Incremental Step-down to 250-return Electronic Threshold Is Coming!

On July 23, 2021, the Department of the Treasury and Internal Revenue Service published Proposed Rules for Electronic Filing Requirements for Specified Returns and Other Documents. Most important is the step-down of the 250-return electronic threshold from 250 to 100 form returns filed in calendar year 2022 and then from 100 to 10 form returns filed in 2023. For the full text, please see https://www.govinfo.gov/content/pkg/FR-2021-07-23/pdf/2021-15615.pdf.


Some of the key updates include:


  • Step-down of 250-return electronic threshold. Removes references to the 250-return threshold in the regulations and adds a new paragraph that reduces the electronic-filing threshold for information returns covered from 250 to 100, for returns required to be filed during calendar year 2022, and from 100 to 10, for returns required to be filed during calendar years after 2022.


  • Removal of non-aggregation rule. Removes the non-aggregation rule in the regulations, which provided that each type of information return covered was considered separately for purposes of determining whether a person meets the 250-return electronic-filing threshold. This meant that different types of information returns were not counted in the aggregate for purposes of determining whether a person is required to file a number of returns that equals or exceeds the 250-return electronic-filing threshold during the calendar year. The new rule would provide that any person required to file original information returns of any type must count all those returns together to determine whether the person meets or exceeds the electronic-filing threshold for the relevant calendar year. The proposed regulations DO NOT include Forms 8300 in this aggregation rule. No Form 8300 would be included in determining whether a person is required to file electronically.


  • If original filings are electronic then the corrections must be electronic. If persons are required to file original information returns electronically, then they must file any corresponding corrected information returns electronically. With respect to penalties for failure to file correct information returns, the rules will be updated to provide that a failure to file a corrected information return in the same manner as the corresponding original will be deemed a failure to correct the corresponding original information return.


  • Partnerships with more than 100 partners file their information returns electronically, regardless of the number of information returns being filed.


  • Partnership electronic-filing threshold reduced to 10 returns for any partnership. Further, all returns of any type, including partnership returns, excise-tax returns, employment-tax returns, and information returns (but not including schedules required to be attached to or included with a partnership return), are counted in the aggregate for purposes of determining whether a partnership of any size meets the electronic-filing threshold of 10 returns in a calendar year, and as such, it must file electronically.


  • Step down for corporate and S corporation income tax return thresholds. Removes references to the 250-return threshold for corporate income tax returns and reduce the electronic-filing threshold to 10, for returns required to be filed during calendar years after 2021. Further, Treasury and IRS intend to remove the $10 million rule, making the regulation applicable to all corporations regardless of reportable assets.


  • Withholding tax returns (Form 1042). Adds a new regulation that would require the filing of Form 1042 electronically, except for individuals, estates, or trusts. Otherwise, Forms 1042 must be filed electronically if they are required to file 10 or more returns of any type during the calendar year. Also, partnerships with more than 100 partners would have to file their Forms 1042 electronically regardless of the number of returns the partnership is required to file during the calendar year.


  • Chapter 4 financial institutions must file Form 1042 electronically without regard to the number of returns required to be filed during the calendar year.


  • Additional forms included in the electronic-filing threshold. Form 1097-BTC, 1098-C and 1098-Q, 1120-POL, 3921, 3922, 5300, 8300, Material Advisor Disclosure Statements, Split-Interest Trust Returns, Certain Excise Taxes under Chapters 41 and 42, Certain Organizations (Including Trusts) Required to File Unrelated Business Income Tax Returns, Deferred Vested Retirement Benefit, Information Required in Connection with Certain Plans of Deferred Compensation, Periodic Report of Actuary.


  • Penalties. Proposals to address Failure to File Correct Information Returns and remove all references to the 250-return threshold.


If these Proposed Rules impact you, be sure to comment in writing or electronically by September 21, 2021. Public hearing will be held by teleconference on September 22, 20221, at 10 am EST.


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