IRS Rule Would Affect Employers Still Filing Paper, Group Says

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By Keith Hill

Employers unaccustomed to submitting information returns electronically would find it difficult to comply with a proposed IRS e-filing rule, a payroll group said July 26 in a letter to the agency.

Under the Internal Revenue Service’s Notice of Proposed Rulemaking, Filing Requirements for Information Returns Required on Magnetic Media (Electronically), published May 31, 2018, in the Federal Register (REG-102951-16), employers would have to file information returns electronically if they are required to file at least 250 information returns during the year. The current requirement “counts the number of information returns required to be filed on a form-by-form basis,” such as Forms W-2, Wage and Tax Statement, the agency said.

Although electronic capabilities have advanced, the forms subject to the agency’s rulemaking are managed by business departments with separate electronic systems, the American Payroll Association letter said.

The proposed rules are to take effect Jan. 1, 2019. Employers would need to determine how to apply the rules, make computer system accommodations, train employees, and obtain security clearance for filing, the letter said, adding that there would be even less time to achieve these goals after the final rule is published.

The payroll association, a proponent of electronic filing, said it based its recommendations on the proposed rule’s implementation by employers. The proposed rule’s effective date should be delayed until Jan. 1, 2020, “to accommodate the time it will take for businesses to fully comply.” A delay would mean the requirement would be effective for 2019 information returns filed in 2020, the letter said.

The IRS should send letters notifying employers that they may need to file electronically to comply with the revised regulations, which would “greatly speed the process toward full compliance,” the letter said. The agency also should address the rule in IRS publications and on social media, as well as through industry and business publications, the letter said.

The IRS should improve its e-services registration page and include information to assist registrants in its agency outreach, the letter said. Registering and creating new e-services accounts “using the two-factor authentication process called Secure Access is still cumbersome for many businesses,” it said, adding that employers that have not previously obtained security clearance for filing electronically “will also find the process difficult.”

Because a critical goal of the proposed rule is to reduce the number of paper Forms 1099-MISC, Miscellaneous Income, filed by employers, the IRS should create “a free, direct-to-the-IRS, e-filing service for Forms 1099-MISC to accommodate smaller businesses and departments” that cannot obtain the necessary software or engage third parties to help them file using the Filing Information Returns Electronically system, the letter said. A free-filing service for Forms 1099-MISC “will increase accuracy and provide cost savings for businesses and the IRS,” the letter said.

The National Payroll Reporting Consortium said the proposed rule’s effective date should be moved to 2020 because “some employers may need additional time to adjust,” said Pete Isberg, president of the consortium. However, “we view the proposed rule as inevitable and somewhat overdue, and also not likely to cause much concern,” he said Aug. 1 in an email to Bloomberg Tax.

Authorization for the 250-return threshold was signed into law in 1982, and most employers have not had difficulty meeting the electronic filing requirements adopted by many states, Isberg said. “It makes no sense to continue administering millions of information returns in paper format in 2018,” said Isberg, who also is vice president of government affairs for ADP LLC.

To contact the reporter on this story: Keith Hill in Washington at khill@bloombergtax.com. To contact the editor responsible for this story: Michael Baer at mbaer@bloombergtax.com.

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