CPA Seeks Clarifying Language in Opt Out Provisions of Proposed Regs on E-Filing Requirements

I have looked at the proposed regulations (REG-100194-10) that would impact the electronic filing mandate by adding Treasury Reg. § 301.6011-6 and have the following comments on that proposal.

Under § 6011(e)(3)(A) a return prepared by a preparer must be filed on magnetic media if two tests are met. First, the return is filed by the preparer (§ 6011(e)(3)(A)(i)) and that preparer is a specified tax return preparer (§ 6011(e)(3)(A)(ii)).

The proposed regulations definition of filed found at Proposed Reg. § 301.6011-6(a)(4)(i) creates two categories of filing. The first is if the return is electronically filed by the preparer. The second category is for returns in non-electronic form if the return is submitted by the preparer. Submission is defined to include "direct or indirect transmission, sending, mailing or otherwise delivering of the paper tax return to the IRS by the preparer, any member, employee, or agent of the preparer, or any member, employee, or agent of the preparer's firm, and includes any act or acts of assistance beyond providing filing or delivery instructions to the taxpayer."

The wording adopted would suggest that if a preparer creates a paper Form 1040 with all attachments and hands that to his/her client along with mailing instructions, that the return was not filed by the preparer. If a return is not filed by the preparer then the first prong of the two pronged test at § 6011(e)(3)(A)(i) would not be met and the return would be exempted from the electronic filing requirements of § 6011(e)(3). If, in fact, the indirect assistance that is contemplated in this definition would include the fact pattern noted above, I believe that needs to be clarified.

If that interpretation does not need clarification, then it would appear that the requirements at Reg. § 301.6011-6(a)(4)(ii) are not needed, for if a preparer meets the mandate contained in the proposed written document then the return wasn't filed by him/her in the first place, thus there would be no need to exclude it from the filing definition.

Since "submit" is defined as being effectively equivalant to "file" in the definition at § 301.6011-6(a)(4)(i), all that would be necessary to avoid the requirement for electronic filing under § 6011(e)(3)(A) would be for the taxpayer to submit the return -- that is, mail a paper copy received from the preparer with only instructions for filing attached.

Similarly, the definition as written would seem to penalize preparers that had previously participated in the e-file program, since the returns that the preparer e-files will count towards the 100/10 return limitation to come under the mandate. I don't believe it is consistent with the intent of Congress in adding this provision to impose mandates only on preparers already participating in e-file.

The definition also will make enforcement more difficult, since the IRS could not determine which preparers are covered by the mandate via information the IRS has. The IRS has no information for a paper filed return regarding who actually "submitted" the return when it is delivered to the IRS via the U.S. Postal Service.

A more workable solution would appear to be to define filed as a return which the preparer prepared for compensation and which was submitted to the taxpayer when the preparer reasonably believed the taxpayer would submit the return to the IRS or when the preparer actually submits that return. In that case, the exception at Proposed Reg. § 301.6011-6(a)(4)(ii) would now become viable, though it may make sense to clarify that such returns will still be counted as part of the 100/10 return test for being covered by the program.

Thank you for your consideration of these comments