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Original corporate e-file mandate.

Last year, taxpayers with assets of $50 million or more that filed Form 1120 or 1120S, and also filed 250 "other" returns, were required to e-file their corporate income tax forms. (The 250 "other" returns include income, excise and employment taxes, and information returns such as Forms W-2 and 1099.) Taxpayers covered by the mandate used Modernized E-File (MeF), a new IRS filing program, which requires all taxpayers to submit their return data via a single extensible-markup-language (XML)-based electronic transmission.

Many taxpayers found it a challenge to change from traditional return preparation processes to the new e-filing environment. Corporate tax return preparation has always involved retrieving data from multiple sources and systems within a company. Assembling the actual return usually entailed melding data from several separate systems, some derived from return preparation software and some delivered on spreadsheets, Word documents or third-party transaction documents.

The new IRS system requires that all return data (regardless of source) be translated into XML format. Taxpayers may have to modify their internal work processes to ensure that data from their international operations, asset management systems or investment portfolios correctly finds its way into their chosen return preparation software.

Phase one successful: The first phase of the Service's corporate electronic mandate was deemed a success. Over 500,000 Forms 1120 and 1120S were processed by the MeF system Last year, with mandated returns accounting for 14,000 of the total. Much of the initial success can be traced to the IRS's active engagement of affected taxpayers, return preparers, software vendors and practitioner groups. The AICPA's IRS Practice & Procedures Committee met regularly with major software vendors and senior Service personnel to identify and address potential problems, leading to a series of transition options that removed obstacles to the e-filing program. Among the most important options were those allowing certain forms to be filed as .pdf documents rather than XML; provided paper or .pdf alternatives for key international forms (Forms 5471, Information Return of U.S. Persons With Respect To Certain Foreign Corporations; 5472, Information Return of a 25% Foreign-Owned U.S. Corporation or a Foreign Corporation Engaged in a U.S. Trade or Business; 5713, International Boycott Report; 8858, Information Return of U.S. Persons With Respect to Foreign Disregarded Entities; and 8865, Return of U.S. Persons With Respect to Certain Foreign Partnerships; and their associated schedules); and authorized summary-level data for certain high-volume transactional forms.

Because of some first-year system limits, the IRS also agreed that certain fact patterns would result in a waiver; some corporate forms (Forms 1120-F, U.S. Income Tax Return of a Foreign Corporation; 1120-FSC, U.S. Income Tax Return of a Foreign Sales Corporation; 1120-RIC, U.S. Income Tax Return for Regulated Investment Companies; and 1120-REIT, U.S. Income Tax Return for Real Estate Investment Trusts) were excluded from e-filing.

FROM MICHAEL P. DOLAN, DIRECTOR, IRS POLICIES & DISPUTE RESOLUTION, KPMG LLP, WASHINGTON, DC
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Title Annotation:Tax Practice & Procedures
Author:Dolan, Michael P.
Publication:The Tax Adviser
Date:Apr 1, 2007
Words:485
Previous Article:New requirements for business filers' 2006 returns.
Next Article:2006 return requirements.


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