E-filing mandate for 10+ info returns explained

In 2019, the IRS received close to 4 billion informational returns, with nearly 40 million paper informational returns filed. In 2021, there were proposed regulations to implement statutory changes made by the Taxpayer First Act of 2019 to establish lower thresholds for mandatory electronic filing.

On Feb. 21, 2023, the IRS released final regulations (T.D. 9972) requiring organizations to electronically file specified returns and other documents. In general, an organization filing 10 or more returns or statements in a calendar year will be required to file electronically in 2024 (the previous threshold amount was 250). These rules affect those who file partnership returns, corporate income tax returns, unrelated business income tax returns, withholding tax returns, certain informational returns, registration statements, disclosure statements, notifications, actuarial reports, and certain excise returns. The 10-return threshold does not make electronic filing mandatory for employment tax returns such as Form 940, Employer’s Annual Federal Unemployment (FUTA) Tax Return, and Form 941, Employer’s Quarterly Federal Tax Return. Filers must aggregate almost all return types covered by the final regulation to determine whether the filer meets the 10-return threshold.

The earlier regulations did not have such a strict mandatory e-filing threshold. The superseded 250-return threshold only applied to each type of informational return. For example, under the prior rule, 200 Form 1120s, U.S. Corporation Income Tax Returns, and 200 Form 1099s were not required to be electronically filed since each of those types of returns did not exceed the 250-return threshold amount. But with the new aggregation rule, the number of Form 1120s and 1099s would be combined to see whether the threshold is met. The new regulations require filers to aggregate across all return types.

In addition, if a person is required to file original informational returns electronically and subsequently has to amend and/or correct the returns, the person must submit the correction electronically. The exception is if the IRS does not support electronic filing of a particular return.

Failure to comply with electronic filing rules can trigger penalties under IRC Section 6721 when electronic filing is required. The potential penalty for tax year 2022 is up to $290 per W-2, up to an annual maximum of $3,532,500. For businesses with annual gross receipts of less than $5 million, the maximum is $1,117,500. Penalty amounts are indexed and increase on an annual basis.

For those who might experience hardship in complying with the e-file requirements, hardship waivers may be available by filing Form 8508, Request for Waiver from Filing Informational Returns Electronically. However, the IRS recently created an on line portal to be used for tax year 2022 and beyond called “Information Returns Intake System” (IRIS), a free service that lets you file Forms 1099-MISC, 1099-NEC, 1099-INT, 1099-DIV; file corrected Forms 1099; and electronically file those forms directly with the IRS. The IRS is making it easier for taxpayers to comply with these new changes as electronic filing is the most secure way to ensure that returns are filed accurately and timely.