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NSA Wants IRS to Delay E-file Mandate for a Year

January 10, 2011

The National Society of Accountants is asking the Internal Revenue Service to postpone its new e-file requirements.

During testimony before the IRS on Friday, the NSA recommended that the effective date be delayed until Jan. 1, 2012.

The NSA pointed out that the regulations were issued in December 2010 and took effect on Jan. 1, 2011, despite the fact that the IRS waited until January 7 to hold a hearing to gain input on them. The IRS now plans to consider the comments and issue final regulations, retroactive to the beginning of the year, even as tax preparers are already in the midst of the tax filing season.

“This is a highly unusual situation” said NSA executive vice president John Ams. “How can preparers comply with rules effective on January 1 when the rules have not even been issued? The important thing is to establish the right set of regulations and give tax preparers time to understand them and set up systems to comply with them. We don’t really understand why the IRS is rushing to implement these regulations in the middle of the tax filing season before they have even finalized them. Preparers are trying to work with the last-minute tax changes passed by Congress in mid-December, so coping with these new rules – if and when they are issued – will make it even more difficult to get things right.”

The AICPA also has asked the IRS to provide more flexibility to tax preparers on the e-file mandate (see Tax Preparers Hesitate on IRS E-file Mandate). The AICPA is urging that the IRS phase-in mandatory e-filing by practitioners over a three-year period, as recommended by the IRS Electronic Tax Administration Committee’s 2010 Annual Report to Congress, instead of the proposed two-year period.  The 2011 threshold for mandatory e-filing should be raised from 100 or more returns to 200 or more returns, according to the AICPA. Other areas of the proposed regulations for which the AICPA has recommendations to improve flexibility are undue hardship claim waivers, client opt-out rules and a longer period of time in which to correct errors with returns that are not initially accepted by the IRS’s computer systems because of technological issues.

NSA Federal Taxation Committee chair Paul Thompson told the IRS at the hearing that some taxpayers are still not comfortable with the Internet and do not want their returns e-filed. Many of these taxpayers are elderly but the regulations prohibit tax preparers from providing “any act or acts of assistance beyond providing filing or delivery instructions to the taxpayer.”

This language prevents the preparer from providing normal and usual services such as mailing the return or even providing an envelope, he noted. “It should be obvious that preparers provide stamped, pre-addressed envelopes and often mail the returns in order to ensure that the returns are: (1) filed on time and (2) are sent to the correct address,” the NSA wrote in its testimony. “It is unclear to us how this is not in the interest of good tax administration.”

While the IRS regulations provide for “hardship waivers” for tax preparers facing “an undue hardship that can be identified in advance,” the NSA pointed out that “asking preparers to submit hardship waivers for returns they prepare in the next few months will clearly disrupt the filing season and bring yet more uncertainty to an already chaotic situation.”

The NSA noted that many practitioners have had difficulty obtaining a Preparer Tax Identification Number as required by the IRS despite their best efforts, and many may also have to apply to become electronic return originators. “If these preparers also have cause to believe they qualify for an undue hardship waiver, waiting to hear from the IRS on this application will make the situation entirely untenable,” the NSA said.

For more on the many problems that tax preparers have been encountering with registering for a PTIN, the Journal of Accountancy has run an illuminating article on the hurdles faced  by CPA tax practitioners and their employees, many of whom have tried multiple times to register for a PTIN, only to encounter frustration.

“NSA wants to have a constructive partnership with the IRS to ensure the best possible tax administration,” Ams explained. “However, in order to provide both the IRS and tax return preparers the opportunity to conscientiously and fairly implement the e-file requirement and any exemptions thereto virtually requires a delay in the implementation of these regulations. NSA recommends the effective date be delayed until Jan. 1, 2012.”

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