[Federal Register Volume 75, Number 232 (Friday, December 3, 2010)]
[Proposed Rules]
[Pages 75439-75444]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2010-30500]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[REG-100194-10]
RIN 1545-BJ52


Specified Tax Return Preparers Required To File Individual Income 
Tax Returns Using Magnetic Media

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking and notice of public hearing.

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SUMMARY: This document contains proposed regulations relating to the 
requirement for ``specified tax return preparers,'' generally tax 
return preparers who reasonably expect to file more than 10 individual 
income tax returns in a calendar year, to file individual income tax 
returns using magnetic media pursuant to section 6011(e)(3) of the 
Internal Revenue Code (Code). The proposed regulations reflect changes 
to the law made by the Worker, Homeownership, and Business Assistance 
Act of 2009. The proposed regulations affect specified tax return 
preparers who prepare and file individual income tax returns, as 
defined in section 6011(e)(3)(C). For calendar year 2011, the proposed 
regulations define a specified tax return preparer as a tax return 
preparer who reasonably expects to file (or if the preparer is a member 
of a firm, the firm's members in the aggregate reasonably expect to 
file) 100 or more individual income tax returns during the year, while 
beginning January 1, 2012 a specified tax return preparer is a tax 
return preparer who reasonably expects to file (or if the preparer is a 
member of a firm, the firm's members in the aggregate reasonably expect 
to file) 11 or more individual income tax returns in a calendar year. 
The proposed regulations are unrelated to and are not intended to 
address the requirements for obtaining a preparer tax identification 
number (PTIN) under section 6109. See the final regulations under 
section 6109 published in the Federal Register (75 FR 60309-01). This 
document also provides a notice of a public hearing on these proposed 
regulations.

DATES: Written or electronic comments must be received by January 3, 
2011. Outlines of topics to be discussed at the public hearing 
scheduled for January 7, 2011 must be received by January 3, 2011.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-100194-10), room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8 a.m. and 4 p.m. to CC:PA:LPD:PR (REG-
100194-10), Courier's Desk, Internal Revenue Service, 1111 Constitution 
Avenue, NW., Washington, DC 20224, or sent electronically via the 
Federal eRulemaking Portal at http://www.regulations.gov (IRS--REG-
100194-10). The public hearing will be held in the auditorium, Internal 
Revenue Building, 1111 Constitution Avenue, NW., Washington, DC 20224.

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Keith L. Brau, (202) 622-4940; concerning submissions of comments, the 
hearing, and/or to be placed on the building access list to attend the 
hearing, Oluwafunmilayo Taylor of the Publications and Regulations 
Branch at (202) 622-7180 (not toll-free numbers).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in this notice of proposed 
rulemaking has been submitted to the Office of Management and Budget 
for review in accordance with the Paperwork Reduction Act of 1995 (44 
U.S.C. 3507(d)). Comments on the collection of information should be 
sent to the Office of Management and Budget, Attn: Desk Officer for the 
Department of the Treasury, Office of Information and Regulatory 
Affairs, Washington, DC 20503, with copies to the Internal Revenue 
Service, Attn: IRS Reports Clearance Officer, SE:CAR:MP:T:T:SP, 
Washington, DC 20224. Comments on the collection of information should 
be received by January 3, 2011. Comments are specifically requested 
concerning:
    Whether the proposed collection of information is necessary for the 
proper performance of the Internal Revenue Service, including whether 
the information will have practical utility;
    The accuracy of the estimated burden associated with the proposed 
collection of information (see below) or of the certification contained 
under the heading ``Special Analyses'';
    How the quality, utility, and clarity of the information to be 
collected may be enhanced;
    How the burden of complying with the proposed collection of 
information may be minimized; and
    Estimates of capital or start-up costs and costs of operation, 
maintenance, and purchases of service to provide information.
    The collection of information in this proposed regulation is in 
Sec.  301.6011-6(a)(4)(ii). This information can be used by tax return 
preparers and specified tax return preparers, if necessary, to 
demonstrate to the IRS that the related individual income tax returns 
filed in paper format were not required to be filed electronically 
pursuant to section 6011(e)(3) and Sec.  301.6011-6. The collection of 
information is voluntary to obtain a benefit. The likely respondents 
are the individuals and small businesses who prepare individual income 
tax returns in exchange for compensation. It is estimated that 5 
minutes of preparation time is needed for a tax return preparer to 
explain the purpose of the information and obtain it from the taxpayer 
in the manner prescribed by the IRS and 6 minutes for recordkeeping, 
consisting of maintaining a copy of the information submitted for the 
respondent's records.

[[Page 75440]]

    Estimated total annual reporting burden: 1,222,815 hours in 
calendar year 2011 and 1,689,930 hours in calendar year 2012.
    Estimated average annual burden hours per respondent: 9.06 hours 
(per firm) in calendar year 2011 and 5.42 hours (per firm) in calendar 
year 2012.
    Estimated number of respondents or recordkeepers: 135,000 in 
calendar year 2011 and 312,000 in calendar year 2012.
    Estimated annual frequency of responses per respondent: 49 in 
calendar year 2011 and 29.5 in calendar year 2012.
    An agency may not conduct or sponsor, and a person is not required 
to respond to, a collection of information unless it displays a valid 
control number assigned by the Office of Management and Budget.
    Books or records relating to a collection of information must be 
retained as long as their contents may become material in the 
administration of any internal revenue law.

Background

    Recognizing the benefits of electronic filing, Congress enacted 
section 2001(a) of the IRS Restructuring and Reform Act of 1998, Public 
Law 105-206 (112 Stat. 727), which states that a policy of Congress is 
to promote paperless filing. Electronic filing of tax returns benefits 
taxpayers and the IRS by reducing errors that are more likely to occur 
during the manual preparation and processing of paper returns. 
Electronic filing of tax returns results in faster settling of accounts 
and better customer service because the time required to process paper 
returns is eliminated. Electronic filing of tax returns improves 
taxpayer satisfaction and confidence in the filing process, and may be 
more cost effective. Electronic filing of tax returns enables the IRS 
to review taxpayer submissions expeditiously to reduce audit cycle time 
and helps the IRS identify emerging trends more efficiently.
    Section 6011(e)(1) generally authorizes the Secretary to prescribe 
regulations providing the standards for determining which returns must 
be filed on magnetic media, including electronic filing. Prior to 
passage of the Worker, Homeownership, and Business Assistance Act of 
2009, Public Law 111-92 (123 Stat. 2984, 2997 (2009)) (Act), section 
6011(e)(1) provided that, without exception, the Secretary may not 
require returns of any tax imposed by subtitle A on individuals, 
estates, and trusts to be other than on paper forms supplied by the 
Secretary. Under section 6011(e)(2)(A), in prescribing regulations 
under section 6011(e)(1), the Secretary shall not require any person 
(taxpayer) to file on magnetic media (including electronically) unless 
the person is required to file at least 250 returns during the calendar 
year.
    With respect to the restriction that the Secretary may not require 
returns of any tax imposed by subtitle A on individuals, estates, and 
trusts to be filed in any format other than paper forms supplied by the 
Secretary, the Act amended section 6011(e)(1) to provide an exception 
for individual income tax returns filed by specified tax return 
preparers, as set forth in new section 6011(e)(3). New section 
6011(e)(3) provides that the Secretary shall require the filing on 
magnetic media of any individual income tax returns prepared and filed 
by a specified tax return preparer. As more fully discussed below, 
filing on magnetic media includes electronic filing.
    The Act's amendment to section 6011(e) requires the Secretary to 
issue regulations to implement the statute. These proposed regulations 
require that the individual income tax returns prepared and filed by 
specified tax return preparers be filed electronically. To enhance 
compliance and to promote effective and efficient administration of the 
congressionally-mandated requirement of section 6011(e)(3), the 
proposed regulations provide a transition rule for certain specified 
tax return preparers.

Explanation of Provisions

1. Specified Tax Return Preparers Required To File Individual Income 
Tax Returns Using Magnetic Media

In General
    With certain exclusions, discussed in the next section, the 
proposed regulations provide that any individual income tax return 
prepared and filed by a specified tax return preparer must be filed 
using magnetic media, as required under section 6011(e)(3). For 
purposes of these proposed regulations, magnetic media is defined in 
Sec.  301.6011-2(a)(1), which generally includes magnetic tape, tape 
cartridge, and diskette, as well as other media, such as electronic 
filing, specifically permitted under the applicable regulations, 
procedures, or publications. Also, for purposes of these proposed 
regulations and as defined under section 6011(e)(3)(C), an individual 
income tax return is any return of income tax imposed by subtitle A on 
individuals, estates, and trusts. This includes any return of income 
tax in the Form 1040 series and Form 1041 series. It also includes Form 
990-T (Exempt Organization Business Income Tax Return) when the exempt 
organization is a trust subject to tax on unrelated business taxable 
income under section 511(b).
    The electronic filing requirement in these proposed regulations 
applies to specified tax return preparers. A specified tax return 
preparer is defined as any person who is a tax return preparer, as 
defined in section 7701(a)(36) and Sec.  301.7701-15, unless the tax 
return preparer reasonably expects to file 10 or fewer individual 
income tax returns in a calendar year, and if a person who is a tax 
return preparer is a member of a firm, that person is a specified tax 
return preparer unless the person's firm members in the aggregate 
reasonably expect to file 10 or fewer individual income tax returns in 
a calendar year. The proposed regulations do not apply to individuals 
described in section 7701(a)(36)(B)(i) through (iv) and Sec.  301.7701-
15(f) who are not defined as tax return preparers under that Code 
section and regulation, such as an individual who provides tax 
assistance under a Volunteer Income Tax Assistance (VITA) program, a 
person who merely prepares a return of the employer (or of an officer 
or employee of the employer) by whom the person is regularly and 
continuously employed, or a person who prepares a return as a fiduciary 
for any person. Solely for the 2011 calendar year, a tax return 
preparer will not be considered a specified tax return preparer if the 
tax return preparer reasonably expects, or the preparer's firm members 
in the aggregate reasonably expect, to file fewer than 100 individual 
income tax returns in the 2011 calendar year.
    Under section 6011(e)(3), the concept of ``file'' or ``filed'' 
individual income tax returns affects both tax return preparers and 
specified tax return preparers. Tax return preparers are affected by 
this concept because a tax return preparer's classification as a 
specified tax return preparer is based upon the number of individual 
income tax returns the tax return preparer reasonably expects to file 
in a given calendar year. Specified tax return preparers are further 
affected by this concept because the electronic filing requirement for 
any particular or specific individual income tax return depends upon 
whether the specified tax return preparer files the return. Therefore, 
for purposes of section 6011(e)(3) and these regulations only, an 
individual income tax return is considered to be ``filed'' by a tax 
return preparer or a specified tax return preparer if the preparer or 
any member, employee, or agent of the preparer or the preparer's firm 
submits the tax return to the IRS on the taxpayer's behalf, either 
electronically (by e-file or other magnetic media) or in non-electronic 
or

[[Page 75441]]

non-magnetic media (paper) form. Submission of a tax return in paper 
form includes the direct or indirect transmission, sending, mailing, or 
otherwise delivering of the paper tax return to the IRS by the tax 
return preparer or the specified tax return preparer, or by any member, 
employee, or agent of the tax return preparer or the preparer's firm, 
and may include any act or acts of assistance that go beyond the 
provision of filing or delivery instructions to the taxpayer. For 
example, this can include the preparer or a member of the preparer's 
firm dropping the return in the mailbox for the taxpayer. The 
assistance of others is considered for purposes of determining whether 
a return is filed by a tax return preparer or specified tax return 
preparer, to prevent a preparer from avoiding these rules by merely 
handing the return to an employee or someone else in the firm to mail 
to the IRS.
    A tax return preparer or specified tax return preparer, or if the 
preparer is a member of a firm, the preparer's firm, will be able to 
affirmatively demonstrate, if asked, that it was a taxpayer's choice to 
file an individual income tax return in paper format if the preparer 
who prepared the return obtains a signed statement from the taxpayer 
that states the taxpayer chooses to file the return in paper format and 
that the taxpayer, and not the preparer, will submit the paper return 
to the IRS. This statement must be signed by the taxpayer (by both 
spouses if a joint return) and dated on or before the date the taxpayer 
files the return. The IRS may provide guidance through forms, 
instructions or other appropriate guidance regarding how preparers can 
document taxpayer choices to file individual income tax returns in 
paper format. A Notice containing a proposed revenue procedure 
outlining the requirements and format of statements to document when a 
taxpayer chooses to file individual income tax returns in paper format 
is being published in the Internal Revenue Bulletin (IRB) concurrently 
with these proposed regulations.
    In addition, the proposed regulations provide that the definition 
of file or filed does not alter or affect a taxpayer's obligation to 
file any type of tax return required under any other provision of law. 
The definition of file or filed by a tax return preparer or a specified 
tax return preparer contained in these proposed regulations applies 
only for the purposes of section 6011(e)(3) and these regulations, and 
does not apply for any other purpose under any other provision of law, 
such as the statutory period of limitations based on the filing of a 
tax return.
2. Exclusions
    The proposed regulations provide the following exclusions from the 
electronic filing requirement.
A. Undue Hardship Waivers
    Under the proposed regulations, the IRS may grant a waiver of the 
requirement of this rule in cases of undue hardship. A waiver may 
generally be granted to a specified tax return preparer for an undue 
hardship that can be identified in advance, before the specified tax 
return preparer would otherwise be required to file individual income 
tax returns electronically. Because this electronic filing requirement 
is statutorily imposed, the IRS will ordinarily grant undue hardship 
waivers only in rare cases. An undue hardship waiver may be granted to 
a specified tax return preparer for a series or class of individual 
income tax returns or for a specified period of time. A determination 
of undue hardship will be based upon all facts and circumstances. A 
specified tax return preparer shall request an undue hardship waiver in 
the manner prescribed by the IRS in forms, instructions, or other 
appropriate guidance. A Notice containing a proposed revenue procedure 
outlining the requirements and format for undue hardship waiver 
requests is being published concurrently with these proposed 
regulations.
B. Administrative Exemptions
    The IRS may provide administrative exemptions for certain classes 
of specified tax return preparers or types of individual income tax 
returns as the IRS determines necessary to promote effective and 
efficient tax administration. For example, the IRS may provide a broad 
administrative exemption applicable to all tax return preparers for a 
particular type of form if the IRS does not yet provide the capability 
to file the form electronically, or for individual income tax returns 
prepared by specified tax return preparers who meet certain conditions 
defined by the IRS. The IRS may also provide an administrative 
exemption for individual income tax returns that contain or require 
documentation or attachments that the IRS does not yet provide the 
capability to file electronically, for example, documentation for the 
First-Time Homebuyer Credit, section 6707A disclosures, or required 
appraisals to support charitable contributions. The IRS may also 
provide a limited administrative exemption for specified tax return 
preparers who are certified members of, and follow the teachings of, a 
recognized religious group that is conscientiously opposed to using 
electronic media, which would include filing electronically. Unlike 
undue hardship waivers, specified tax return preparers who meet the 
criteria of an administrative exemption generally need not submit a 
request to the IRS to claim applicability of the administrative 
exemption. The IRS may provide the criteria and procedures, if any are 
necessary, for administrative exemptions through forms, instructions, 
or other appropriate guidance.

3. Reasonably Expect To File

A. In General
    The determination of whether a tax return preparer (or if the 
preparer is a member of a firm, the preparer's firm members in the 
aggregate) reasonably expects to file 10 or fewer individual income tax 
returns (or, in the case of the 2011 calendar year, fewer than 100 
individual income tax returns) is made by adding together all of the 
individual income tax returns (forms in the Form 1040 series, Form 1041 
series, and Forms 990-T (when the exempt organizations are trusts 
subject to tax on unrelated business taxable income under section 
511(b)), in the aggregate) the tax return preparer and, if the preparer 
is a member of a firm, the firm's members, reasonably expect to prepare 
and file in each calendar year. In making this determination individual 
income tax returns that are excluded from the electronic filing 
requirement due to taxpayer choice or under the administrative 
exemption exclusion, as provided in these proposed regulations, are not 
to be counted. Returns excluded under the undue hardship waiver 
exclusion are to be counted, however, because it is expected that such 
waivers will generally be sought by tax return preparers who are 
specified tax return preparers and who would ordinarily have to file 
these returns electronically but for the waivers granted by the IRS in 
cases of undue hardship.
B. Time for Making Determination of Reasonable Expectations
    The determination regarding reasonable expectations is made 
separately for each calendar year in order to ascertain whether the 
electronic filing requirement applies to a tax return preparer for that 
year. For each calendar year, the determination of whether a tax return 
preparer and the preparer's firm reasonably expect to file 10 or fewer 
individual income tax returns (or, in the

[[Page 75442]]

case of the 2011 calendar year, fewer than 100 individual income tax 
returns) is made based on all relevant, objective, and demonstrable 
facts and circumstances prior to the time the tax return preparer and 
the preparer's firm first file an individual income tax return during 
the calendar year.

4. Additional Guidance

    The proposed regulations authorize the IRS to implement the 
requirements of section 6011(e)(3) and the regulations through 
additional guidance, including by revenue procedures, notices, 
publications, forms, and instructions, including those issued 
electronically.

5. Proposed Effective and Applicability Dates

    The proposed regulations are effective and applicable on January 1, 
2011. To promote the effective and efficient administration of the 
electronic filing requirement in section 6011(e)(3), the proposed 
regulations provide a transition rule for 2011, based upon the number 
of individual income tax returns a tax return preparer files, to permit 
the IRS and affected tax return preparers sufficient time to prepare 
for and implement the requirements of section 6011(e)(3) and these 
proposed regulations. Beginning January 1, 2011, tax return preparers 
who reasonably expect to file (if a member of a firm whose firm members 
in the aggregate reasonably expect to file) 100 or more individual 
income tax returns in calendar year 2011 are specified tax return 
preparers who are subject to these regulations in 2011. Beginning 
January 1, 2012, tax return preparers who reasonably expect to file (if 
a member of a firm whose firm members in the aggregate reasonably 
expect to file) 11 or more individual income tax returns in a calendar 
year are specified tax return preparers who are subject to these 
regulations for that calendar year.

Special Analyses

    It has been determined that this notice of proposed rulemaking is 
not a significant regulatory action as defined in Executive Order 
12866. Therefore, a regulatory assessment is not required.
    It is hereby certified that the collection of information contained 
in these proposed regulations would not have a significant economic 
impact on a substantial number of small entities. Accordingly, a 
Regulatory Flexibility Analysis under the Regulatory Flexibility Act (5 
U.S.C. chapter 6) is not required. This certification is based on a 
determination that these proposed regulations would impose, at most, a 
minimal additional reporting or recordkeeping requirement. As discussed 
in the Paperwork Reduction Act section of this preamble, the economic 
impact on affected small entities is not significant.
    It also has been determined that section 553(b) of the 
Administrative Procedure Act (5 U.S.C. chapter 5) does not apply to 
these proposed regulations. Pursuant to section 7805(f) of the Internal 
Revenue Code, this notice of proposed rulemaking has been submitted to 
the Chief Counsel for Advocacy of the Small Business Administration for 
comment on their impact on small business.

Comments and Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any written (a signed original and eight 
(8) copies) or electronic comments that are submitted timely to the 
IRS. The Treasury Department and the IRS request comments on the 
clarity of the proposed rules and how they can be made easier to 
understand. The Treasury Department and the IRS also request comments 
on the procedures and criteria to be established to document taxpayer 
choices to file in paper format and to request the undue hardship 
waiver, as well as circumstances that may warrant the granting of an 
administrative exemption for the 2011 calendar year. Finally, the 
Treasury Department and the IRS request comments on the accuracy of the 
certification that the regulations in this document will not have a 
significant economic impact on a substantial number of small entities 
as well as comments on the Paperwork Reduction Act burden estimates 
contained in the Special Analysis section of this preamble. All 
comments that are submitted by the public will be available for public 
inspection and copying.
    A public hearing has been scheduled for Tuesday, January 7, 2011 at 
10 a.m. in the auditorium of the Internal Revenue Building, 1111 
Constitution Avenue, NW., Washington, DC. Due to building security 
procedures, all visitors must enter at the Constitution Avenue 
entrance. In addition, all visitors must present photo identification 
to enter the building. Because of access restrictions, visitors will 
not be admitted beyond the immediate entrance area more than 30 minutes 
before the hearing starts. For information about having your name 
placed on the building access list to attend the hearing, see the FOR 
FURTHER INFORMATION CONTACT section of this preamble.
    The rules of 26 CFR 601.601(a)(3) apply to the hearing. Persons who 
wish to present oral comments at the hearing must submit written or 
electronic comments and an outline of the topics to be discussed and 
the time to be devoted to each topic by January 3, 2011.
    A period of 10 minutes will be allotted to each person for making 
comments. An agenda showing the scheduling of the speakers will be 
prepared after the deadline for receiving outlines has passed. Copies 
of the agenda will be available free of charge at the hearing.

Drafting Information

    The principal author of these proposed regulations is Keith L. 
Brau, Office of the Associate Chief Counsel (Procedure and 
Administration).

List of Subjects

26 CFR Part 1

    Income taxes, Reporting and recordkeeping requirements.

26 CFR Part 301

    Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income 
taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR parts 1 and 301 are proposed to be amended as 
follows:

PART 1--INCOME TAXES

    Paragraph 1. The authority citation for part 1 is amended by adding 
an entry in numerical order to read, in part, as follows:

    Authority:  26 U.S.C. 7805 * * *

    Section 1.6011-6 also issued under 26 U.S.C. 6011. * * *

    Par. 2. Section 1.6011-6 is added to read as follows:


Sec.  1.6011-6  Specified tax return preparers required to file 
individual income tax returns using magnetic media.

    Individual income tax returns that are required to be filed on 
magnetic media by tax return preparers under Sec.  301.6011-6 of this 
chapter must be filed in accordance with Internal Revenue Service 
regulations, revenue procedures, revenue rulings, publications, forms 
or instructions, including those posted electronically.

PART 301--PROCEDURE AND ADMINISTRATION

    Par. 3. The authority citation for part 301 is amended by adding an 
entry in

[[Page 75443]]

numerical order to read, in part, as follows:

    Authority:  26 U.S.C. 7805 * * *

    Section 301.6011-6 also issued under 26 U.S.C. 6011. * * *

    Par. 4. Section 301.6011-6 is added to read as follows:


Sec.  301.6011-6  Specified tax return preparers required to file 
individual income tax returns using magnetic media.

    (a) Definitions.
    (1) Magnetic media. For purposes of this section, the term magnetic 
media has the same meaning as in Sec.  301.6011-2(a)(1).
    (2) Individual income tax return. The term individual income tax 
return means any return of tax imposed by subtitle A on individuals, 
estates, and trusts.
    (3) Specified tax return preparer. The term specified tax return 
preparer means any person who is a tax return preparer, as defined in 
section 7701(a)(36) and Sec.  301.7701-15, unless that person 
reasonably expects to file 10 or fewer individual income tax returns in 
a calendar year. If a person who is a tax return preparer is a member 
of a firm, that person is a specified tax return preparer unless the 
person's firm members in the aggregate reasonably expect to file 10 or 
fewer individual income tax returns in a calendar year. Solely for the 
2011 calendar year, a person will not be considered a specified tax 
return preparer if that person reasonably expects, or if the person is 
a member of a firm, the firm's members in the aggregate reasonably 
expect, to file fewer than 100 individual income tax returns in the 
2011 calendar year. Solely for purposes of this section, an individual 
is considered a member of a firm if the individual is an employee, 
agent, member, partner, shareholder, or other equity holder of the 
firm.
    (4) File or Filed. (i) For purposes of section 6011(e)(3) and these 
regulations only, an individual income tax return is considered to be 
``filed'' by a tax return preparer or a specified tax return preparer 
if the preparer submits the tax return to the IRS on the taxpayer's 
behalf, either electronically (by e-file or other magnetic media) or in 
non-electronic (paper) form. Submission of an individual income tax 
return by a tax return preparer or a specified tax return preparer in 
non-electronic form includes the direct or indirect transmission, 
sending, mailing or otherwise delivering of the paper tax return to the 
IRS by the preparer, any member, employee, or agent of the preparer, or 
any member, employee, or agent of the preparer's firm, and includes any 
act or acts of assistance beyond providing filing or delivery 
instructions to the taxpayer.
    (ii) An individual income tax return will not be considered to be 
filed, as defined in paragraph (a)(4)(i) of this section, by a tax 
return preparer or specified tax return preparer if the tax return 
preparer or specified tax return preparer who prepared the return 
obtains, on or prior to the date the return is filed, a signed (by both 
spouses if a joint return) and dated written statement from the 
taxpayer that states the taxpayer chooses to file the return in paper 
format, and that the taxpayer, and not the preparer, will submit the 
paper return to the IRS. The IRS may provide guidance through forms, 
instructions or other appropriate guidance regarding how preparers can 
document taxpayer choices to file individual income tax returns in 
paper format.
    (iii) The rules contained in this section do not alter or affect a 
taxpayer's obligation to file returns under any other provision of law. 
The definition of file or filed by a tax return preparer or specified 
tax return preparer contained in paragraph (a)(4)(i) of this section 
applies only for the purposes of section 6011(e)(3) and these 
regulations and does not apply for any other purpose under any other 
provision of law.
    (b) Magnetic media filing requirement. Except as provided in 
paragraphs (a)(4)(ii) and (c) of this section, any individual income 
tax return prepared by a specified tax return preparer in a calendar 
year must be filed on magnetic media if the return is filed by the 
specified tax return preparer.
    (c) Exclusions. The following exclusions apply to the magnetic 
media filing requirement in this section:
    (1) Undue hardship waiver. The IRS may grant a waiver of the 
requirement of this section in cases of undue hardship. An undue 
hardship waiver may be granted upon application by a specified tax 
return preparer consistent with instructions provided in published 
guidance and as prescribed in relevant forms and instructions. A 
determination of undue hardship will be based upon all facts and 
circumstances. The undue hardship waiver provided to a specified tax 
return preparer may apply to a series or class of individual income tax 
returns or for a specified period of time, subject to the terms and 
conditions regarding the method of filing prescribed in such waiver.
    (2) Administrative exemptions. The IRS may provide administrative 
exemptions from the requirement of this section for certain classes of 
specified tax return preparers, or regarding certain types of 
individual income tax returns, as the IRS determines necessary to 
promote effective and efficient tax administration. The IRS may provide 
administrative exemptions and any criteria or procedures necessary to 
claim an administrative exemption through forms, instructions, or other 
appropriate guidance.
    (d) Reasonably expect to file--(1) In general. The determination of 
whether a tax return preparer reasonably expects, or if the preparer is 
a member of a firm, the firm's members in the aggregate reasonably 
expect, to file 10 or fewer individual income tax returns (or, in the 
case of the 2011 calendar year, fewer than 100 individual income tax 
returns) is made by adding together all of the individual income tax 
returns the tax return preparer and, if the preparer is a member of a 
firm, the firm's members reasonably expect to prepare and file in the 
calendar year. In making this determination, individual income tax 
returns that the tax return preparer reasonably expects will not be 
subject to the magnetic media filing requirement under paragraph 
(a)(4)(ii) of this section or are excluded from the requirement under 
(c)(2) of this section are not to be counted. Returns excluded from the 
magnetic media filing requirement under paragraph (c)(1) of this 
section are to be counted for purposes of making this determination.
    (2) Time for making determination of reasonable expectations. The 
determination regarding reasonable expectations is made separately for 
each calendar year in order to ascertain whether the magnetic media 
filing requirement applies to a tax return preparer for that year. For 
each calendar year, the determination of whether a tax return preparer 
and the preparer's firm reasonably expect to file 10 or fewer 
individual income tax returns (or, in the case of the 2011 calendar 
year, fewer than 100 individual income tax returns) is made based on 
all relevant, objective, and demonstrable facts and circumstances prior 
to the time the tax return preparer and the preparer's firm first file 
an individual income tax return during the calendar year.
    (e) Examples. The examples read as follows:
    Example 1.  Tax Return Preparer A is an accountant who recently 
graduated from college with an accounting degree and has opened his 
own practice. A has not prepared individual income tax returns for 
compensation in the past and does not plan to focus his practice on 
individual income tax return preparation. A intends instead to focus 
his practice on providing specialized accounting services to certain 
health care service providers. A has no plans to, and does not, 
employ or engage any other tax return preparers. A estimates that he 
may be

[[Page 75444]]

asked by some clients to prepare and file their individual income 
tax returns for compensation, but A expects that the number of 
people who do ask him to provide this service will be no more than 
seven in 2012. In fact, A actually prepares and files six paper Form 
1040 (U.S. Individual Income Tax Return) returns in 2012. Due to a 
growing client base, and based upon his experience in 2012, A 
expects that the number of individual income tax returns he will 
prepare and file in 2013 will at least double, estimating he will 
prepare and file 12 Form 1040 returns in 2013. A does not qualify as 
a specified tax return preparer for 2012 because A reasonably 
expects to file 10 or fewer (seven) in 2012. Consequently, A is not 
required to electronically file the individual income tax returns he 
prepares and files in 2012. He does not qualify as a specified tax 
return preparer for that year because A reasonably expects to file 
10 or fewer returns (seven) in 2012. A's expectation is reasonable 
based on his business projections, individual income tax return 
filing history, and staffing decisions. A is a specified tax return 
preparer in 2013, however, because based on those same factors A 
reasonably expects to file more than 10 individual income tax 
returns (12) during that calendar year. A, therefore, must 
electronically file all individual income tax returns that A 
prepares and files in 2013 that are not otherwise excluded from the 
electronic filing requirement.
    Example 2.  Same facts as in Example 1, except three of Tax 
Return Preparer A's clients specifically chose to have A prepare 
their individual income tax returns in paper format in 2012 with the 
clients mailing their respective returns to the IRS. A expects that 
these three clients will similarly choose to have him prepare their 
returns in paper format in 2013, with the clients being responsible 
for mailing their returns to the IRS. A is not required to 
electronically file these three returns in 2013 because the 
taxpayers chose to file their returns in paper format, and A 
obtained a dated written statement from each of those taxpayers, 
indicating that they chose to file their returns in paper format. 
These three individual income tax returns are not counted in 
determining how many individual income tax returns A reasonably 
expects to file in 2013. Because the total number of individual 
income tax returns A reasonably expects to file in 2013 (nine) does 
not exceed 10, A is not a specified tax return preparer for calendar 
year 2013, and A is not required to electronically file any 
individual income tax return that he prepares and files in 2013.
    Example 3.  Tax Return Preparer B is a solo general practice 
attorney in a small county. Her practice includes the preparation of 
wills and assisting executors in administering estates. As part of 
her practice, B infrequently prepares and files Forms 1041 (U.S. 
Income Tax Return for Estates and Trusts) for executors. In the past 
three years, she prepared and filed an average of five Forms 1041 
each year and never exceeded more than seven Forms 1041 in any year. 
Based on B's prior experience and her estimate for 2012, made prior 
to the time she first files an individual income tax return in 2012, 
she reasonably expects to prepare and file no more than five Forms 
1041 in 2012. Due to the unforeseen deaths of several of her clients 
in late 2011, B actually prepares and files 12 Forms 1041 in 2012. B 
does not find out about these deaths until after she has already 
filed the first Form 1041 in 2012 for another client. B is not 
required to electronically file these returns in 2012. She does not 
qualify as a specified tax return preparer for calendar year 2012 
because prior to the time she filed the first Form 1041 in 2012, she 
reasonably expected to file 10 or fewer individual income tax 
returns in 2012.
    Example 4.  Same facts as Example 3, except, in addition to the 
five Forms 1041 that she expects to prepare and file in 2012, Tax 
Return Preparer B also expects to prepare and file 10 paper Forms 
1040 (U.S. Individual Income Tax Return) in 2012, based upon the 
requests that she has received from some of her clients. Because the 
total number of individual income tax returns B reasonably expects 
to file in 2012 (fifteen) exceeds 10, B is a specified tax return 
preparer for calendar year 2012, and B must electronically file all 
individual income tax returns that B prepares and files in 2012 that 
are not otherwise excluded from the electronic filing requirement.
    Example 5.  Firm X consists of two tax return preparers, Tax 
Return Preparer C who owns Firm X, and Tax Return Preparer D who is 
employed by C in Firm X. Based upon the firm's experience over the 
past three years, C and D reasonably expect to file nine and ten 
individual income tax returns for compensation, respectively, in 
2012. Both C and D must electronically file the individual income 
tax returns that they prepare in 2012, unless the returns are 
otherwise excluded from the electronic filing requirement, because 
they are members of the same firm and the aggregated total of 
individual income tax returns that they reasonably expect to file in 
2012 (nineteen), exceeds 10 individual income tax returns.

    (f) Additional guidance. The IRS may implement the requirements of 
this section through additional guidance, including by revenue 
procedures, notices, publications, forms and instructions, including 
those issued electronically.
    (g) Proposed effective/applicability dates. This section is 
proposed to be effective and applicable on January 1, 2011.

Steven T. Miller,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2010-30500 Filed 12-1-10; 4:15 pm]
BILLING CODE 4830-01-P