Press Release



Shirley Twillman

AICPA Urges IRS to Provide More Flexibility for Mandatory E-Filing of Returns by Tax Preparers 

Published January 04, 2011

The American Institute of Certified Public Accountants has submitted a comment letter to the Internal Revenue Service urging more flexibility in implementing mandatory e-filing of tax returns by tax preparers in 2011 for individuals, trusts, and estates.


The AICPA noted that the IRS may be unable to issue final guidance for mandatory e-filing of these returns until sometime after the filing season begins.  The AICPA specifically recommended that the IRS raise the threshold for mandatory e-filing by tax preparers from the proposed 100 or more returns to 200 or more returns for 2011.  The AICPA said it supports the three-year phase-in recommended by the IRS’s Electronic Tax Administration Advisory Committee in the panel’s 2010 Annual Report to Congress.  The IRS has proposed a two-year phase-in, with the statutory e-file mandate threshold of 11 or more returns being effective in 2012.


To reduce the burden on taxpayers, the AICPA suggested changes to the proposed regulations governing waivers for undue hardship and client opt-outs.  For example, the AICPA said requiring taxpayers, who opt-out of having their returns e-filed by the tax preparer, to mail their own paper returns would be burdensome, especially for some elderly or disabled taxpayers.


Finally, the AICPA urged the IRS to allow 10 days, instead of 5 days, for correcting errors with returns that are not initially accepted by the system because of technological issues.  The AICPA said when the IRS implemented mandatory e-filing for corporate returns 20 days were allowed to make corrections and that IRS has since reduced the number of days to 10 for corporate returns. 


A copy of the AICPA comment letter is pasted below.


If you would like to speak to someone about the letter, please contact Shirley Twillman, AICPA senior manager of media relations, at 202.434.9220 or stwillman@aicpa.org.

January 3, 2011


The Honorable Douglas H. Shulman

Commissioner of Internal Revenue

CC:PA:LPD:PR (REG-100194-10)

Room 5205

P.O. Box 7604

Ben Franklin Station

Washington, DC  20044


RE:          Comments on REG-100194-10 and Notice 2010-85, Involving Specified Tax Return Preparers Required to File Individual Income Tax Returns Using Magnetic Media


Dear Commissioner Shulman:


The American Institute of Certified Public Accountants is pleased to provide comments on: (1) REG-100194-10, Specified Tax Return Preparers Required to File Individual Income Tax Returns Using Magnetic Media; (2) Notice 2010-85, Undue Hardship Waiver of the Section 6011(e)(3) Electronic Filing Requirement and Taxpayer Choice Statements to File in Paper Format; (3) Form 8944, Preparer e-file Hardship Waiver Request; and (4) draft Form 8948, Preparer Explanation for Not Filing Electronically.  We recognize the benefits of the electronic filing (“e-file” or “e-filing”) of tax returns to taxpayers, tax return preparers, and the Internal Revenue Service (“IRS” or “Service”).  These benefits include (among others) faster refunds, fewer errors on returns due to the elimination of manual preparation and processing of returns, acknowledgment of receipt of the return, and more efficient and expeditious IRS examinations.  However, we have a number of comments we believe will reduce burden on taxpayers and make the new tax return preparer mandate for the e-filing of individual, trust, and estate returns more efficient.


The AICPA is the national professional organization of certified public accountants with nearly 370,000 members.  Our members advise clients on federal, state, and international tax matters and prepare income and other tax returns for millions of Americans.  They provide services to individuals, not-for-profit organizations, and small and medium-sized businesses, as well as America’s largest businesses.


Our comments on REG-100194-10 and Notice 2010-85 (as found below) address our views on:  (1) the threshold for returns filed by a specified tax return preparer; (2) waivers for undue hardship; (3) client opt-outs from the e-file mandate (including draft Form 8948); and (4) the need for a 10-day perfection period for the individual e-file mandate.




The Threshold For Returns Filed by a Specified Tax Return Preparer


Section 6011(e)(3)(A) of the Internal Revenue Code requires any tax return preparer to electronically file the individual income tax returns he or she prepares if the preparer is considered a “specified tax return preparer” for the calendar year in which the returns are filed.  However, section 6011(e)(3)(B) states that if the preparer “reasonably expects to file 10 or fewer individual income tax returns” during such calendar year, that preparer is not considered a “specified tax return preparer” and thus, is not required to e-file.  The term “individual income tax returns” is defined under section 6011(e)(3)(C) to mean individual, estate, and trust returns.


The AICPA is supportive of the IRS’s efforts to reduce the burden on preparers, as otherwise imposed by section 6011(e)(3), by phasing in the e-file mandate on preparers over a two year period.  Nevertheless, we do note and support the IRS’s Electronic Tax Administration Advisory Committee (ETAAC) 2010 Annual Report to Congress which calls for a longer phase-in; specifically a three year phase-in of the mandate.  Under Prop. Treas. Reg. § 301.6011-6(a)(3), the Service has effectively set the e-file mandate threshold for filing season 2011 at 100 or more returns; with the statutory e-file mandate threshold of 11 or more returns being made effective starting with filing season 2012.           


The public has been provided one month in which to submit comments on REG-100194-10 and Notice 2010-85, guidance which was released publicly on December 1, 2010.  Public comments must be submitted to the IRS by January 3, 2011, followed up with a public hearing scheduled for January 7, 2011.  We are anticipating that the IRS will need time to issue final e-file regulations or a final revenue procedure; resulting in the issuance of final guidance sometime after the filing season begins.  For this reason, we recommend that the IRS show significant flexibility in the administration of the statutory e-file mandate or any regulations released thereunder for purposes of the 2011 filing season. Specifically, we suggest that the IRS substantially raise the threshold that triggers the requirement for a preparer or a preparer’s firm to e-file individual tax returns during the 2011 filing season, to a level of 200 or more returns.[1] 


We also view Internal Revenue Code section 6011(e)(2) as an appropriate example or reference for establishing a higher threshold for the preparer e-file mandate, for purposes of the 2011 filing season.  This Code section generally prohibits the IRS from imposing an electronic filing mandate on taxpayers if the taxpayer does not file at least 250 federal returns during the calendar year.  For example, the IRS requires certain large corporations, partnerships, tax-exempt organizations (including private foundations), and charitable trusts to electronically file the entity’s tax return if that entity also files at least 250 returns during the calendar year.


We have heard from some CPAs who have experienced a very high e-file rejection rate for trust returns during prior filing seasons due to various technical reasons, problems which our members do not believe have been resolved going into the 2011 filing season.  We mention this and the other issues described above to demonstrate why the IRS should show substantial flexibility in implementation of the preparer e-file mandate during the upcoming filing season.  As the ETAAC 2010 report so rightly suggests, IRS “enforcement” efforts during the first part of the mandate phase should principally be focused on education and collaboration with tax return preparers.


Waiver for Undue Hardship


Under Prop. Treas. Reg. § 301.6601(c)(1), the IRS is authorized to grant a waiver from the requirement to e-file individual returns in the case of undue hardship.  The waiver would be granted upon application by the specified tax return preparer “consistent with instructions provided in published guidance and as prescribed in relevant forms and instructions.”


The IRS’s recently released Form 8944, Preparer e-file Hardship Waiver Request, provides several very specific grounds for requesting an undue hardship waiver; that is, hardship due to bankruptcy, economic circumstances, location in a Presidential disaster area, and a broad undefined “other” category. (See form, line 8.)  A review of lines 9 and 10 of the form strongly suggest that the Service intends to grant hardship waivers only under very limited circumstances.  Line 9 states that the IRS wants the preparer to submit two cost estimates prepared by third parties if the preparer is claiming hardship based on the economic cost of additional hardware, software, connectivity, or other services related to e-filing tax returns.  Under line 10, the preparer is required to provide an explanation and documentation to establish the direct impact that a Presidential declared disaster or other event has on the preparer’s ability to e-file returns. 


The ability of a tax return preparer to determine eligibility for a waiver is severely limited because the preparer only has draft regulations and a draft revenue procedure (in the form of Notice 2010-85) on which to rely.  The instructions for Form 8944 generally state that “hardship waiver requests must be submitted between December 2010 and April 1, 2011.”  In addition, the impacted tax return preparers might not receive a response from the Service about their waiver request until well into the filing season, not leaving affected preparers much time to adjust their office procedures should the IRS deny the waiver request. 


In this context, we urge the IRS (consistent with our suggestion in the immediately preceding section involving the e-file threshold) to provide significant flexibility and leniency to specified tax return preparers for calendar year 2011 should a preparer find it necessary to request an undue hardship waiver.


Notice 2010-85 and Form 8944 do not provide answers to a number of questions raised with regard to requesting an undue hardship waiver.  These questions (among others) include:

·         What is the actual impact on a tax return preparer or the preparer’s firm should the IRS deny the waiver request?

·         Would penalties be imposed on the preparer for not e-filing tax returns up to the point of receiving the IRS’s denial of the waiver request?

·         Is there a grace period for preparers (from the requirement to e-file tax returns) while the waiver request is under review by the Service?

·         Once denied, does the preparer have a grace period (from the e-file requirement) to get his office procedures and systems in place in order to begin e-filing returns?


Moreover, we urge the IRS to expand the specific “reasons” or grounds listed under Form 8944, line 8 regarding why a preparer is requesting a hardship waiver from the e-file mandate.  For example, unlike the current requirements specified on Form 8944 for disaster areas, we believe all tax return preparers operating in a Presidentially-declared disaster area should be granted an automatic waiver from electronic filing.  Other events in which we believe an automatic waiver should be granted include occurrences involving events beyond the control of the specified tax return preparer, such as the death or disability of a significant member of the firm.  


Client Opt-Outs from the E-File Mandate (Including Draft Form 8948)


We have concerns about the language in Prop. Treas. Reg. § 301.6011-6(a)(4)(ii) involving the requirements that:  (1) the taxpayer (not the preparer) must submit the paper return to the IRS; and (2) the specified tax return preparer must obtain a dated written statement from the taxpayer (or both spouses, if a joint return) that the taxpayer chooses to file the return in a paper format. 


First, the AICPA questions the relative benefits--to federal tax administration--of the rule contained in the proposed regulations prohibiting tax return preparers from mailing a paper tax return on behalf of the taxpayer to the IRS.  We believe there are circumstances where some taxpayers who choose to file a paper return will find it difficult to meet their filing obligations unless the tax return preparer mails the return for them.  In many cases, having the tax return preparer mail the paper return for the client who opts-out of e-filing provides more certainty that the return will be delivered timely to the IRS, as opposed to the taxpayer inadvertently misplacing or forgetting to mail the return.


In fact, there are circumstances when a tax return preparer should mail a tax return to the Service on the client’s behalf.  One of our CPA members raised the example of a 101 year-old client bound to a wheel chair.  Because of these circumstances, the client requires that the CPA deliver the return to her home and then mail it for her.  If Prop. Treas. Reg. § 301-6011-6(a)(4)(ii) is finalized as proposed, the CPA would be required to leave the paper return with the client at her home, forcing her to find another way to have it timely mailed to the IRS.  Because we are confident there are other similar situations where the taxpayer and the tax system benefit from having the preparer mail the paper return for the client who wishes to file a paper return, we strongly urge removal of the prohibition on preparers’ mailing tax returns on behalf of clients as a condition of a client opting-out of the preparer e-file mandate.  CPAs help facilitate the administration of the tax system and service their clients in ways that help prevent the late filing or non-filing of returns; the proposed rules should not be a barrier to such facilitation.


Second, we do not support the requirement under the proposed regulations that both spouses must sign a written statement as a condition for permitting the preparer to provide them with a joint tax return in printed form.  We do not believe this requirement is good public policy; particularly if one spouse is unavailable, or both spouses are undergoing a divorce or cannot agree on whether their joint return should be e-filed by the preparer.  In effect, if both spouses are not in agreement, this rule would require that their joint tax return must be e-filed--even though one spouse objects to e-filing.  It should be sufficient to get the written consent of one spouse that the joint return should be produced in a paper format.


While we recognize that section 9.04 of the proposed revenue procedure (as contained in Notice 2010-85) provides specific language for use in the written statement signed by the taxpayer(s), we urge the IRS to permit the use of client emails (in lieu of requiring a formal written statement) as validation that the client does not want his or her tax return e-filed by the preparer.  As a condition of the acceptance of client emails, we support a requirement of contemporaneous documentation by the preparer to the client’s file of this action by the client.  In fact, Prop. Treas. Reg. § 301.6011-6(a)(4)(ii) already provides the IRS with the leeway to grant such relief with respect to client emails; specifically, the language states that the IRS may provide guidance (through forms, instructions or other appropriate guidance) “regarding how preparers can document taxpayer choices to file individual income tax returns in paper format.”


Regarding the new draft Form 8948, Preparer Explanation for Not Filing Electronically, we have the following comments:


·         Line 1--We reiterate our comment above that requiring both spouses to approve filing of a paper return essentially requires the other spouse to e-file even if he or she does not wish to.

·         Line 2--The phrasing is confusing and could be interpreted to refer to the fact that the preparer received a waiver form from the taxpayer, rather than the fact that the preparer received a hardship waiver.  We suggest consideration of language like the following:  “The IRS granted the preparer an undue hardship waiver from the e-file requirements.”

·         Line 4--It is unclear how information on the number of attempts to e-file is relevant to the fact that the preparer was unable to e-file the return.  Therefore, we suggest that the question regarding the number of attempts be removed.

·         Instructions for Line 5--The IRS should consider specifically identifying the Form 990-T as a form that cannot be e-filed here.


Need for a 10-Day Perfection Period for the Individual E-File Mandate


Because of issues that could arise with technology, the IRS e-file systems allow perfection of the e-file submission if the initial submission was made on or before the return due date, the IRS could not accept the return in its systems (i.e. the submitter received a “rejection” of the return from the IRS), and the submitter resolved the issue to successfully e-file the return to the IRS (i.e., the return was “accepted”) within a prescribed perfection period.  When mandatory e-filing began for corporate returns, the perfection period was 20 days.  The IRS has since reduced the perfection period for business returns to 10 days based on research that confirms that most business returns that are rejected are successfully e-filed within 10 days after the rejection.  The current perfection period for individual returns is a mere 5 days. 


We strongly urge the IRS to institute a 10-day perfection period for the individual return e-file mandate consistent with the terms and conditions of the 10-day transmission perfection period available for business returns filed under MeF.  The 10-day period should be established regardless if the mandated return is filed under the original electronic filing system that is still available for individual returns (referred to as “Legacy”) or the modernized electronic filing system that is used for business returns and that is being deployed in stages for individual returns (“MeF”).  The reasons a 10 day perfection period should be used are as follows: 


·         Fairness:  The individual return e-file mandate is bringing into the e-file system a significant number of preparers who have never e-filed.  In many cases, these preparers focus solely on individual or trust returns and were not impacted by previous business e-file mandates.  Further, returns for certain individuals and trusts can be as complex and large as some business returns.  Whether preparers are using MeF or Legacy e-file, they are likely to encounter difficulties when e-filing this first year, including but not limited to understanding how fields should be completed and how to resolve rejection codes.  This is exactly the scenario that occurred when the corporate e-file mandate began and at that time the IRS instituted a 20-day perfection period, now changed to a 10-day perfection period.  The IRS should provide no less than this same 10-day perfection period for mandated 706/1040/1041 federal returns, especially in light of the fact that many estate/individual/fiduciary return preparers lack federal e-file experience.

·         Consistency:  Preparers who are currently familiar with the corporate and partnership federal e-file mandates will likely consult with staff (who have never e-filed) to assist in meeting the new estate/individual/fiduciary e-file mandate.  These corporate and partnership preparers will be accustomed to a 10-day perfection period for e-filing business returns.  We are concerned that potential confusion regarding the different perfection periods could result in missing the perfection period deadline.

·         Experience with MeF, not Legacy:  Many firms use MeF to e-file business returns.  However, this experience will not translate to the Legacy system which will be required to be used for the complicated individual tax returns that may be filed by firms.  Although some within these firms have used Legacy, the vast majority of e-file experience is with the MeF system.  A large percentage of firm preparers and staff will be required to learn new processes, rejection codes, etc. in order to e-file on Legacy.  There will be a need for a longer 10-day perfection period to facilitate this learning process.

·         IRS Risk Management: The volume of complex and large estate, individual and trust returns will be unprecedented in the Legacy system.  Given that this is uncharted territory for the IRS, a 10-day perfection period at the beginning will allow IRS to work out any unanticipated issues that may occur.


*    *    *    *    *


Thank you for considering our views on this very important topic.  If you have any questions regarding this letter, please feel free to contact me at (401) 699-0206, or patt@pgco.com; Danny Snow, Chair of the IRS Practice and Procedures Committee at (901) 685-5575, or dsnow@tdplc.com; or Benson S. Goldstein, AICPA Senior Technical Manager, at (202) 434-9279, or bgoldstein@aicpa.org.



 Patricia A. Thompson

Chair, Tax Executive Committee


cc:  Ms. Deborah Butler, Associate Chief Counsel (Procedure and Administration)                                   

Mr. Keith L. Brau, Office of Associate Chief Counsel (Procedure and Administration)

[1] When initially implementing a preparer e-file mandate, a number of states set the threshold for triggering the preparer mandate at 200 returns or more for at least the initial filing season after the mandate took effect; e.g., Michigan, New Jersey, New York, and Virginia.




© 2017 Association of International Certified Professional Accountants. All rights reserved.