Filing Requirements Summary A summary of the filing requirements for various types of business.

Electronic Tax Filing

Temporary Regulations issued January 11, 2005 and Final Regulations announced in TD 9363 require corporations with $10 million or more in total assets and that file 250 or more returns a year to electronically file their Form 1120 or 1120S.

The IRS revealed in 2005 that it had spent over three years on the design and development of its new corporate e-file system which is often referred to as Modernized e-File (MeF). A stakeholder group comprised of tax professionals and software vendors worked closely with IRS during all phases of design, development and implementation of MeF to ensure the needs of corporations were understood.

MeF is a web-based system that allows electronic filing of corporate income tax returns through the Internet. MeF uses the widely accepted Extensible Markup Language (XML) format, which is a industry standard way of identifying, storing and transmitting data instead of the proprietary data transmission formats used by older e-file programs.

The 1120/1120S e-file program was launched in February 2004.

The IRS lists the benefits of MeF as follows:

• More Explicit Error Conditions - New error code explanations pinpoint the location of the error in the return and provide complete information in the Acknowledgement File.
• Faster acknowledgements - Transmissions are processed upon receipt and acknowledgments are returned in near real-time. No more waiting for once or twice daily system processing cycles.
• Integrated Payment Option - Owe Taxes? - You can e-file a balance due return and, at the same time, authorize an electronic funds withdrawal from your bank account. Payments are subject to limitations of the Federal Tax Deposit rules.

The process for e-filing is as follows:

• After the preparation of a tax return is complete and signed by the appropriate Corporate Officer, tax preparation software, which has been approved by IRS for electronic filing, will provide the necessary instructions to “originate” the electronic submission of the return and authorize the filing of the return via IRS e-file. During this process the electronic return data is converted into the format defined by IRS for electronic filing.
• IRS Authorized e-file Providers or Large Taxpayers may choose to transmit direct to IRS or use a third party transmitter. Transmitters may use the internet to transmit electronic return data to the IRS Modernized e-File (MeF) system.

A critical part of the MeF design was the IRS decision to use an XML format for transmitting electronic return data. The XML format ensures the electronic return data transmitted to IRS meets all required specifications and allows MeF systems to process and view the electronic return data.

In May, 2006, the IRS announced that General Electric Corp. had filed the largest electronic tax return in the nation's history, an event that was hailed by the then IRS chief Mark W. Everson as a "major milestone" in the agency's corporate e-file program.

According to the IRS, GE's 237 megabyte filing on May 18, 2006, was acknowledged by the agency in about an hour. The same return in the old paper format would have left agency staff wading through approximately 24,000 pages of data.

“Having GE file electronically shows the program is working,” commented IRS Commissioner Mark W. Everson. “Having the largest tax return is a major milestone for the corporate e-file program. I appreciate GE’s work to get this done," he added.

“For GE, digitization is a strategic priority,” noted John Samuels, VP and Senior Tax Counsel for the company, who praised the IRS for allocating resources "around the clock, seven days a week" to help GE complete its e-tax return.

"Recent changes announced by the IRS to simplify reporting requirements and reduce impediments to e-filing are more steps in the right direction. We look forward to state and local jurisdictions implementing e-filing to reduce the burden and cost of tax return compliance," Mr Samuels stated.

The IRS says that e-filing enables faster, more accurate processing and quicker interactions between the IRS and taxpayers, and it is expected to reduce by millions of pages the paper sent to the IRS and stored there.

Also in 2006 the IRS announced new regulatory revisions that would reduce the reporting burden on corporations and shareholders while also simplifying electronic tax return filing. “This is a win-win situation for businesses, shareholders and the IRS,” observed Mark Everson.

“Businesses and shareholders will be relieved of excessive reporting obligations that really no longer made sense while the IRS will still receive the information it needs for compliance. As a bonus, a number of roadblocks to IRS e-file also will be removed," he added.

The changes applied to more than 20 regulations involving corporate and shareholder reporting requirements. A number of the revisions apply to rules governing corporate transactions, such as transfers to a corporation, mergers, spin-offs or liquidations.

For example, Internal Revenue Code Section 351 covers transfers of property to corporations. The code section applies not only to transfers of property to large multi-national corporations but also to transfers of property to small corporations, such as those formed when a partnership or sole proprietorship opts to become a corporation.

The regulations for Section 351 imposed reporting requirements on anyone who owned a share of a company involved in a Section 351 transfer and on the company itself. Those reporting requirements involved 18 information items from shareholders and 20 information items from corporations.

The revised regulations limit the Section 351 reporting requirement to only those stockholders who own either 5 percent or more of a public company or 1 percent or more of a privately held company – drastically reducing the number of stockholders who must file a report.

Also, the revised regulations reduce the reportable information to four items: the name and employer identification of the company; the date of the asset transfer; the fair market value and basis of the assets transferred; and the date of any IRS private letter ruling.

The revised regulations also eliminate several requirements for taxpayers to provide their signatures, allowing more taxpayers to file their returns electronically.

In April 2007, the Internal Revenue Service reminded taxpayers that the Modernized e-File platform allows partnerships to electronically file Form 1065, US Return of Partnership Income, and Form 1065-B, US Return of Income of Electing Large Partnerships. Partnerships can also submit their request for extensions through Modernized e-File.

Previously, using an older IRS system known as Partnership e-File, partnerships could electronically file Form 1065, but not Form 1065-B. Modernized e-File supports the filing of both and improves the e-file experience for taxpayers and practitioners.

Also in April 2007, the Internal Revenue Service revealed that more than one million business taxpayers had electronically filed tax returns so far that year. Corporate e-filed returns increased by nearly 50% over the same period last year.

Corporations with assets of $10 million or more that file at least 250 returns (including W-2’s, 1099’s and others) are now included in the mandate to e-file.

The deadline for most corporate filers that year was March 15, 2007. On the day of the deadline, IRS systems successfully processed more than 200,000 business returns, of which more than 50,000 were returns of corporations. Over 400,000 corporate taxpayers had e-filed their returns at that point. Corporate returns can be thousands of pages.

More than 4,700 of the nation’s largest corporations — those with at least $50 million in assets — filed electronic returns by the due date. Nearly 6,400 of the newly mandated smaller corporations did so.

“As we did last year when we initiated the program, this year we worked with tax professionals, software developers and corporate taxpayers to remove barriers to facilitate taxpayers’ ability to comply with the mandate,” explained LMSB Commissioner Deborah M. Nolan. “Our experience shows that our systems can handle simultaneous transmission of multiple complex returns.”

Non-corporate business filers are also using e-file. Close to 185,000 businesses had electronically filed their partnership returns by the time the figures were published.

Filing Requirements Summary A summary of the filing requirements for various types of business.