The IRS E-File Mandate for Tax Preparers: The 10-Return Threshold, Firm Aggregation and Form 8948

A paid preparer who reasonably expects to file 11 or more covered returns in a calendar year must e-file them. That is the e-file mandate in section 6011(e)(3), and the preparer's defense on any return that goes out on paper is a specific exception, documented in the file or on Form 8948. This article explains who counts as a "specified tax return preparer," how a firm adds up its returns, which returns fall outside the rule, and what to attach when a return is filed on paper.

Who is a specified tax return preparer?

Section 6011(e)(3)(B) defines a specified tax return preparer, for any calendar year, as any tax return preparer unless the preparer reasonably expects to file 10 or fewer individual income tax returns during that year. Treas. Reg. 301.6011-7(a)(3) repeats the same test. A preparer expecting 10 returns is outside the rule. A preparer expecting 11 is inside it.

The mandate applies to individual income tax returns prepared by the preparer and filed by the preparer. Under the regulation, "individual income tax return" means any return of tax imposed by subtitle A on individuals, estates and trusts. That covers Form 1040 and Form 1041.

How do firms count returns?

The regulation tests the firm, not just the individual. A member of a firm is a specified preparer unless the members of the firm together reasonably expect to file 10 or fewer returns. Members include employees, agents, partners, shareholders and other equity holders.

The IRS FAQ on the mandate adds practical counting rules:

• Forms 1040 and 1041 are added together for the threshold.
• Returns a client chose to file on paper, and returns that cannot be e-filed, are left out of the estimate.
• Payroll tax returns are not covered.
• Form 1041-QFT and Form 990-T (trust UBTI) are exempt and do not count toward the threshold.
• A sole proprietorship counts as a firm, and one EFIN covers the whole firm.

The expectation is set from objective facts before the preparer files the first return of the year. Regulation Example 1 shows the effect: a preparer who expects 7 returns in 2012 is not specified for 2012, but one who expects 12 in 2013 is specified for 2013.

Worked example: a three-preparer office

An office has three preparers. For the coming season, Preparer A expects 4 Forms 1040, Preparer B expects 3 Forms 1040, and Preparer C expects 2 Forms 1040 and 3 Forms 1041.

Each preparer is below 11, but the firm expects 4 + 3 + 5 = 12 returns. Twelve is more than 10, so every member of the firm is a specified preparer and must e-file the returns the firm files. If the 3 Forms 1041 were Forms 1041-QFT, the firm total would be 9 and no one would be specified. This is the same logic as Example 5 of the regulation, where two members expecting a combined 19 returns are both specified.

Which returns do not need to be e-filed?

The IRS FAQ lists returns that cannot be e-filed, and so need neither a waiver nor Form 8948:

• Amended returns, such as Form 1040-X.
• Fiscal-year Forms 1040.
• Certain fiscal-year Forms 1041 ending after June 30 of the processing year.
• Prior-year returns.
• Forms 1041-QFT and Forms 990-T (trust UBTI).

When an attachment cannot be sent electronically, the preparer sends it separately with Form 8453 or 8453-F. The rest of the return is still e-filed.

When can a specified preparer file on paper?

Three routes exist.

Client choice. Under Treas. Reg. 301.6011-7(a)(4)(ii), a return is not treated as filed by the preparer when the taxpayer gives the preparer a hand-signed, dated statement choosing paper filing and the taxpayer, not the preparer, submits the paper return to the IRS. The IRS tells preparers to keep the signed statement on file and not to send it to the IRS or attach it to the return. On a joint return, one spouse's signature is enough. The statement must say the taxpayer, and not the preparer, will submit the paper return to the IRS.

Hardship waiver. The regulation allows the IRS to grant a waiver in cases of undue hardship, and the statute's waiver language covers a preparer located in a geographic area without internet access other than dial-up or satellite. Preparers apply on Form 8944. According to the IRS FAQ, approved waivers last one calendar year and are generally due by February 15 of the year covered. A PTIN is required for Form 8944, and an EFIN is not. Do not attach the approval letter to returns.

Administrative exemptions. The IRS FAQ describes three:

• Religious groups conscientiously opposed to electronic filing and existing continuously since December 31, 1950.
• Foreign preparers with no SSN who live and work abroad, are not in an e-file-eligible firm, and have applied for a PTIN on Form 8946.
• Sanctioned preparers holding an IRS letter enforcing a sanction in effect during the filing year.

What is Form 8948 and when is it attached?

Form 8948, Preparer Explanation for Not Filing Electronically, is the form a specified preparer attaches to a paper return to say why it was not e-filed. Per the IRS FAQ, attach it to each paper return that is exempt or waived, with the appropriate box checked:

• Box 1: client chose paper.
• Box 2: approved hardship waiver.
• Box 3: religious group exemption.
• Box 4: an e-file reject that cannot be fixed (enter the reject code and the number of attempts).
• Box 6a: foreign preparer exemption.
• Box 6b: sanction exemption.

Form 8948 is not required for returns the IRS does not accept electronically.

What if a return rejects?

Correct simple errors and resubmit. If the reject cannot be fixed, file on paper with Form 8948 and check box 4. If an exemption claimed on another return causes the reject and the taxpayer is entitled to it, the number of attempts to enter is zero.

What should the firm keep?

A short control set covers the mandate for a practice:

1. A January estimate of Form 1040 and 1041 returns by preparer and for the firm, using the counting rules above and set before the first return is filed.
2. A signed, dated paper-filing statement for every client who chooses paper, held in the file and not sent to the IRS.
3. A copy of any Form 8944 approval and its calendar year.
4. A reject log showing each unfixable reject code, the attempts, and the Form 8948 attached to the paper return.
5. A list of the return types the firm routinely handles that cannot be e-filed, so staff do not prepare a Form 8948 where none is required.

For the workflow around transmission and signature authorization, see tax season workflow for CPA firms from intake to e-file and Form 8879 e-file authorization and retention. Preparer penalties tied to return accuracy are covered in section 6694 preparer penalties.

CORAA prepares ready-to-review audit files for US CPA firms; see /us.

Sources

• Cornell Law School Legal Information Institute, 26 U.S.C. 6011: https://www.law.cornell.edu/uscode/text/26/6011
• Cornell Law School Legal Information Institute, 26 CFR 301.6011-7: https://www.law.cornell.edu/cfr/text/26/301.6011-7
• Internal Revenue Service, Frequently asked questions: E-file requirements for specified tax return preparers: https://www.irs.gov/e-file-providers/frequently-asked-questions-e-file-requirements-for-specified-tax-return-preparers-sometimes-referred-to-as-the-e-file-mandate

AU-C references are to AICPA Professional Standards, paraphrased here; read the standard itself before relying on a requirement. This page is guidance, not professional advice. Report an error