IRS Proposed Rules Would Require More Entities to File Information Returns Electronically | Practical Law

IRS Proposed Rules Would Require More Entities to File Information Returns Electronically | Practical Law

The Internal Revenue Service (IRS) has issued proposed regulations that would remove a non-aggregation rule used to determine whether reporting entities must file certain information returns, including forms required under the Affordable Care Act (ACA) reporting rules, electronically.

IRS Proposed Rules Would Require More Entities to File Information Returns Electronically

by Practical Law Employee Benefits & Executive Compensation
Published on 31 May 2018 • USA (National/Federal)
The Internal Revenue Service (IRS) has issued proposed regulations that would remove a non-aggregation rule used to determine whether reporting entities must file certain information returns, including forms required under the Affordable Care Act (ACA) reporting rules, electronically.
The IRS has issued proposed regulations that would change the rules for determining whether employers and other reporting entities must file certain information returns, including forms required under the ACA's reporting rules, electronically (83 Fed. Reg. 24948 (May 31, 2018)).
In general, employers need not file specified information returns electronically unless they must file 250 or more of the returns electronically during the year. Under existing rules, this 250-return threshold applies separately to each type of information return and each type of corrected information return filed. The various types of forms are not aggregated in determining whether the 250-return threshold is met. For example, if a reporting entity must file 100 Forms 1095-C and 500 Forms 1095-B, it:
  • Need not file Forms 1095-C electronically.
  • Must file Forms 1095-B electronically.
The proposed regulations would modify this form-by-form calculation method by requiring:
  • Aggregation of all information returns required under the "magnetic media" regulations (26 C.F.R. § 301.6011-2(b)) in calculating the 250-return threshold.
  • That corrected information returns must be filed electronically if the original returns were filed electronically (that is, even if fewer than 250 corrected information returns must be filed).
As a result, if an employer must file a total of 250 or more information returns of any type covered by the magnetic media rules for a year, the returns would need to be filed electronically. However, corrected information returns would not be counted with original returns in determining whether the 250-return threshold is met. If fewer than 250 returns must be filed for a year, neither the original returns nor the corrected returns for the year would need to be filed electronically.

Information Returns Subject to the Magnetic Media/Electronic Filing Requirement

The proposed regulations would apply to all information returns covered under the IRS's magnetic media regulations, which include:
(26 C.F.R. § 301.6011-2(b).)

Reasons for Removing the Non-Aggregation Rule

According to the IRS, the form-by-form (non-aggregation) method was implemented:
  • During the early stages of electronic filing.
  • Before third-party service providers and tax return preparers that offer electronic filing of information returns were as prevalent as they are now.
Since the early stages of electronic filing, the IRS believes that technological advances have reduced the cost and burden of electronic filing relative to paper filing.

Effective and Applicability Dates

The proposed regulations' effective date will be the date they are published as final in the Federal Register. However, the proposed regulations would not apply to information returns required to be filed before January 1, 2019. They would apply to information returns that must be filed after December 31, 2018. The delayed applicability date is intended to give reporting entities time to comply with the proposed regulations.

Practical Impact

Although the IRS acknowledged that its proposed regulations would impact a substantial number of small entities, the regulations would not change existing rules allowing entities who must file returns electronically to request a waiver of the electronic filing requirement. As a result, a waiver would continue to be an option for entities that lack either:
  • The necessary data-processing capabilities for electronic filing.
  • Access to third-party service providers or return preparers at a reasonable cost.