Transcript IRS Corporate E-file

INTERNAL REVENUE SERVICE
MANDATORY CORPORATE
E-FILE PROGRAM
AMERICAN INSTITUTE OF
CERTIFIED PUBLIC ACCOUNTANTS
November 13, 2006
BACKGROUND
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On, January 11, 2005, IRS issued temporary regulations that require
corporations to electronically file (e-file) Forms 1120 and Form 1120S
for tax periods ending on or after December 31, 2005, using the new
IRS Modernized e-File system if they:
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Have total assets of $50 million or more for tax year 2005 returns;
File at least 250 returns during the calendar year, such as Forms W-2 and
other employment tax returns;
Were required to file the same type of corporate income tax return for the
preceding taxable year; and
Have been in existence for at least one year (one calendar year for 1120S)
prior to the due date (excluding extensions) of its corporate income tax
return.
Tax exempt organizations with total assets of $100 million or more
and file at least 250 returns per year are required to file Form 990
electronically for tax years ending on or after December 31, 2005.
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BACKGROUND
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For tax year 2006, the electronic filing requirement will be expanded to
include:
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Corporations and tax-exempt organizations with $10 million or more in total
assets that file 250 or more returns during the calendar year.
Private foundations and charitable trusts will be required to electronically file
Form 990-PF regardless of asset size for tax years ending on or after
December 31, 2006, if they file at least 250 returns.
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BACKGROUND
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Partnership Mandate:
− For tax year 2006 returns due in 2007, partnerships with over 100 partners
are required to e-file.
− The previous IRS 1065 (legacy) e-file program will be converted to an XMLbased format.
− For the 2006 tax year only, the IRS will accept partnership e-file returns
based on the older legacy e-file program or on the new XML-based format
(however, most e-file software vendors are expected to only support the
new XML format for purposes of 2006 returns).
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POWERPOINT OBJECTIVE
• While the electronic filing mandate applies to certain
exempt organizations and partnerships, this PowerPoint
will focus on the IRS e-file requirements relating to
corporations.
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REASONS FOR E-FILE MANDATE
• The administrative benefits of e-filing include:
- Faster tax processing at the IRS;
- Fewer return errors;
- Reduced cycle time;
- Quicker identification of emerging audit trends; and
- The potential for more current resolution of taxpayer
uncertainties.
• Succinctly, the e-filing of Forms 1120 and 1120S (including
the Schedule M-3 where required) will allow the Service to
more quickly and efficiently assess returns for compliance
risk.
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INITIAL ISSUES FOR
CONSIDERATION
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Form 7004 – Application for Automatic Extension of Time to File
Corporate Income Tax Return
- Corporations may consider electronically filing their extensions
to (1) proactively identify potential e-filing issues and (2) help
preparers get accustomed to the new process.
- If the Service rejects the electronic extension for processing, it
must be paper filed by the later of the due date of the return or 5
calendar days after the date the IRS gives notification the return is
rejected.
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Corporations and preparers should review state e-file requirements
carefully (if any). The corporation might be required to e-file its federal
return, but still find that it is necessary to file a paper return with the
state.
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GENERAL REQUIREMENTS
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The mandated e-file threshold for corporations is determined based on
total assets at the end of the tax year as reported on Schedule L of
Form 1120/1120S.
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The 250 federal return minimum includes income tax returns,
employment and excise tax returns and information returns, such as
Forms W-2, 1099, 940, and 941.
- Example: A corporation that has 245 employees must e-file its Form
1120 or 1120S, assuming the entity also meets the asset threshold test.
This corporation will be filing (i) 245 Forms W-2, (ii) each quarterly
Forms 941, and (iii) an annual Form 940, for a total of 250 returns.
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GENERAL REQUIREMENTS
Entity level at which the mandate criteria
thresholds are applied:
**
Mandate
Criteria:
If a member of a Sec.
1563(A) controlled
group:
If a consolidated
return is being filed:
If a single entity and
NOT a member of a
Sec. 1562(A)
controlled group:
250 Return count
threshold
Aggregated for the
controlled group.
Aggregated at the top
consolidation level or
controlled group level,
whichever applies.
Applied to the separate
entity (EIN level).
Total ending asset
threshold ($50
million).
Not aggregated.
Applied to each
separate entity (EIN
level).
Threshold applied on a
consolidated basis.
Applied to the separate
entity (EIN level).
Subject to the
mandate?
An entity is subject to the mandate only if BOTH criteria thresholds are met.
Please see the controlled group example scenarios provided by the IRS on their
Frequently Asked Questions web site.
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GENERAL REQUIREMENTS
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Consolidated returns:
- 250 return count threshold applied at top consolidation level or
controlled group level, whichever applies, and asset threshold is
applied on a consolidated basis.
- Subsidiary data is required to be included in the e-return in
“stacked” return format.
- The consolidated return can not be e-filed if the parent/top
consolidation return is a Form 1120-L or 1120-PC.
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GENERAL REQUIREMENTS
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IRS issued specific XML formats – taxpayers are generally required to
use for:
- All forms
- Most supporting data unless specified as PDF
by IRS rules.
- Elections
IRS requires entire return in one transmission file:
- If multiple software packages or other formats (Word, Excel, etc.) are
used for return preparation, all information must be merged into one
IRS transmission file.
Certain transition rules may apply. Refer to the Tax Year 200X
Directions for Corporations Required to e-File on the irs.gov website.
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Tax Year 2005 Directions
Tax Year 2006 Directions
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E-FILED RETURN RESPONSIBILITIES
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Taxpayer (corporation) – has overall responsibility for accuracy of return.
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Paid preparer – prepares/reviews the return. Signs e-signature form (8879-C/S
or 8453-C/S) as paid preparer.
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ERO (Electronic Return Originator) – (1) Electronically sends the return to a
transmitter who transmits the return to the IRS, or (2) directly transmits the
return to the IRS.
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An accounting firm may sign the e-signature form as both the paid preparer and
ERO. Alternatively, if the accounting firm is not performing the responsibilities of
the ERO, it may sign the e-signature form solely as the paid preparer.
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If the client prepares and e-files the return, the client acts as the ERO but does
not sign Form 8453-C/S as such (only signs the taxpayer signature section).
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Transmitter – The company that receives the return from the ERO, and
transmits the return to the IRS. The transmitter will usually be the software
provider, but may also be the tax practitioner or “large” taxpayer corporation if
their transmitter software has been certified by the IRS.
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E-FILE KEY DEFINITIONS
Term
Definition
Electronic Filing
Identification Number
(EFIN)
The 6-digit number assigned to each business authorized by the IRS to
participate in the federal e-filing program (i.e., Large Taxpayer, an ERO, a
Transmitter, etc.).
Electronic Transmitter
Identification Number
(ETIN)
The 5-digit number assigned to each business authorized by the IRS to
participate in the federal e-filing program as a transmitter or software
developer.
Extensive Markup
Language (XML)
The computer language used by the IRS for the structure and content of all
forms and schedules to be transmitted electronically.
XML Schema
XML document that defines the specific format in which all tax return
information (including forms, schedules, and attachments) must be submitted
electronically.
Binary Attachment
Non-XML documents that may be submitted with the electronic tax return in
PDF format.
XML File
Electronic copy of the tax return that should contain all data to be transmitted
to the IRS.
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E-FILE PROCESS
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Upon clearing all the diagnostics generated by the software’s internal
review, the ERO submits the electronic file via Internet to the
transmitter. Or, if the ERO uses “remote server” software, then the
ERO indicates to the transmitter that the return is ready for
transmission to the IRS.
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The transmitter date stamps the file received from the ERO. IRS will
honor this date, which is conceptually similar to a U.S. postmark. If
software does not support electronic postmarking, the transmittal date
applies.
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Transmitter transmits the return to the IRS. IRS notifies transmitter
whether the return was accepted or rejected.
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E-FILE PROCESS
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If the return has been rejected, IRS notifies the transmitter of the
rejection errors.
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Through the transmitter, the ERO generally checks the status of the
return; whether accepted or rejected for errors.
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The ERO clears any reject errors, re-creates the electronic return, and
submits the corrected e-return to the transmitter for transmission to the
IRS.
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E-FILE PROCESS
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Due date considerations:
- All prescribed due dates for filing paper tax returns apply to electronic
returns.
- The electronic portion of the return must be e-postmarked on or
before the due date, including extensions, to be considered timely.
- A return transmitted on or shortly before the due date that is rejected
must be re-transmitted and accepted within 20 (5 for Form 7004)
calendar days after the original transmission date. The clock does not
restart if rejected again after the extended due date and during this 20
day period. (Corporations and preparers should be aware that some
states may have established a shorter time frame for correcting a
return.) The 20 day perfection period is to cure reject errors—not to
correct/change numbers on the return. If the return numbers are
incorrect, an amended return should be filed.
The electronic return is not considered filed until it has been
acknowledged by the Service as accepted.
Recommendation: e-file early to allow time to work through any
potential rejection issues.
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WAIVER OF ELECTRONIC FILING REQUIREMENTS
• Review IRS Notice 2005-88, released November 2005.
• Waiver criteria: Technology constraints or undue financial
hardship.
• Waiver request must be in writing, stating:
- Steps taken and reasons why unsuccessful
- Declaration of undue hardships
- Steps to be taken to ensure future ability to e-file.
- Other details outlined in Notice.
• File request with Ogden Campus 45 days before return due
date. Have a plan B for case where the waiver request is
denied.
• Situations where waivers are generally granted for tax year
2005: (1) catastrophic events, (2) NOL/substituted returns, (3)
Chapter 7 bankruptcy, (4) final or last return filed.
• IRS has not and does not anticipate granting many waivers.
• See the IRS waiver guidance page on IRS.gov.
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ENGAGEMENT PLANNING FOR 2006 E-FILING
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Become familiar with the process for preparing returns under
the e-filing mandate; including any transition rules.
Analyze all forms, statements, and elections required for tax
year 2005 return.
Consider change in facts and circumstances that would
impact the tax return forms, statements, etc. required for tax
year 2006.
Determine required format (XML, PDF, paper) for each form,
statement, and election based on e-filing rules.
Gain an understanding of how your primary tax software is
going to support the e-file process.
Determine the additional time that will be necessary to
prepare each engagement including scheduling/staffing.
Consider outlining return preparation/review timeline with the
objective of accelerating the actual filing date.
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FUTURE TRENDS
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Expansion of electronic filing requirement.
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Amended tax returns accepted for 2006 tax year and forward.
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Form 1120 Federal/State program expansion.
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Inclusion of Form 1065 in the MeF platform. Form 1040 expected for
2009 tax year.
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Modification or elimination of transition rules.
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IRS goal is to collect all data prescribed by form instructions and
regulations in electronic XML format.
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RESOURCES
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Access the IRS e-file website at www.irs.gov
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“E-File for Large and Mid-Size Corporations” website can be found at:
http://www.irs.gov/businesses/corporations/article/0,,id=146959,00.html
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IRS Publication 4163, Modernized e-File Handbook (for all 1120 e-file returns).
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Taxpayers: IRS e-File for Large Taxpayers Filing their Own Corporate Income
Tax Return.
- e-Services Registration how to instructions can be found at:
http://www.irs.gov/pub/irs-schema/eservices_registration_process.pdf
- Taxpayer online application how-to instructions can be found at::
http://www.irs.gov/pub/irs-schema/eservices_efile_application_process.pdf
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Tax Practitioners: Publication 3112, IRS E-File application instructions (not for
taxpayers).
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List serve e-mail distribution process created to keep interested parties
informed. Sign up at:
http://www.irs.gov/businesses/content/0,,id=154842,00.html
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