The Internal Revenue Service has been hearing a lot of concerns about its new requirements for tax preparers to electronically file tax returns.
Hearings are being held Friday on IRS guidance on the e-file mandate under proposed REG-100194-10 and Notice 2010-85.
The American Institute of CPAs has urged flexibility in implementing the mandate, encouraging the IRS to raise the threshold for mandatory e-filing by tax preparers from the proposed 100 or more returns to 200 or more returns for 2011.
To reduce the burden on taxpayers, the AICPA also suggests changes to the proposed regulations governing waivers for undue hardship and client opt-outs. Requiring taxpayers who opt out to mail their own paper returns could be burdensome, especially for some elderly or disabled taxpayers.
In its comment letter, the AICPA said it supports the efforts by the IRS to reduce the burden on preparers by phasing in the e-file mandate over a two-year period, although it noted that the IRS’s Electronic Tax Administration Advisory Committee called for a longer phase-in of three years in its 2010 annual report.
“We are anticipating that the IRS will need time to issue final e-file regulations or a final revenue procedure, resulting in the issuance of final guidance sometime after the filing season begins. For this reason, we recommend that the IRS show significant flexibility in the administration of the statutory e-file mandate or any regulations released thereunder for purposes of the 2011 filing season,” the AICPA stated.
“We stress flexibility in administration because of the late release of the regulations and the fact that they are only proposed at this point,” said AICPA senior technical manager Benson Goldstein. “The fact that the regulations won’t be final until the middle of the filing season, and that they will be retroactive to January 1, is a significant issue for tax preparers. If raising the threshold is one way of increasing flexibility, then that’s good.”
Goldstein said the Institute also has concerns about the “opt out” provision, which requires the taxpayer, not the preparer, to submit the paper return to the IRS.
“If they want to promote the prompt filing of returns, they shouldn’t get into the issue of who mails in the return,” he said. “We raised the example of a 101-year-old client in a wheelchair. The client wants the CPA to deliver the return to her home and then mail it for her. Under the proposed regulation, the CPA would be required to leave the return for her to mail. We ask for the removal of the prohibition on preparers’ mailing tax returns on behalf of clients as a condition of a client opting out of preparer e-file.”
A review of recently-released Form 8944, Preparer e-file Hardship Waiver Request, suggests that the “Service intends to grant hardship waivers only under very limited circumstances,” the AICPA stated. Therefore, the AICPA asked the IRS to be lenient toward return preparers for the 2011 filing season for preparers who find it necessary to request an undue hardship waiver.
And due to possible technology issues that might arise, IRS e-file systems allow “perfection” of the e-file submission if the initial submission was made on or before the return due date. While the perfection period for business returns is 10 days, the current perfection period for individual returns is only five days. The AICPA asked the IRS to institute a 10-day perfection period for individual returns.
The way the guidance is written, it is unclear how the mandate will be enforced, according to Goldstein.
“We just don’t know how they will enforce it,” he said. “It may be administered in tandem with the PTIN regulations, but we don’t know if penalties will or will not be imposed. It’s difficult for the preparer to make a decision in a vacuum based on proposed regulations at the beginning of a tax season. That’s why we’re urging flexibility in administration, especially in the first filing season under the regulations.”
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