Accountants' Group Urges IRS to Delay E-Filing Requirement Effective Date

The National Society of Accountants ("NSA") is pleased to submit comments on the proposed regulations implementing Section 6011(e)(3) of the Internal Revenue Code (the "Code"), which requires tax preparers, in general, to electronically file individual income tax returns. As you may know, NSA is a voluntary association of certified public accountants, enrolled agents, licensed public accountants, tax practitioners who are licensed by state agencies, and accountants and tax practitioners who hold credentials from a nationally recognized credentialing body. NSA and its affiliated state organizations represent approximately 30,000 practitioners who provide accounting, advisory and tax related services to more than 19 million individuals and small businesses. In short, NSA represents accountants and tax professionals who serve Main Street rather than Wall Street.

NSA has reviewed the proposed regulations and generally agrees with the provisions, primarily because the great majority of NSA members already e-file returns and encourage their clients to allow their returns to be e-filed. Our members have long believed that the e-filing of tax returns benefits taxpayers, the IRS and tax preparers by reducing errors, increasing the efficiency of return filing, and speeding up the receipt of refunds by taxpayers. This has helped both the IRS and the tax return preparer community to provide better customer service. In short, NSA's members are strong proponents of e-filing and do so whenever possible.

However, there are circumstances when e-filing is not possible, practical or in line with the wishes of the taxpayer. Accordingly, we have questions and concerns with respect to some provisions in the proposed regulations and with respect to implementation and offer the following comments:

1. Definition of "Specified Tax Return Preparer"

§ 6011(e)(3) of the Code introduces a new term, "specified tax return preparer." This term is intended to apply to those individuals who, on an annual basis, prepare and file a minimum number of returns. We note there is no distinction made in the Code with respect to whether the preparer is compensated. Rather, the focus of the Code section and the stated Congressional policy is to require e-filing if a minimum number of returns are prepared and filed by a preparer. As a consequence, we believe there is no basis for imputing the "paid preparer" definition of § 7701(a)(36) into the proposed regulations. NSA therefore requests that § 301.6011-6(a)(3) of the proposed regulations defining "specified tax return preparer" be amended to delete the phrase "as defined in section 7701(a)(36) and § 301.7701-15." As redrafted, the proposed regulation would then apply to anyone who prepares and files individual income tax returns.

Some may argue this would create two definitions of tax return preparer. With all respect, § 6011(e)(3) has already taken us down that road by introducing the new "specified" preparer term. In any event, the proposed regulations already define file or filed "For purposes of section 6011(e)(3) and these regulations only . . ." We recommend the addition of similar language to § 301.6011-6(a)(3) to ensure that non-compensated preparers are considered tax return preparers only for the purpose of the e-file requirement.

2. Definition of "File or Filed"

NSA is deeply troubled by the language in the proposed regulation that the term "filed" "includes any act or acts of assistance beyond providing filing or delivery instructions to the taxpayer." We believe this language is overbroad and does not recognize the common business practices of tax return preparers.

NSA members strongly encourage their clients to e-file for the obvious benefits we have stated. Nevertheless, there are some clients for whom preparers will mail a paper return if the client does not want to e-file. For example:

• Some clients are elderly and frail; preparers will usually visit them at their homes (or at the nursing home) to go over the return and get signatures, then take the return to the post office.

• Many preparers have clients who live in rural areas where the nearest Post Office is twenty or more miles away. It is not safe to mail returns from an unlocked home delivery box or a rural mailbox. Because some returns cannot be e-filed, preparers usually go to the Post Office every day during the filing season but our clients do not. For this reason, in these parts of the country it is the normal practice for preparers to mail the return. This is also in keeping with common courtesy in rural areas, which includes dropping off/picking up mail or doing other such errands for neighbors when one is going into town.

• Many preparers have long mailed all returns going to the same address together in one mailer, with tracking and confirming capabilities, using mailing labels printed in their offices. This is efficient and does not require anyone to wait in a line. By contrast, many Post Offices in rural areas have limited hours during which they are open and, as a result, the wait for even the most basic services can be quite lengthy. Again, it is most efficient -- and best for tax administration -- for the preparer to perform this service.

It is unclear whether providing a pre-addressed envelope for these and other taxpayers is a prohibited act because it is "beyond providing filing or delivery instructions to the taxpayer." If it is not a prohibited act, would the answer be different if the preparer provided a stamped pre-addressed envelope?

It should be obvious that preparers provide stamped, pre-addressed envelopes and often mail the returns in order to ensure that the returns are: (1) filed on time and (2) are sent to the correct address. It is unclear to us how this is not in the interest of good tax administration, especially when, given a choice, the preparer would strongly prefer to e-file. Commissioner Shulman has often commented that he is seeking ways to "leverage" the work of preparers to benefit the tax system. Yet, the current language in this proposed regulation would preclude preparers from doing so.

3. Undue Hardship Waivers

As we know, many practitioners have had difficulty obtaining a PTIN despite their best efforts and the efforts of the IRS. Some are still waiting though they began the process in October. With respect to preparers who have tried but been unable to obtain a PTIN, if these preparers also have to apply to become electronic return originators, it is likely they will not be able to prepare any returns until February. If, however, these preparers also have cause to believe they qualify for an undue hardship waiver, waiting to hear from the IRS on this application will make the situation entirely untenable.

The IRS has apparently also taken note of the time limitations of tax preparers during the filing season and has proposed that tax preparers submit hardship waiver requests beginning on October 1 beginning in 2011. In other words, more than three full months before tax filing season. By contrast, anyone with a current hardship will have no cushion before the filing season. This is unreasonable and especially so if the tax preparer also has to attempt to obtain a PTIN and become an Electronic Return Originator.

Accordingly, and especially in light of the PTIN registration requirement already under way, NSA strongly recommends that IRS delay the effective date until next filing season, January 1, 2012. This will allow all tax preparers to obtain a PTIN, become EROs, and learn of this new e-file requirement. This will also allow sufficient time for tax preparers to submit, and the IRS to process, hardship request waivers prior to the beginning of filing season.

4. Administrative Exemptions

Tax preparers will be unable to estimate how many returns they reasonably expect to file until the IRS provides further guidance about the various returns, schedules or scenarios for which it will provide an administrative exemption.

Further, providing guidance after requiring preparers to make this determination is simply unfair. We have seen the effect of such after-the-fact guidance in the implementation of the PTIN requirement. The preparers of payroll tax returns were told they would be required to obtain a PTIN and were strongly encouraged to do so as soon as possible. It was only in the last days of November -- after many such preparers had paid to obtain a PTIN -- that the IRS posted an FAQ stating a PTIN would not be necessary for them. Now they have paid for a PTIN that most will never need. Implementing the e-flle requirement with such haste increases the possibility of a similar, unfair result.

In order to provide both the IRS and tax return preparers the opportunity to conscientiously and fairly implement the e-flle requirement and any exemptions thereto virtually requires a delay in the implementation of these regulations. Again, NSA recommends the effective date be delayed until January 1, 2012.

Thank you for the opportunity to comment. We look forward to partnering with the IRS to ensure the smooth implementation of the proposed regulation and ask that you contact us to provide clarification or an explanation of any of the foregoing recommendations.