IRS Asked to Phase in Preparer E-file Requirements

An outside advisory committee recommended that the Internal Revenue Service follow a three-year phase-in approach to implementing a new requirement for tax preparers to electronically file individual tax returns.

In its annual report to Congress, the Electronic Tax Administration Advisory Committee said the IRS should phase in new preparer e-file requirements over a three-year period based on the firm’s prior-year filing volume as measured through the preceding filing season. The committee said that would “enable small-business tax practices to embrace electronic filing as part of their business model.”

The committee also recommended that taxpayers get the right to opt out of having their Form 1040 returns electronically filed. In “compelling cases,” firms would also have the ability to apply for a “hardship waiver” under “certain limited circumstances.”

The 13-member committee also recommended that the IRS focus the early stages of its enforcement efforts on educating and collaborating with preparers on implementing the e-file requirement.

Other recommendations in the ETAAC report called for continuing the funding and completion of the modernization of IRS systems, as well as further collaboration between the IRS and industry regarding tax software standards and the implementation of the return preparer regulations.

The report noted that the IRS has already formed an ETAAC Software Subcommittee to obtain industry and state input regarding the electronic tax preparation and filing industry. In addition, as recommended by the Government Accountability Office, the IRS began a software risk assessment last year that focuses on the security, privacy, accuracy and reliability of commercial software and related electronic filing systems.

The report also recommends improving IRS online services to preparers to help them serve taxpayers better. One area of focus should be the IRS’s current professional “e‐Services” suite, which the report said was “quite dated.” The committee said the IRS’s online services need to be “revitalized,” especially given the increased load they will be under as the IRS registers hundreds of thousands of new preparers and requires them to become electronic return originators.

The report also recommended extending IRS online services that are currently available only to preparers to taxpayers as well.

“Innovative advances with technology and the Internet have already enabled third-party tax-related data — such as W‐2s and 1099s — to be available from primary sources for instant download into tax software today directly from their original sources,” said the report. “On the other hand, an authorized preparer has online access via IRS to a taxpayer’s prior-year tax information, while taxpayers themselves do not have similar access.”

ETAAC recommended that taxpayers should have online access to their prior-year tax information. In addition, if a debt indicator is provided in connection with a return, then the IRS should also provide explanatory information about the nature of the refund offset.

Public comments on the report can be sent to etaac@irs.gov.