TEI, IRS work to make corporate e-filing more administrable.

Tax Executives Institute has raised concerns about the efficacy and the administrability of the Internal Revenue Service's corporate e-filing mandate since the IRS issued its mandate in mid-January. In liaison meetings, written comments, public testimony, and at the Institute's Midyear Conference, TEI has raised questions about the recent initiative to require certain large taxpayers to electronically file their 2005 income returns. (The temporary and proposed regulations were the subject of written and oral comments by the Institute in March.) TEI has also 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.

For example, in April, TEI met with IRS representatives to discuss what forms and attachments could be submitted in an Adobe Acrobat format and other potential ways of complying with the mandate. R. Don Blaicher of ExxonMobil Corporation, Frederick R. Holt of American Financial Group, Inc., and William J. Marx of General Motors Corporation, together with Eli J. Dicker, Mary Lou Fahey, and Jeffery P. Rasmussen of TEI's legal staff, explored the difficulties of requiring text data to be typed in a vendor's software and merging information from several sources into one XML file. TEI added that merging information from foreign affiliates into one file may present its own unique issues because many taxpayers keep such international data in a spreadsheet format. The Institute representatives stressed the lack of a software "aggregator" to merge the various sections of the return into one file--a problem that could prevent taxpayers using two forms of software from complying with the mandate.

Addressing concerns about verifying that an electronic return has been validly filed, the IRS stated at the April meeting that a "check sum" approach that would confirm the amount of data filed is under consideration.

At the request of the IRS, TEI subsequently submitted a list of 18 forms that are currently required to be filed separately from the return, such as the Form 5471 (Information Return of U.S. Person with respect to Certain Foreign Corporations), Form 8832 (Entity Classification Election), and Form 8886 (Reportable Transaction Disclosure Statement). The IRS is exploring whether these forms must be submitted electronically (perhaps as an attachment to the return in a .PDF format) or may be filed solely on paper. One problem facing the use of attachments is the capacity of the IRS's systems to accept the files. An engineering study is underway to address this issue.

The Institute has also provided informal comments on a 33-page draft of instructions for taxpayers that want to electronically file their own tax returns, rather than use an approved vendor. The plain-English publication will be available on the IRS website soon.

In teleconferences held in May and June, the IRS noted that it is exploring whether "partial" or "automatic" waivers may be feasible under the regulations, i.e., whether some aspects of the return may be filed on paper and the remainder electronically. Waivers based on economic hardship--similar to those offered in the partnership context--are a possibility, although the IRS has cautioned that this option may be available only to smaller taxpayers. Special circumstances involving taxpayers undergoing significant mergers or acquisitions are also under review. Meetings with Chief Counsel to formulate the waivers are in process, and the use of a Notice format to expedite the issuance of the new rules is under consideration. Several taxpayers have volunteered to test the system by efiling their 2004 tax return.

Additional meetings with the IRS and software providers have been scheduled for July.

TEI's written comments on the proposed regulations were reprinted in the March-April issue of The Tax Executive.