A proposal to prevent taxpayers from being hit with late penalties when payments and documents are submitted electronically on or before the due date but received after by the IRS is gaining traction among lawmakers and tax professionals.
Code Sec. 7502 under current law states that mailed tax payments or documents are deemed timely if postmarked and sent by midnight on the due date, even if received and processed later. This is known as the “mailbox rule.” As addressed by National Taxpayer Advocate Erin Collins in her list of legislative recommendations for improving the tax filing process included in the 2023 Purple Book published December 31, 2022, the mailbox rule is inapplicable to electronically transmitted IRS payments.
“In addition, the mailbox rule does not apply to the electronic filing of time-sensitive documents (except documents filed electronically through an electronic return transmitter), including those transmitted by fax, email, the digital communication portal, or upload to an online account,” Collins wrote. Reg. § 301.7502-1(d)(3)(i) provides that the definition of “electronic return transmitter” has the same meaning contained in Rev Proc 2000-31, Sec. 3.01(4), 2000-31 IRB 146.
While Treasury has the statutory authority to issue regs applying the mailbox rule to electronic filings, the Department cannot do so for electronic payments. Its Electronic Federal Tax Payment System (EFTPS) cautions taxpayers that payments must be scheduled by 8:00 p.m. ET the day before the due date to be considered timely, or 28 hours earlier than allotted for mailed payments.
The EFTPS explains that funds from payments will hit taxpayers’ bank accounts on the date selected for settlement. Business taxpayers and individuals can make same-day payments if the amount is under $1 million and submitted before 3:00 p.m. ET on a business day—notably more restrictive than the leeway given to paper mail.
“This dichotomy favors paper transmission over electronic transmission—exactly the opposite incentive that the rules should provide,” read the Purple Book. “This comparatively unfavorable treatment of electronically submitted documents and payments undermines the IRS’s efforts to encourage greater use of digital services and imposes additional cost and burden on taxpayers and the IRS.” Collins recommended that Treasury issue regs applying the mailbox rule to all time-sensitive electronic filings that can also be mailed via the U.S. Postal Service or designated delivery service.
Seeking to remedy this problem, Sens. Marsha Blackburn, Republican of Tennessee, and Catherine Cortez Masto, Democrat of Nevada, introduced on April 27 the Electronic Communication Uniformity Act (S 1338). The bill would apply this patch to payments or documents sent after December 31, 2024, and would require Treasury to release guidance by the same date. Electronic payments and document submissions made on or before their due dates would be timely “regardless of the date on which the applicable agency, officer, or office receives or reviews such return, claim, statement, document, or payment.”
In a May 3 letter to the bill’s sponsors, AICPA Tax Executive Committee Chair Jan Lewis applauded the senators for their proposal, as well as Collins for raising the issue in the Purple Book. “This legislation would provide equity by treating similarly situated taxpayers similarly,” said Lewis. “It would also improve tax administration by eliminating IRS notices assessing unnecessary penalties when the taxpayer or practitioner electronically submits a tax return by the deadline regardless of when the IRS processes it.”
The Tax Adviser, the AICPA tax magazine, also tweeted the organization’s support for the bill May 15.
For more information about the mailbox rule, see Checkpoint’s Federal Tax Coordinator ¶T-10774.
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