Many Happy Returns

The IRS wants to usher in the era of E-filing, but going paperless won't be easy.

Get Well Soon?

Tax experts say time-sensitive elections are at the core of many of these E-filing worries. Tom Ochsenschlager, vice president of taxation at the American Institute of Certified Public Accountants, points out that most elections for certain tax treatments — things like research credits or changes of accounting methods — are voided if they are not accepted within a timely filed return. “In general, if you miss a filing deadline, you can’t change the accounting method or make the initial election to consolidate your entities,” explains Ochsenschlager. Given this dilemma, he anticipates that the IRS “will show flexibility, at least for the first year of the mandatory E-filing program, regarding what it deems a ‘timely filed return.’”

Of course, flexibility is not exactly a hallmark of the IRS. Nevertheless, Nolan insists the agency will be “reasonable in its approach.” She notes that the IRS plans to work with taxpayers on a “get-well” plan, assuming, that is, that the filers have made a good-faith effort to transmit returns. In such cases, she says the IRS has extended its cure period to 20 days to allow companies to resubmit their returns electronically.

Why all the concessions? Enlightened self-interest. The IRS wants to lower the number of companies that qualify for hardship waivers. The fewer waiver requests, the fewer reviews the agency has to conduct. At press time, the IRS had yet to publicly post the qualifications for hardship. But Nolan says mitigating factors could include a year-end merger or acquisition, an IT system failure, or a natural disaster.

Previously Engaged

But “busy with other stuff” probably won’t cut it, and that could be a problem. As Thomas Wilson, a managing director of the Washington National Tax Service, IRS Service Team, at PricewaterhouseCoopers LLP, points out, many finance managers have been so busy with their 2004 corporate returns that they haven’t spent much time focusing on E-filing.

Indeed, tax managers have had all they can handle just coping with other mandates from the IRS. Dawn Beatty, senior manager of the National Tax Process Group at Grant Thornton LLP, says the tax environment is constantly changing, making it difficult for companies to keep up. For example, many companies have been focused on culling data for a more complex Schedule M-3. That schedule calls for reconciliation between a company’s financial income statement and its tax returns for various items. For finance managers at some of those businesses, E-filing has been the least of their concerns. Says Michael Dolan, director of IRS policies and dispute resolution in the Washington National Tax Group of KPMG LLP: “There are people who have been wrestling with how to get the data into the M-3, regardless of paper or electronic [filing].”

The IRS has provided some relief, giving companies the option to file a minimal portion of the Schedule M-3 as part of their electronic filing in the first year. But even if filers manage to meet the E-filing deadline in September, they can expect more complications down the road as states piggyback on the federal government’s E-file initiative. Currently, Massachusetts requires businesses to E-file their income tax returns, and four other states allow voluntary E-filing.


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