Proposed Regulations Would Substantially Expand Mandatory Electronic Filing of Information Returns

The IRS has proposed regulations that would substantially expand mandatory electronic filing of information returns, reflecting statutory changes made by the Taxpayer First Act of 2019 (TFA). Prior to amendment by the TFA, the Code prohibited the IRS from requiring electronic filing for taxpayers filing fewer than 250 information returns, and current IRS regulations reflect that 250-return threshold. The current regulations further provide that the 250-return threshold applies separately to each type of information return a taxpayer is required to file. In 2018, the IRS proposed aggregating the information returns filed by a taxpayer during a calendar year to calculate the 250-return threshold (see our Checkpoint article). However, the 2018 proposed regulations were not finalized and are withdrawn under the new proposal.

Responding to the TFA, the proposed regulations would establish lower thresholds for mandatory electronic filing of the following returns affecting employee benefit plans:

• Form 1094 series; Forms 1095-B and 1095-C; Form 1099 series; and Form 5498 series. Generally, the new thresholds would be 100 returns for due dates during calendar year 2022, and 10 returns for subsequent calendar years. To calculate these thresholds, the proposed regulations would require aggregation of most information returns—including the forms mentioned above and Forms W-2. However, a partnership with more than 100 partners would have to file these returns electronically regardless of the number of returns. Any corrected return would have to be filed in the same paper or electronic format as the original return to which the correction corresponds.
• Forms 5330 and 8955-SSA. Filers who must file at least 10 returns of any type would have to file Form 5330 (related to certain employee benefit plan excise taxes) and Form 8955-SSA (identifying separated participants with deferred vested benefits) electronically. The Form 5330 proposal would take effect for taxable years ending on or after the date final rules are published. The Form 8955-SSA proposal would take effect for plan years beginning on or after January 1, 2022, but only for filings due after July 31, 2022.
• Form 5500. Filers of Form 5500 under the IRS’s rules for retirement plans would have to file electronically if they must file at least 10 returns of any type. This change would take effect for plan years beginning after December 31, 2021 (but only for filings due after July 31, 2022). The preamble notes that the DOL’s regulations for ERISA plans already require electronic filing through the EFAST2 system without regard to the number of returns the filer is required to file under the Code.

EBIA Comment: The requirement to aggregate returns when calculating electronic filing thresholds, combined with the lower thresholds themselves, will likely eliminate paper filings for all but the smallest employers. The regulations’ impact would be especially acute for smaller applicable large employers (ALEs), who have been able to file Forms 1094-C and 1095-C on paper when reporting information for employer shared responsibility. Since ALEs by definition have at least 50 full-time-equivalent employees, they are likely to pass the 100-return threshold when taking into account Forms W-2 and 1095-C. Given the proposed 2022 effective date, ALEs should monitor this development carefully and prepare for mandatory electronic filing as soon as March 31, 2022. For more information, see EBIA’s Health Care Reform manual at Sections XXXVI.C (“Information Reporting of Minimum Essential Coverage (Insurers and Employers That Self-Insure)”) and XXXVI.D (“Information Reporting of Employer-Sponsored Coverage (Applicable Large Employers)”). See also EBIA’s Form 1094/1095 Workbook at Section X.C (“Filing Methods: Paper or Electronic”); EBIA’s 401(k) Plans manual at Sections XIV.R (“Reporting Distributions on Form 1099-R”) and XXXI.M (“IRS Filings Related to Form 5500”); and EBIA’s Consumer-Driven Health Care manual at Section XVII.A (“HSA Trustee/Custodian Reporting Obligations”).

Contributing Editors: EBIA Staff.