IRS Expands Mandatory E-Filing

On February 21, 2023, the Department of the Treasury and the Internal Revenue Service (IRS) issued final regulations amending the rules for filing returns and other documents electronically (“e-file”). These regulations will require certain filers to e-file beginning in 2024 for the 2023 calendar year.

This final regulation T.D. 9972 affects filers of partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain information returns, registration statements, disclosure statements, notifications, actuarial reports and certain excise tax returns. The final regulations reflect changes made by the Taxpayer First Act (TFA) to increase e-filing without undue hardship on taxpayers.

Specifically, the final regulations:

  • Reduce the 250-return threshold enacted in prior regulations to generally require electronic filing by filers of 10 or more returns in a calendar year. The final regulations also create several new regulations to require e-filing of certain returns and other documents not previously required to be e-filed. (As an example, an employer with 5 W-2s to file and 5 1095 forms to file must now e-file.)
  • Require filers to aggregate almost all information return types covered by the regulation to determine whether a filer meets the 10-return threshold and is required to e-file their information returns. Earlier regulations applied the 250-return threshold separately to each type of information return covered by the regulations.
  • Eliminate the e-filing exception for income tax returns of corporations that report total assets under $10 million at the end of their taxable year.

In recent years there has been tremendous growth in the availability of e-file services and the use of e-filing. In 2021, roughly 82% of all corporate income tax returns were e-filed, and almost 90% of partnership tax returns were e-filed. Further reducing the volume of paper returns filed frees up staff and resources to further enhance services for taxpayers and improves overall efficiencies while reducing postage, printing, shipping and storage and their associated costs and burdens.

The IRS receives nearly 4 billion information returns per year and expects to receive nearly 5 billion by 2028. In 2019, the IRS still received nearly 40 million paper information returns, even though approximately 99% of all information returns for that year were e-filed.

The final regulations generally provide hardship waivers for filers that would experience hardship in complying with the e-filing requirements and administrative exemptions from the e-filing requirements to promote effective and efficient tax administration.

For employers that have or may have filed their ACA reporting returns via paper (those with less than 250 forms), they will need to apply for the Affordable Care Act Application for a Transmitter Control Code (TCC) in order to use IRS Affordable Care Act Information Returns (AIR) system to e-file. Once an employer is approved and receives their TCC, they will be required to submit a test file to the IRS through the AIR system and have the file approved prior to submitting their actual 1095 & 1094 returns. This process can take weeks or even months; we recommend that employers seek assistance from vendors like BASIC with e-filing their forms.

At BASIC, our ACA Elevate service provides clients automatic access to e-filing with the IRS to ensure 100% compliance with the 6055 & 6056 reporting requirements. To learn more about how BASIC’s ACA solution can keep your organization compliant with the new regulations, request a proposal today!