Friday, June 1, 2018

Proposed Regs Update Rules For Electronically Filing Information Returns

&l;p&g;Under current regulations, persons who issue information returns&a;mdash;such as 1099s, W-2s, and the like&a;mdash;have to file those electronically if they issue more than 250 of those returns when counted on a form-by-form basis. However, newly proposed regulations seek to make the 250-threshold counted on an aggregate basis.


Section 6011 imposes the general obligation to make a return or statement in accordance to the forms and regulations of the Treasury Secretary. Section 6011(e), moreover, regards determining which returns must be filed electronically. That subsection further provides that the regulations shall not require a person to use magnetic media (that is, file electronically) unless that person is required to file at least 250 returns during the calendar year, and, when considering the obligation, the secretary should consider the costs of such requirement.

This rule is important for those that have to file information returns&a;mdash;such as forms in the 1099 series, Forms 1098-T, and Forms W-2, among others. Under current regulations&a;mdash;26 C.F.R. &a;sect; 301-6011-2&a;mdash;there is no aggregation of returns. As the regulation currently provides:

&l;/p&g;&l;blockquote&g;Each type of information return described in paragraphs (b)(1) and (2) of this section is considered a separate return for purposes of this paragraph (c)(1). Therefore, the 250&a;ndash;threshold applies separately to each type of form required to be filed.

26 C.F.R. &a;sect; 301.6011-2(c)(1)(iii).&l;/blockquote&g;

In other words, each type of information return is counted separately for the 250-threshold, i.e., on a form-by-form basis. For instance, example 1 provides:

&l;blockquote&g;For the calendar year ending December 31, 1998, Company X is required to file 200 returns on Form 1099&a;ndash;INT and 350 returns on Form 1099&a;ndash;MISC. Company X is not required to file Forms 1099&a;ndash;INT on magnetic media but is required to file Forms 1099&a;ndash;MISC on magnetic media.&l;/blockquote&g;

&l;img class=&q;dam-image shutterstock size-large wp-image-1100689988&q; src=&q;; data-height=&q;366&q; data-width=&q;960&q;&g; Shutterstock

However, newly published proposed regulations seek now to allow aggregation of return counting.

The proposed regulations add a new paragraph (4), which provides:

&l;blockquote&g;(4) Aggregation of returns. For purposes of determining whether the number of returns a person is required to file meets the 250-return threshold under paragraph (c)(1)(i) of this section, all types of returns covered by paragraphs (b)(1) and (2) of this section required to be filed during the calendar year are aggregated. Corrected returns are not taken into account in determining whether the 250-return threshold is met.&l;/blockquote&g;

Although corrected returns are not considered in the initial count, the proposed regulations provide that corrected returns must be filed electronically if the original return had to be filed electronically:

&l;blockquote&g;(5) Corrected returns. Any person required to file returns covered by paragraphs (b)(1) and (2) of this section on magnetic media for a calendar year must file corrected returns covered by paragraphs (b)(1) and (2) of this section for such calendar year on magnetic media.&l;/blockquote&g;

A new example illustrates the rules:

&l;blockquote&g;For the 2018 calendar year, Company W is required to file 200 Forms 1099-INT, &a;ldquo;Interest Income,&a;rdquo; and 200 Forms 1099-DIV, &a;ldquo;Dividends and Distributions,&a;rdquo; for a total of 400 returns. Because Company W is required to file 250 or more returns covered by paragraphs (b)(1) and (2) of this section for the calendar year, Company W must file all Forms 1099-INT and Forms 1099-DIV electronically.&l;/blockquote&g;

And, as applied to corrected returns:

&l;blockquote&g;For the 2018 calendar year, Company Y files 300 original Forms 1099-MISC, &a;ldquo;Miscellaneous Income.&a;rdquo; Later, Company Y files 70 corrected Forms 1099-MISC for the 2018 calendar year. Because Company Y is required to file 250 or more returns covered by paragraphs (b)(1) and (2) of this section for the calendar year, Company Y must file its original 300 Forms 1099-MISC, as well as its 70 corrected Forms 1099-MISC for the 2018 calendar year, electronically.&l;/blockquote&g;

The Service explained that, when originally enacted, electronic filing was not as prevalent and that the form-by-form count was to reduce the cost on taxpayers given then-existing technology. However, due to advances in technology and that electronic filing is now less costly and easier than paper filing, those concerns are now mitigated, and aggregation is no longer necessary.

The full proposed regulations are available &l;a href=&q;; target=&q;_blank&q;&g;here&l;/a&g;.

The proposal provides that the the new rules will not apply to information returns that are required to be filed before January 1, 2019. Comments are due by July 30, 2018.

&l;span&g;The above is only a summary of some of the provisions. Consequently, I encourage you to consult the proposed regulations in their entirety.&a;nbsp;&l;/span&g;