With the Internal Revenue Service transitioning out of its Filing Information Returns Electronically, or FIRE, system and into its new Information Returns Intake System next year, tax practitioners need to check with their vendors to make sure they're ready for the changeover. But they should also see what is happening with their respective state governments too.
Wendy Walker, vice president of regulatory affairs for indirect taxation solutions provider Sovos, noted that state governments, which often rely on the IRS for information, have been formatting their returns for the FIRE system since the 1980s, when it first launched. With that system set to retire next year, they will need to rework their systems to be compatible with the new API-based IRIS.
Walker said that, for the past two years, the IRS has been accommodating the states by converting data coming into the IRIS system back into FIRE format so the state tax authorities can still read it. But this will stop once FIRE formally sunsets for the 2026 tax year.
Walker has been polling state governments periodically about their plan for the changeover, and has found that few are ready for this. Basically Maine, Montana and Oregon are completely ready right now. The rest? Not so much. Many state governments won't be prepared to make the switch when the old system shuts down and so will need to come up with unique solutions. She said this is already happening with certain forms that can only be filed through the new system, like the 1099-DA for digital assets.
"What we see already is they require Excels, CSVs. One state this year for the 1099-DA, they wanted us to send them paper forms. Another state wanted us to take a 1099 layout in FIRE and try and put 1099-DA elements in it just to get over this hump," she said.
She estimated that it will be a "bumpy road for the next several years" because of this.
"That is why, for business, to not just say, 'Are you moving to IRIS?' but also 'Are you covering state reporting?' They need to know they have a provider going to the states," she said.
