Archived Guidance for prior year FAQs B. Corporations Required to e-file # Questions Answers B1 Which corporations are required to file returns electronically? Temporary Regulations issued January 11, 2005 and Final Regulations announced in TD 9363, which were implemented effective November 13, 2007, require certain corporations to electronically file. Those corporations with $10 million or more in total assets and that file 250 or more returns a year are required to electronically file their Form 1120, 1120S, and 1120-F. B2 How do I determine whether the corporation meets the 250-return threshold? All returns filed by a corporation or members of a controlled group of corporations during the calendar year are counted. The total is determined by aggregating all returns, regardless of type, that are required to be filed over the calendar year, including income tax returns, returns required under section 6033, information returns, excise tax returns, and employment tax returns. Corrected returns, amended returns, or forms filed with the 1120, 1120S, or 1120-F tax return, such as Form 5471, are not counted. Example 1 - A corporation that files a consolidated return has 5 subsidiaries. Each subsidiary and the parent have 25 employees, one of the subsidiaries files100 Forms 1099, and another subsidiary files 3 Forms 720. The corporation filing the consolidated return is deemed to have met the 250-return threshold because: Each of the 150 Forms W-2 is considered a separate return. Each of the 6 Forms 940 are considered a separate return. Each of the 24 Forms 941 are considered a separate return. Each of the 100 Forms 1099 are considered a separate return. Each of the 3 Forms 720 are considered a separate return. The Form 1120 consolidated return counts as a separate return. The S corporation with 300 employees meets the 250-return threshold. The S corporation with 200 employees and the exempt organization do not meet the 250-return threshold since the concept of aggregation does not apply to Forms 1120S and 990.Example 2 – A controlled group as defined by IRC §1563(a) has 3 member corporations. All members file Form 1120S. Corporations A and C have 20 employees and Corporation B has 300 employees. Only Corporation B is deemed to have met the 250-return threshold since the concept of aggregation does not apply when a controlled group does not have at least 1 member who files Form 1120.Example 3 – A controlled group, as defined by IRC §1563(a), has 5 members, 1 Consolidated C corporation, 2 non-consolidated C corporations, and 2 S corporations. The consolidated C corporation (Corp A) has 50 employees, 1 of the non-consolidated C corporations (Corp B) has 300 employees and 1 of the non-consolidated C corporations (Corp C) has 30 employees. 1 of the S corporations (S Corp D) has 300 employees and the other S corporation (S Corp E) has 200 employees. The aggregate number of returns filed for the controlled group is 910. The consolidated C corporation and both of the non-consolidated C corporations are deemed to have met the 250-return threshold because the concept of aggregation applies to all C corporations in a controlled group: Each of the 880 Forms W-2 are considered a separate return. Each of the 5 Forms 940 are considered a separate return. Each of the 20 Forms 941 are considered a separate return. Each of the 5 Forms 1120/1120S are considered a separate return. Example 4 – A controlled group as defined by IRC § 1563(a) has 2 member corporations, a C corporation and a foreign corporation. The foreign corporation was required to file a Form 1120F because it had income, gains, or losses treated as if they were effectively connected with the conduct of a U.S. trade or business (ECI). The C Corporation files 245 returns and the foreign corporation files 7 returns. Both C corporation and foreign corporation meet the 250 return threshold because the concept of aggregation applies to all C corporations and foreign corporations in a controlled group as defined by I.R.C. § 1563(a), see Treas. Reg. § 301.6011-5(d)(3).Example 5 – A controlled group as defined by IRC § 1563(a) has 2 member corporations, a C corporation and a foreign corporation that has no effectively connected income (ECI). Although it has no ECI, the foreign corporation is required to file a Form 1120-F return because it has U.S. source income and its tax liability was not fully satisfied by withholding of tax at source under section 3 of the Code. The C Corporation files 245 returns and the foreign corporation files 7 returns. Both C Corporation and foreign corporation meet the 250 return threshold. Although a foreign corporation that has no ECI under I.R.C. § 881 may fall under the definition of an "excluded member" under I.R.C. § 1563(b)(2), it is still a member of a controlled group of corporations as defined by I.R.C. § 1563(a) and Treas. Reg. § 301.6011-5(d)(3), and the foreign corporation would be required to aggregate its returns with those filed by the controlled group. The concept of aggregation does not apply to Forms 1120S and 990. The S corporation with 300 employees meets the 250-return threshold. The S corporation with 200 employees does not meet the 250-return threshold. Entity Actual Returns Filed Returns Deemed filed Required to e-file Corp A 56 1 – 1120 1 – 940 4 – 941 50 – W-2 910 Aggregation applies Yes Corp B 306 1 – 1120 1 – 940 4 – 941 300 – W-2 910 Aggregation applies Yes Corp C 36 1 – 1120 1 – 940 4 – 941 30 – W-2 910 Aggregation applies Yes S Corp D 306 1 – 1120S 1 – 940 4 – 941 300 – W-2 306 Aggregation does NOT apply Yes S Corp E 206 1 – 1120S 1 – 940 4 – 941 200 – W-2 206 Aggregation does NOT apply No B3 Are returns filed by a related partnership included when determining if a corporation meets the 250-return threshold? No, a controlled group, as defined by IRC §1563(a), does not include partnerships. Returns filed by a related partnership are not included when determining if a corporation meets the 250-return threshold. B4 If a corporation meets the asset and return filing thresholds, and files a 52-53 week return, are they required to e-file their tax return? Yes, a corporation that meets the asset and return filing threshold and is a 52/53 week filer must file electronically B5 Will the IRS grant waivers releasing taxpayers from the e-file requirement? Notice 2010-13PDF provides that taxpayers can request waivers from the electronic filing requirement where the taxpayer can not meet electronic filing requirements due to technology constraints or where compliance with the requirements would result in undue financial burden on the taxpayer. The notice also outlines the specific steps taxpayers should follow when requesting waivers from the IRS. B6 What actions should a corporation take to ensure they are ready for filing an income tax return electronically? The answer depends on whether the corporation will use a tax professional to prepare their electronic income tax return or if the corporation plans to prepare their own electronic income tax return. Corporations that plan to use a tax professional to prepare their electronic income tax return should check with them early and ensure they are IRS Authorized e-file Providers. Also, these corporations should review the FAQs in section D of these FAQs. Corporations that plan to prepare their own income tax returns should discuss the various electronic filing options with their software vendor as soon as possible and may need to take steps to register and complete the IRS e-file Application. Additional information for these taxpayers is in section E of these FAQs. B7 What happens if a corporate taxpayer required to e-file fails to comply? If a corporate taxpayer fails to file an income tax return on magnetic media when required to do so by regulations, the IRS may determine that the taxpayer has failed to file the return. The taxpayer then becomes subject to §6651 additions to tax, typically resulting in monetary penalties on the amount of underpayment. Additionally, any return not in compliance with the electronic filing requirement will be considered to not have been timely filed rendering any elections invalid. A separate penalty may apply to each Form 5471 which is improperly filed. These penalties will apply even if no tax is due on Form 1120. The Service contacts taxpayers who report assets exceeding $10M and file 250 returns in a year. We explain the electronic filing requirements to these taxpayers and work with them to subsequently electronically file if they are covered by TD 9363. The Service will continue to monitor paper filing submissions and enforce the requirements of electronically filing. B8 If the corporation is required to file their Form 1120, 1120S, or 1120-F under TD 9363, are they also required to e-file their extension and employment tax returns? No, the requirement to e-file under TD 9363 applies to Forms 1120, 1120S, or 1120-F. Forms 7004 and the 94X family are not required to be e-filed. B9 We officially amended our certificate of incorporation to reflect a new corporate name and were intending to notify IRS by checking the box on the face of the tax return. Can we file the corporation’s tax return on paper because the e-file system does not accept name changes? The Modernized e-File system was enhanced to accept name change returns. Taxpayers with a name change that are otherwise required to e-file must file electronically unless they have received an approved waiver. B10 Prior versions of Publication 4163 and Publication 4164 indicated that Name Change Returns were excluded from electronic filing. Does that mean that a taxpayer covered by the electronic filing mandate that officially changed their name and intended to notify the IRS by checking the box on the face of the Form 1120, 1120S, or 1120-F return is excluded from e-filing? No, Publications 4163PDF and 4164PDF have been updated to remove the exclusion. (see FAQ B9 above) B11 Is a taxpayer covered by the electronic filing mandate that officially changed their name and that has already notified the IRS of this change required to file electronically? Yes. Since the notification to IRS of the name change would have resulted in a new Name Control (if applicable), there will not be a problem using the new name and new Name Control. There is a possibility that the new Name Control has not been updated in the IRS system. If, for some reason, the e-filed return rejected for a Name Control/ EIN mismatch, and the EIN is correct, the filer should refile the return and check the “Name change” checkbox on the return. B12 How do you officially change the name of a Corporation with the Internal Revenue Service? If you are filing a current year return, mark the appropriate name change box of the Form 1120 type you are using: Form 1120: Page 1, Line E, Box 3 Form 1120S: Page 1, Line F, Box 3 Form 1120-F: Page 1, Top Right "Name or Address Change" Box If you have already filed your return for the current year, write to us at the address you find under the “Where To File” section of the form instructions to inform us of the name change. In addition: The notification must be signed by a Corporate Officer. Articles of Amendment to the Certificate of Incorporation from the state that authorized the Corporation’s name change must be attached B13 If I change the name of my corporation, do I need a new EIN? In some situations, a name change may require a new Employer Identification Number (EIN) or a final return. See Publication 1635PDF, Understanding Your EIN, to make this determination. If only the name is changing, you do not need a new EIN. B14 If the corporation is required to file their Form 1120, 1120S, or 1120-F under TD 9363, are they also required to e-file any amended or superseding tax returns? Yes, if the taxpayer is required to file electronically based on the regulations, then they must also electronically file their TY 2016, 2017 and 2018 amended and superseding returns. A taxpayer must receive an approved waiver to file that particular return on paper. In Processing Year 2018, MeF will process TY 2016, 2017 and 2018 returns. Only those tax years may be filed electronically in Processing Year 2019. TY 2015 and prior returns cannot be filed electronically after December 26, 2017. Any amended TY 2015 return must be filed on paper, since the MeF system can no longer process these returns. No waiver is needed to file the amended TY 2015 on paper. B15 If the corporation is required to file their Form 1120, 1120S, or 1120-F under TD 9363, are they also required to e-file any short-period tax returns? Yes, all short periods ending on or after November 13, 2007 are required to be e-filed if the taxpayer is required to file electronically based on the regulations. A taxpayer must have received an approved waiver to file that particular return in paper. B16 My corporation files Form 1120-F. How do I determine if we meet the $10 million asset threshold for corporations required to e-file? Treasury Regulations § 301.6011-5(a)(1) and (f) provide that a corporation must e-file its Form 1120 if it is required to file at least 250 returns during the calendar year ending with or within its taxable year and it reports “total assets at the end of the corporation’s taxable year that equal or exceed $10 million on Schedule L of their Form 1120.” For foreign corporations filing a Form 1120-F, U.S. Income Tax Return of a Foreign Corporation, the foreign corporation can elect whether their Schedule L will include worldwide assets or limit it to U.S. connected assets. See Treasury Regulations. § 1.6012-2(g)(1)(iii). Because Treasury Regulation § 301.6011-5(f) refers to total assets that equal or exceed $10 million on Schedule L, and Treasury Regulation § 1.6012-2(g)(1)(iii) gives the Form 1120-F filer an election to include only U.S. connected assets on Schedule L, the $10 million threshold determination is based on what the foreign corporation elects to report on its Schedule L. Accordingly for purposes of determining the $10 million threshold for purposes of the corporate e-filing mandate, foreign corporations filing a Form 1120-F will be mandated to e-file their Form 1120-F if their Schedule L assets equal or exceed $10 million, and the $10 million threshold is determined based on the foreign corporation’s U.S. connected assets if the foreign corporation elects to complete its Schedule L based on its U.S. connected assets consistent with Treasury Regulation § 1.6012-2(g)(1)(iii). B17 My corporation was required to e-file for TY 2017 but our total assets will drop below $10 million for TY 2018. Are we still required to e-file? Treasury Regulations § 301.6011-5(a)(1) and (f) provide that a corporation must e-file its Form 1120 if it is required to file at least 250 returns during the calendar year ending with or within its taxable year and it reports “total assets at the end of the corporation’s taxable year that equal or exceed $10 million on Schedule L of their Form 1120.” The requirement to e-file is based on the number of returns and dollar threshold during the taxable year. Since the total assets of the corporation dropped below $10 million in 2018, the corporation is not required to e-file the 2018 return. If the total assets of the corporation is over $10 million in 2018 and the corporation is still required to file at least 250 returns during the calendar year, then the corporation would be required to e-file their corporate return for TY 2018.
