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New York State electronic filing mandates.

In Chapter 61 of the Laws of 2005, the New York State legislature authorized the Department of Taxation and Finance (DTF) to require certain tax return preparers to electronically file all tax returns required under Tax Law Article 22. While Article 22 includes personal income tax returns, fiduciary income tax returns, withholding tax returns, and partnership returns [including limited liability company (LLC) filing fee returns], the DTF initially mandated that only personal income tax returns be e-filed. For tax year 2007 returns filed in calendar year 2008, any tax return preparer who handled more than 100 original tax year 2006 personal income tax returns in calendar year 2007 and used software to prepare at least one personal income tax return in calendar year 2008 was required to e-file all tax year 2007 personal income tax returns and extensions in calendar year 2008, unless the taxpayer opted out using Form TR-800-IT or TR-800-PT. A separate TR-800 form is required for each return (one for the extension and one for the tax return). Under this Article 22 mandate, there is no requirement that taxpayers who e-file also make their payments electronically.

For tax year 2008 returns filed in calendar year 2009, under the Article 22 mandate, the DTF is adding partnership returns and partnership extensions (Forms IT-204, IT-204-LL, and IT-370-PF) to the list of personal income tax returns and extensions that must be e-filed, unless the taxpayer opts out. Under this new requirement, any tax return preparer who prepares more than 100 combined tax year 2007 personal income tax returns and partnership returns in calendar year 2008, and uses software to prepare at least one personal income tax return or partnership return in calendar year 2008, must e-file all tax year 2008 personal income tax returns, partnership returns (including IT-204-LL), and extensions in calendar year 2009, unless the taxpayer opts out. Failure to comply with this Article 22 mandate will subject the preparer to a penalty of $50 for each return that was not e-filed. The DTF will, however, accept paper extensions with no balance due.

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Tax return preparers who are required to e-file in 2009 must continue to e-file all authorized tax returns in future years.

Example 1

In 2008, a tax return preparer prepares only New York State tax year 2007 returns for 80 individuals and 20 partnerships.

For each of the 80 individuals, the preparer has filed one individual personal income tax return (Form IT-201 or IT-203), for a total of 80. For each of the 20 partnerships, the preparer has filed one partnership return (Form IT-204), for a total of 20. As a result, this professional has filed 100 original returns as defined by the Article 22 mandate. The threshold requires more than 100 original returns to be filed for mandate purposes.

Under the Article 22 mandate, this preparer is not required to e-file either the 2008 individual personal income tax returns and extensions or the 2008 partnership returns and partnership extensions because she has not filed more than 100 original individual and partnership tax returns in calendar year 2008.

Example 2

In calendar year 2008, a tax return preparer prepares only New York State tax year 2007 returns for 80 individuals and 20 LLCs treated as partnerships. For each of the 80 individuals, the practitioner has filed one individual income tax return (Form IT-201 or IT-203), for a total of 80. For each of the 20 LLCs, the practitioner has filed one partnership return (Form IT-204) and one LLC filing fee return (Form IT-204-LL), for a total of 40. This totals 120 original returns as defined by the Article 22 mandate. This preparer is required to e-file the tax year 2008 individual personal income tax returns, the tax year 2008 partnership returns, and the tax year 2008 LLC filing fee returns, because he filed more than 100 original returns in 2007 as defined by the Article 22 mandate.

In Chapter 57 of the Laws of 2008 (the 2008--2009 Budget Act), the New York State legislature authorized the DTF to require certain tax return preparers to e-file all authorized tax documents and to e-pay any amounts due with those tax documents. Any e-payment that is required under this new mandate must be made through the federal/state e-file partnership, using the preparer's tax software. For tax year 2008 tax documents filed in calendar year 2009, the DTF is mandating that any tax return preparer who prepared more than 100 original tax year 2007 corporate tax documents during calendar year 2008 under Tax Law Article 9-A [general business corporations (Form CT-3) and S corporations Form CT-3-S], and uses software to prepare at least one Article 9-A tax document in calendar year 2009, must e-file all 2008 Forms CT-3 and CT-3-S, as well as any extensions, and e-pay any balance due on those returns and extensions, unless the taxpayer opts out of e-filing using Form TR-800-CT. A separate TR-800-CT form is required for each tax document. To determine if 100 original tax documents were prepared in 2007, the return preparer must count all the tax documents that were filed in 2007.

Unlike the Article 22 mandate, under which only the tax returns (Forms IT-150, IT-201, IT-203, IT-204, and IT-204-LL) are counted, under Chapter 57 of the Laws of 2008, each individual tax document must be counted in order to calculate the total number of original tax documents filed, even tax documents for prior periods filed during 2007, so long as they are required or permitted to be filed in that year. For the purposes of this 2008 mandate, the term "tax documents" means all Article 9-A tax documents filed, including, but not limited to, Forms CT-3, CT-4, CT-3-S, CT-5, CT-5.4, CT-6, and CT-400 (each voucher counts as a tax document). While the estimated tax payment vouchers are counted in determining whether the preparer is required to e-file and e-pay, the extensions are not to be e-filed or e-paid.

Similar to the Article 22 mandate, tax return preparers who are required to e-file in 2009 must continue to do so in future years. Failure to comply with the e-file portion of the 2008 mandate will subject the preparer to a penalty of $50 for each tax document that was not e-filed. In addition, failure to comply with the e-pay portion of the 2008 mandate will subject the preparer to a penalty of $50 for each payment that was not e-paid.

Example 3

In calendar year 2008, a tax return preparer prepares only tax year 2007 returns for 20 New York State S corporations. All of the corporations have a franchise tax in excess of $1,000 and are required to pay estimated tax (Form CT-400). Each corporation files for an automatic extension and pays the mandatory first installment with the extension request and three quarterly Forms CT-400. For each of the 20 S corporations, the practitioner has filed one request for an automatic extension (Form CT-5.4), one S corporation franchise tax return (Form CT-3-S), and three quarterly estimate vouchers (Form CT-400). This comes to a total of 100 tax documents.

This practitioner is not required to e-file the franchise tax returns because she has not prepared more than 100 original tax documents in calendar year 2008, as required by Chapter 57 of the Laws of 2008.

Example 4

In calendar year 2008, a tax preparer prepares only tax year 2007 returns for 20 New York State C corporations that do business in the Metropolitan Commuter Transportation District. All of the corporations have a franchise tax in excess of $1,000 and are required to pay estimated tax (Form CT-400). All of the corporations file for an automatic extension and all pay the mandatory first installment with the extension request and three quarterly Forms CT-400.

For each of the 20 C corporations, the practitioner has filed one request for an automatic extension (Form CT-5), one C corporation franchise tax return (Form CT-3), one MTA surcharge return (Form CT3M/4M), and three quarterly estimate vouchers (Form CT-400). This comes to a total of 120 tax documents.

This preparer is required to e-file all authorized tax documents starting in calendar year 2009 because he has filed more than 100 original tax documents in 2007, as defined by the 2008 mandate.

In addition, under Chapter 57 of the Laws of 2008, if any authorized tax document is e-filed, any tax due with that document must be paid electronically.

Increased Responsibilities for Preparers

While these e-filing and e-payment mandates increase accuracy and expedite the Tax Department's processing of the mandated e-filed documents, they place an additional burden on the tax return preparer who must now obtain the taxpayer's signature on one of the forms in the TR-579 series, and track the e-filed return to ensure that it is accepted. If the e-filed return is rejected, the tax return preparer must interpret the rejection code and correct the problem within the grace period. In addition, the preparer now has the responsibility of making certain that the correct bank account and routing numbers are listed on the return.

With this additional work and responsibility, tax return preparers will likely pass along the extra costs of processing these returns to their clients.

Mark H. Levin, CPA, is the tax manager at Anchin, Block & Anchin LLP, New York, N.Y. He is a member and past chair of the NYSSCPA's New York, Multistate and Local Taxation Committee, and a member of The CPA Journal Editorial Board.
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Title Annotation:state & local taxation
Author:Levin, Mark H.
Publication:The CPA Journal
Date:Feb 1, 2009
Words:1580
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