Bipartisan Bill Takes Up Taxpayer Advocate Recommendations to Streamline Filings

Legislation introduced late last week would make three fixes to the Tax Code to streamline the filing process — applying the mailbox rule to electronic submissions, updating the estimated tax payment schedule, and revising the S corporation election process for new small businesses.

The Tax Administration Simplification Act (HR 8864) was introduced by Representative Darin LaHood (R-IL) on June 27 and has support from LaHood’s House Ways and Means Committee colleagues on both sides of the aisle. LaHood said in a statement that “[a]s the Ways and Means Committee works to strengthen our tax code, it is important that we improve taxpayer rights and the administrative process to reduce burdensome filing challenges.”

The bill incorporates the following three recommendations from the National Taxpayer Advocate’s 2024 Purple Book focused on improving the filing process.

Electronic submissions.

The Taxpayer Advocate recommends the Tax Code be revised to treat payments and returns as timely if they are submitted electronically by midnight on the due date — even if the IRS does not receive or process them on that date. This change would align treatment of electronic submissions with that of mailed submissions, which are deemed timely if postmarked on the due date under the “mailbox rule” in Code Sec. 7502.

According to the Taxpayer Advocate, failure to apply the mailbox rule to electronic submissions “undermines the IRS’s efforts to encourage greater use of digital services.”

Estimated tax payments.

Currently, estimated tax installment payments — required of self-employed individuals, gig workers, and small businesses — are due at uneven intervals under Code Sec. 6654(c)(2). According to the Taxpayer Advocate, the current varied two, three, and four-month intervals “make it more difficult for many taxpayers to calculate net income and save appropriately to make estimated tax payments and thus may reduce compliance.”

A better option, the Taxpayer Advocate says, would be to set payment deadlines 15 days after the end of each quarter, on April 15, July 15, October 15, and January 15.

Subchapter S elections.

Small businesses currently can elect to be treated as pass-through entities up until the 15^th day of the third month of a tax year under Code Sec. 1362(b). Meanwhile, income tax returns of S corporations are due March 15 if made on a calendar year basis, and on the 15^th day of the third month after the close of the fiscal year if made on a fiscal year basis.

As a result, says the Taxpayer Advocate, new small businesses may miss the opportunity to elect pass-through treatment in their first year — the deadline to do so passes before they learn about “the ramifications of S corporation status … when they hire a tax professional to prepare their corporation’s income tax return for its first year of operation.”

The Taxpayer Advocate recommends the Tax Code be revised to allow small businesses to elect S corporation treatment via a box on their first timely filed tax return, Form 1120-S.

For more on the mailbox rule, see Checkpoint’s Federal Tax Coordinator ¶ T-10751.

For more on estimated tax installment payments, see Checkpoint’s Federal Tax Coordinator ¶ S-5200 et seq.

For more on Subchapter S elections, see Checkpoint’s Federal Tax Coordinator ¶ D-1550 et seq.