IRS to grant only limited e-filing waivers: non-support from software vendors won't qualify.

In recent weeks, the Internal Revenue Service has begun posting to its website (www.irs.gov) information on the general areas in which waivers from the mandatory e-filing requirements will be granted. Based on the postings to date, waivers will be granted in only very narrow circumstances and, perhaps more important, the failure of a taxpayer's software to support e-filing will not qualify as grounds for a waiver. Specifically, the IRS states:

The Service will generally not approve a request to waive the electronic filing requirement if the software purchased or licensed by a taxpayer or a return preparer does not include all of the features necessary to comply with the Modernized e-File requirements set forth in IRS regulations, revenue procedures, publications, and other instructions posted to the irs.gov website.

To date, the IRS has identified only three areas in which general waivers will be granted:

* Substituted Return Process. If a taxpayer has a business need to file a subsequent corporate income tax return for the same tax period prior to the extended due date of the return, the taxpayer should request a waiver. If the waiver is approved, the taxpayer will file the first return on paper and then the substituted (subsequent) return electronically.

* Bankruptcy--Chapter 7. The taxpayer, otherwise required to e-file, has filed a petition with the bankruptcy court under Chapter 7 of the Bankruptcy Act.

* Final or Last Required Return. The taxpayer, otherwise required to e-file, will be filing their Final return, or last return they are required to file, during 2006.

To date, few waiver requests have been granted.

According to TEI President Michael P. Boyle, the Institute remains committed to working with the IRS to address administrative issues, but remains concerned that the resources of taxpayers and software vendors to meet the requirements may be overtaxed. "Taxpayers cannot change vendors at the flick of a switch," he stated. "Substantial lead time is needed to install and test the software. Regrettably, the IRS's actions to date suggest that it does not fully appreciate this fact of corporate life."

Since the mandate was issued in January 2005, TEI has worked with the IRS to overcome the challenges and narrow the differences between what the IRS has mandated, what vendors can deliver, and what taxpayers should be required to do. At a March 21 meeting of the joint TEI-IRS Forms and Attachments Task Group,

TEI learned that additional guidance will address waivers in the case of disasters and new entities. Also in the works is guidance on the interaction of the mandate with the contemporaneous documentation requirements under section 482.

The IRS also clarified that the statement in Notice 2005-88 encouraging taxpayers to file waiver requests at least 45 days before the due date of the return, including extensions, is not intended to impose a mandatory requirement, but is only a suggestion. The IRS also noted that as of March 21, no company from the Fortune 1000 has efiled its return.

One outgrowth of the Task Group meeting is an agreement from the IRS to accelerate consideration of the e-filing requirements for the 2006 tax year. The group will meet May 3-4 in Washington, D.C., to begin discussions.

The TEI members on the joint task group includes R. Don Blaicher of ExxonMobil Corporation; Frederick R. Holt of American Financial Group, Inc.; William J. Marx of General Motors Corporation; and Roni Robinson of Halliburton Corporation, with TEI staff support being provided by Eli J. Dicker, Mary Lou Fahey, and Jeffery P. Rasmussen. For regular updates on TEI's e-filing activities, please check www.tei.org.