Legislation to reform the IRS could make changes for the filing of tax returns and statements if enacted later this year. The bipartisan legislation aims to make numerous reforms to the IRS that would enhance taxpayer services and identify protections. It would also change:
- e-filing requirements for all taxpayers,
- allow identity protection PINs for all individuals, and
- increase the penalty for failing to file a return.
e-Filing of Returns
The IRS generally may require efiling only for persons filing more than 250 returns in a calendar year. There are a few exceptions. For example, a tax return preparer who expects to file more than 10 individual income tax returns in a year must file the returns electronically. Also, partnerships with more than 100 partners must file all returns electronically. The efiling threshold for partnerships with 100 or fewer partners, however, is reduced over the next few years.
The IRS reform legislation proposes to reduce the 250 return threshold for all persons to 10 or more returns. The requirement would be phased in, and efiling would be required if the person files at least:
- 250 returns for calendar years before 2021,
- 100 returns for calendar year 2021, and
- 10 returns for calendar years after 2021.
Waiver of New Requirement Would be Available
The legislation allows the IRS to waive the requirement for a tax return preparer who is located in a geographic location with limited or no internet access. The threshold for partnerships with 100 or fewer partners filing electronically remains unchanged before 2022. Partnerships with 100 or fewer partners must file electronically if they are required to file at least 150 returns for 2019, 100 returns for 2020, 50 returns for 2021, and 20 returns after 2021.
e-Filing by Tax-Exempts
Only the largest and smallest tax-exempt organizations are currently required to file their annual information returns (series Form 990) electronically. This includes
- organizations that have assets of $10 million or more, and file at least 250 returns during the calendar year;
- private foundations and charitable trusts that file at least 250 returns during the calendar year; and
- organizations that have annual gross receipts of less than $50,000 and file Form 990-N.
The IRS reform legislation extends the efiling requirement to all tax-exempt organizations that file returns or statements regardless of amount of assets, gross receipts, or number of returns to be filed. The information provided on the forms must also be made available to the public as soon as practicable.
Identity Protection PINs
To help prevent the filing of fraudulent federal returns, the legislation would require the IRS to create a program to allow individuals to request an identity protection personal identification number (IP PIN). The IP PIN would confirm a taxpayer’s identity on tax returns. Any individual residing in the United States can request an IP PIN.
Some taxpayers may not have to request an IP PIN. The IRS may issue an IP PIN to eligible taxpayers who are residents of states that had the highest rates of identity theft. The IRS may also send out letters inviting individuals to ‘opt-in’ to using a IP PIN.
Electronic Signatures for Disclosures
Under the proposed legislation, the IRS must publish uniform standards and procedures for accepting electronic signatures on requests for disclosure of taxpayer information to a tax practitioner. Returns and return information are confidential and cannot be disclosed to third parties. However, the IRS provides several forms a taxpayer can use to authorize third parties to access its information.
These consents for disclosure to a practitioner must be signed and dated by the taxpayer. Examples of consent disclosures include:
- Form 8821 (inspect of return information),
- Form 4506-T (inspect transcripts), and
- Form 2848 (power of attorney).
The proposed legislation would require the IRS to publish the guidance on electronic signatures for consent disclosure forms within 6 months.
Penalty for Failure to File Returns
A taxpayer is generally subject to a penalty for failing to file a tax return by the required due date, including extensions. The penalty ranges from 5% to 25% of the amount required to be shown on the return.
If an income tax return is more than 60 days late, a minimum penalty is imposed equal to the lesser of $210 for 2018 or 100% of the amount of tax required to be shown on the return. The minimum penalty is $215 for 2019.
The proposed legislation would increase the minimum penalty to $330 for returns filed after 2019. The dollar amount would then be adjusted for inflation for returns required to be filed after 2020.
By John Buchanan, JD, LLM