Form 1098–C, Form 1098–E, Form 1098–Q, Form 1098–T, Form 1099 series, Form 3921, Form 3922, Form 5498 series, Form 8027, Form W-2, and Form W–2G.
- In early 2023, the IRS released a new, free e-file portal, Information Returns Intake System (IRIS), for the 1099 series of informational returns.
- Forms and returns filed by tax-exempt organizations must e-file without exception.
- Organizations, including trusts, that must file unrelated business income tax returns must e-file without exception.
- Material advisors must e-file Form 8918, Material Advisor Disclosure Statement, if the 10-return aggregate threshold is met. The timing of reportable transactions may cause difficulty determining when a material advisor must file Form 8918. Therefore, the regulations allow material advisors to file during the calendar year when their 10-return aggregate threshold is met.
- Excise tax returns filed on Form 4720 must be e-filed. Paper forms may be filed in the event the taxpayer receives a waiver or is filing less than 10 returns in aggregate.
- Additional returns that are required to be e-filed if the 10-return aggregate threshold is met include:
- Split-interest trust returns filed on Form 5227.
- Return for Credit Payments to Issuers of Qualified Bonds filed on Form 8038-CP.
- Withholding tax returns for U.S. Source Income of Foreign Persons, filed on Form 1042.
- U.S. Income Returns for Certain Political Organizations, filed on Form 1120-POL.
- Form 1120-S, U.S. Income Tax Return for an S Corporation.
- Form 1120, U.S. Corporation Income Tax Return.
Failure to meet the new e-filing requirements may result in one or more penalties, including failure to file, failure to file in a timely manner, or failure to include correct information on a return.
Beginning January 1, 2024, the number of forms required to be e-filed is increasing. Reviewing how the new regulations will impact you and your company is essential. Reducing the threshold from 250 to 10 and changing the requirement from form type to an aggregate number of forms will affect many who have historically paper filed.
Make sure to contact your payroll advisor or CPA to help you sort through how to comply with this new requirement.