Specified Tax Return Preparers Required To File Individual Income Tax Returns Using Magnetic Media, 17521-17530 [2011-7571]

Agencies

• Internal Revenue Service
• DEPARTMENT OF THE TREASURY

[Federal Register Volume 76, Number 61 (Wednesday, March 30, 2011)]
[Rules and Regulations]
[Pages 17521-17530]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2011-7571]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 9518]
RIN 1545-BJ52


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

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations.

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SUMMARY: This document contains final regulations on the requirement 
for ``specified tax return preparers'' to file individual income tax 
returns using magnetic media pursuant to section 6011(e)(3) of the 
Internal Revenue Code (Code). The final regulations reflect changes 
made to the law by the Worker, Homeownership, and Business Assistance 
Act of 2009. These regulations provide guidance to specified tax return 
preparers who prepare and file individual income tax returns. Unless an 
exception in these regulations applies, a tax return preparer who meets 
the definition of a ``specified tax return preparer'' must 
electronically file Federal income tax returns that the preparer 
prepares and files for individuals, trusts, and estates. These 
regulations provide a two-year transition period for certain specified 
tax return preparers.

DATES: Effective Date: These regulations are effective March 30, 2011.
    Applicability Dates: In accordance with sections 7805(b)(1)(B) and 
(b)(2) and section 6011(e)(3), these regulations are applicable to 
individual income tax returns filed after December 31, 2010. See Sec.  
301.6011-7(g).

FOR FURTHER INFORMATION CONTACT: Keith L. Brau, (202) 622-4940 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

    The collection of information contained in these final regulations 
has been reviewed and approved by the Office of Management and Budget 
in accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 
3507(d)) under control number 1545-2201. The collection of information 
in these final regulations is in Sec.  301.6011-7(a)(4)(ii). This 
taxpayer choice statement information will be used by tax return 
preparers and specified tax return preparers 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), Sec.  1.6011-7, and Sec.  301.6011-7. The collection of 
information is voluntary to obtain a benefit.
    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. Generally, tax returns and 
tax return information are confidential, as required by 26 U.S.C. 6103.

Background

    This document contains final amendments to the Regulations on 
Income Taxes (26 CFR part 1) and the Regulations on Procedure and 
Administration (26 CFR part 301) under section 6011(e) of the Code 
relating to the requirement for specified tax return preparers to file 
individual income tax returns using magnetic media (electronically). 
Section 17 of the Worker, Homeownership, and Business Assistance Act of 
2009 (Pub. L. 111-92 (123 Stat. 2984, 2996)) amended section 6011(e)(1) 
and added new section 6011(e)(3) as an exception to the restriction in 
section 6011(e)(1) 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. 
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. Section 6011(e)(3)(B) 
defines a specified tax return preparer as, with respect to any 
calendar year, any tax return preparer unless such preparer reasonably 
expects to file 10 or fewer individual income tax returns during such 
calendar year. Section 6011(e)(3) does not define the term ``filed.''
    Under section 6011(e)(3)(C), an individual income tax return is any

[[Page 17522]]

return of the 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). At this time, certain individual income tax returns such as 
Form 990-T, Form 1040-NR (U.S. Nonresident Alien Income Tax Return), 
Form 1041-QFT (U.S. Income Tax Return for Qualified Funeral Trusts), 
and all amended individual income tax returns, such as Form 1040X 
(Amended U.S. Individual Income Tax Return), cannot be filed 
electronically and, therefore, currently are exempt from the electronic 
filing requirement. See Sec.  301.6011-7(c)(2) and Notice 2011-26.
    A notice of proposed rulemaking (REG-100194-10) was published in 
the Federal Register (75 FR 75439) on December 3, 2010. That document 
proposed to amend the regulations under section 6011(e) by adding new 
Sec. Sec.  1.6011-6 and 301.6011-6. These sections would provide 
guidance on the electronic filing requirement contained in section 
6011(e)(3), including, but not limited to, the following: (1) 
Clarifying the definition of a specified tax return preparer 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 would be 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; (2) providing a 
definition of the term file based on whether the tax return preparer or 
specified tax return preparer submits the individual income tax return 
to the IRS; (3) recognizing a taxpayer's ability to choose to file an 
individual income tax return in paper format and providing that a tax 
return preparer or a specified tax return preparer is not considered to 
have filed an individual income tax return if the preparer obtains a 
signed writing from the taxpayer attesting that the taxpayer chooses to 
file the individual income tax return in paper format and the taxpayer, 
and not the preparer, will file (submit) the individual income tax 
return to the IRS; (4) providing exclusions from the electronic filing 
requirement for individual income tax returns filed in paper format 
pursuant to an undue hardship waiver or administrative exemption; (5) 
giving examples of the application of the proposed rules; and (6) 
providing a two-year transition rule for the implementation of section 
6011(e)(3). For calendar year 2011, the proposed regulations would 
define a specified tax return preparer as a tax return preparer who 
reasonably expects to file (or if the tax return 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 would be a 
tax return preparer who reasonably expects to file (or if the tax 
return 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.
    Concurrently with publication of the proposed regulations, the IRS 
released Notice 2010-85, see IR-2010-116 (December 1, 2010) and 2010-51 
IRB 877 (December 20, 2010), which contained a proposed revenue 
procedure that would provide guidance to tax return preparers regarding 
the format and content of undue hardship waiver requests and taxpayer 
choice statements.
    Written comments were received by the Treasury Department and the 
IRS in response to the notice of proposed rulemaking and concurrent 
notice. A public hearing was held on January 7, 2011. Commentators 
appeared at the public hearing and commented on the notice of proposed 
rulemaking and Notice 2010-85. All comments were considered and are 
available for public inspection at https://www.regulations.gov or upon 
request. This preamble addresses all substantive comments received by 
the Treasury Department and the IRS. After consideration of the written 
comments and the comments provided at the public hearing, the proposed 
regulations under section 6011(e)(3) are adopted as revised by this 
Treasury decision. The revisions are discussed in this preamble. In 
addition, although not discussed in the preamble, a few minor, non-
substantive changes were made to the text of the final regulations to 
conform the language used throughout the regulations. Further, the 
``1.6011-6'' and ``301.6011-6'' numbering used in the proposed 
regulations have been changed to ``1.6011-7'' and ``301.6011-7'' in 
these final regulations because ''301.6011-6'' was used in another 
proposed regulation, proposed Sec.  301.6011-6 (Statement of series and 
series organizations), which is unrelated to these regulations.
    Concurrent with the publication of these regulations, the IRS is 
publishing a revenue procedure providing guidance to tax return 
preparers regarding the format and content of undue hardship waiver 
requests and taxpayer choice statements under Sec.  301.6011-7(c)(1) 
and Sec.  301.6011-7(a)(4)(ii), a notice containing administrative 
exemptions to the electronic filing requirement under Sec.  301.6011-
7(c)(2), and a transition notice regarding the mailing of individual 
income tax returns by specified tax return preparers during the 2011 
calendar year.

Summary of Comments

    Fifty-three written comments were received in response to the 
notice of proposed rulemaking and Notice 2010-85, and two commentators 
spoke at the public hearing.

1. Definition of a Specified Tax Return Preparer

    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 or a person who prepares 
a return as a fiduciary. One commentator stated that section 6011(e)(3) 
made no distinction with respect to whether the tax return preparer is 
compensated and requested that the final regulations delete the phrase 
``as defined in section 7701(a)(36) and Sec.  301.7701-15'' so that the 
rules would apply to any tax return preparer who prepares and files the 
requisite number of individual income tax returns. The final 
regulations do not adopt this recommendation. Section 7701(a) provides 
that ``[w]hen used in this title, where not otherwise directly 
expressed or manifestly incompatible with the intent thereof,'' the 
definition of ``tax return preparer'' is that which is provided by that 
Code section. Section 6011(e)(3) does not define ``tax return 
preparer,'' nor is the definition provided by section 7701(a)(36) 
``manifestly incompatible with the intent'' of section 6011(e)(3). 
These final regulations therefore adopt the definition set forth in 
section 7701(a)(36) and its corresponding regulations. See Sec.  
301.6011-7(a)(3).
    One commentator suggested that the definition of specified tax 
return preparer should be applied solely on a firm basis, not on an 
individual basis, and the individual income tax returns a

[[Page 17523]]

tax return preparer prepares independently for the preparer's own 
business should not be aggregated with any individual income tax 
returns that the same person prepares as an employee for a firm. For 
example, if a tax return preparer prepares and files 60 individual 
income tax returns (that is, fewer than 100 in 2011) while working as 
an employee of a firm, and independently prepares and files 60 
individual income tax returns as a sole proprietor, the commentator 
believes the tax return preparer should not be subject to the 
electronic filing requirement for the latter returns. The Treasury 
Department and the IRS do not adopt this approach in the final 
regulations. The suggested approach would not be consistent with the 
statute. Congress placed the electronic filing responsibility of 
section 6011(e)(3) on each individual tax return preparer who 
reasonably expects to prepare and file more than 10 individual income 
tax returns in a calendar year.
    Other commentators stated that the reasonable expectation for 
filing individual income tax returns in a calendar year should be 
determined solely at the individual tax return preparer level and not 
take into consideration the individual income tax returns prepared and 
filed by other tax return preparers in the firm. Under the proposed 
regulations, in the above example, the individual income tax returns 
that the other members of the firm expect to prepare and file would be 
aggregated with the 60 individual income tax returns that the above-
mentioned person expects to prepare and file as an employee of the 
firm. Firm aggregation rules were included in the proposed regulations 
to limit avoidance of the statutory requirement, for example, by a firm 
purposely arranging its workload to prevent one or more of its tax 
return preparers from becoming a specified tax return preparer under 
section 6011(e)(3). As a result, the Treasury Department and the IRS do 
not adopt the commentators' recommendation and have maintained the 
proposed firm aggregation rules in the final regulations. See Sec.  
301.6011-7(a)(3) and Sec.  301.6011-7(d).
    Instead of determining the reasonable filing expectation based on 
the individual income tax returns reasonably expected to be filed in 
the calendar year, another commentator recommended that the reasonable 
filing expectation be determined based solely on the number of 
individual income tax returns filed in the immediately preceding year. 
This comment is not adopted. Section 6011(e)(3)(B), and not the 
regulations, establishes the reasonable expectation standard. Further, 
the Treasury Department and the IRS have concluded that the number of 
individual income tax returns filed in the immediately preceding year 
may be a relevant factor but should not be the only factor in making a 
reasonable expectation determination for a calendar year.

2. Definition of File

a. Mailing Paper Returns for Taxpayer-Clients
    Several commentators opposed the requirement that individual income 
tax returns prepared and filed by a specified tax return preparer be 
filed electronically. These commentators stated that they sometimes 
mail to the IRS the paper tax returns that they prepare for their 
clients as a service for their clients, often for those who are 
elderly, incapacitated, on travel, or in other situations in which it 
would not be practical or convenient to have the client mail the return 
to the IRS. For some of these clients, the individual income tax return 
may be unusually large in size or a filing due date may be imminent. 
For similar reasons, other commentators objected to the requirement in 
proposed Sec.  301.6011-6(a)(4)(ii) that a taxpayer, not the specified 
tax return preparer, must submit the paper individual income tax return 
to the IRS when the taxpayer chooses to file in paper format. They 
recommended that this requirement be eliminated, or, if the clients 
choose to have their individual income tax returns prepared in paper 
format and sign a statement documenting that choice, the specified tax 
return preparers should be able to mail those returns if the clients 
request this additional service from them.
    Congress established the requirement that any individual income tax 
return prepared by a tax return preparer be filed on magnetic media 
(electronically) if such individual income tax return is filed by the 
tax return preparer and the preparer is a specified tax return preparer 
for the calendar year during which the individual income tax return is 
filed. The language that Congress used in the statute, in particular 
section 6011(e)(3)(A)(i) and (B), specifically refers to the act of 
``filing'' the individual income tax return by the tax return preparer 
or specified tax return preparer. The statute did not, however, define 
the term ``file.'' The Treasury Department and the IRS believe that, 
with respect to paper returns, a definition of the term file based on 
the act of the tax return preparer or specified tax return preparer (or 
a member of the preparer's firm) submitting the individual income tax 
return is reasonable and necessary to give effect to the electronic 
filing requirement enacted by Congress. Otherwise, the requirement 
would have no meaning or consequence. As a result, the Treasury 
Department and the IRS do not adopt the commentators' recommendations 
that the mailing restrictions be eliminated. Consistent with section 
6011(e)(3), the final regulations provide that tax return preparers 
qualify as specified tax return preparers if they (or their firm) 
reasonably expect to file, that is, submit to the IRS, the specified 
number of individual income tax returns, and even if the tax return 
preparers file more than the specified number of individual income tax 
returns and therefore qualify as specified tax return preparers, these 
preparers need not electronically file an individual tax return if they 
(or their firm) do not file the return, that is, submit it to the IRS, 
as defined in the regulations. See Sec.  301.6011-7(a)(4).
    The Treasury Department and the IRS recognize that the mailing 
restriction may create unforeseen or unavoidable difficulties for 
immediate compliance, particularly in situations in which specified tax 
return preparers have customarily mailed individual income tax returns 
to the IRS as part of the specified tax return preparer's general 
business practice, or in which they mail a client's paper individual 
income tax return to the IRS on the client's behalf due to special 
circumstances, for example, the disability, incapacitation or infirmity 
of the client. Under these final regulations the IRS has the authority 
to issue additional guidance in the form of announcements, notices, or 
FAQs to address issues related to the filing of a taxpayer's individual 
income tax return under section 6011(e)(3) that will promote fair and 
efficient tax administration. In response to the public comments and 
concurrent with the publication of these regulations, the IRS is also 
publishing a transition notice regarding the mailing of individual 
income tax returns by specified tax return preparers during the 2011 
calendar year. Solely for calendar year 2011, a specified tax return 
preparer who prepares individual income tax returns may mail any such 
return in paper format to the IRS, at the request of the taxpayer, 
subject to the conditions specified in Notice 2011-27. The specified 
tax return preparer must obtain a signed and dated statement from the 
taxpayer containing the taxpayer's choice to have the individual income 
tax return filed in paper format,

[[Page 17524]]

and the taxpayer's unambiguous request to have the specified tax return 
preparer mail the individual income tax return to the IRS. See Notice 
2011-27 for details.
b. Acts of Assistance Beyond Providing Filing or Delivery Instructions 
to Taxpayers
    The definition of file in the proposed regulations would include 
the submission by the tax return preparer or specified tax return 
preparer of an individual income tax return, either electronically (e-
filed) or in paper format. Submission in non-electronic (paper) form 
would include ``the direct or indirect transmission, sending, mailing 
or otherwise delivering of the paper tax return to the IRS by the 
preparer * * *and includes any act or acts of assistance beyond 
providing filing or delivery instructions to the taxpayer.'' Several 
commentators expressed confusion as to which acts of assistance would 
amount to filing by the tax return preparer. For example, if a tax 
return preparer provides the client with an addressed envelope or 
proper postage to make sure the postage is correct, but the client 
physically mails the individual income tax return, would that be 
considered filing by the tax return preparer? In response to these 
commentators' concerns, the phrases ``direct or indirect'' and ``and 
includes any act or acts of assistance beyond providing filing or 
delivery instructions to the taxpayer'' were deleted from the final 
regulations. Acts such as providing filing or delivery instructions, an 
addressed envelope, postage estimates, stamps, or similar acts designed 
to assist the taxpayer in the taxpayer's efforts to correctly mail or 
otherwise deliver an individual income tax return to the IRS do not 
constitute filing by the tax return preparer or specified tax return 
preparer as long as the taxpayer actually mails or otherwise delivers 
the paper individual income tax return to the IRS.

3. Taxpayer Choice Statements To File in Paper Format

    The proposed regulations contain a provision that would provide 
taxpayers, who have their individual income tax returns prepared by a 
tax return preparer, the choice to have those returns filed in paper 
format. In particular, proposed Sec.  301.6011-6(a)(4)(ii) states that 
an individual income tax return would not be considered to be filed by 
a tax return preparer or specified tax return preparer if the preparer 
obtained, on or prior to the date the individual income tax return is 
filed, a signed and dated written statement from the taxpayer, stating 
the taxpayer chooses to file the individual income tax return in paper 
format, and that the taxpayer, and not the preparer, would submit the 
paper individual income tax return to the IRS. Further, this statement 
would have to be signed by both spouses if it was a joint return.
a. Taxpayer Choice Statement Form
    The Treasury Department and the IRS received several comments 
supporting a taxpayer's choice to file an individual income tax return 
in paper format. Some commentators, however, questioned the need for 
the taxpayer choice statement, especially for tax return preparers who 
never mail individual income tax returns to the IRS on behalf of their 
clients, but instead give the returns to their clients to mail to the 
IRS. According to these comments, under the proposed regulations, the 
electronic filing requirement would apply only to specified tax return 
preparers, that is, those who file the requisite number of individual 
income tax returns. In their view, if the tax return preparer never 
files individual income tax returns on behalf of clients, or files ten 
or fewer (fewer than 100 in 2011), the tax return preparer would not 
meet the definition of a ``specified tax return preparer,'' and should 
not have to obtain a taxpayer choice statement from these clients.
    The burden of compliance with the electronic filing requirement is 
on the tax return preparer and specified tax return preparer. Neither 
the fact that the IRS receives a taxpayer's paper individual income tax 
return in the mail nor the fact that the tax return preparer's or 
specified tax return preparer's general business practice is to not 
mail paper individual income tax returns for clients necessarily 
establishes that the preparer did not file a particular individual 
income tax return with the IRS. See Revenue Procedure 2011-25. Based on 
the above, the Treasury Department and the IRS adopt proposed Sec.  
301.6011-6(a)(4)(ii) in the final regulations, except for the 
modification described in paragraph 3.b of this preamble. If the tax 
return preparer or specified tax return preparer obtains a signed 
statement in compliance with the requirements established in Revenue 
Procedure 2011-25, the signed statement will demonstrate compliance 
with the electronic filing requirement should the IRS question a 
preparer about the filing of a particular individual income tax return 
in paper format.
b. Only One Spouse Is Required To Sign the Taxpayer Choice Statement 
for a Joint Return
    Several commentators recommended that only one spouse, instead of 
both spouses, should be required to sign the taxpayer choice statement 
related to a joint individual income tax return. They expressed 
concerns that the two-signature requirement might not be practical in 
some cases, for example, when one spouse is unable to sign due to a 
health condition, or not available because of distance due to a 
temporary absence from the spouse's customary residence. Although the 
Treasury Department and the IRS continue to encourage tax return 
preparers to obtain both spouses' signatures on the taxpayer choice 
statement as a best practice, the commentators' recommendation that one 
spouse's signature will suffice for a joint return is adopted in the 
final regulations.
c. Suggested Alternatives to Signed Taxpayer Choice Statement
    The proposed regulations requested comments on how the burden of 
complying with the proposed taxpayer choice statement could be 
minimized. The comments received several suggested alternatives: (1) 
The IRS create a form similar to the ``opt-out'' forms used by some 
states that have an electronic filing requirement; (2) the IRS create a 
check-box on individual income tax returns in lieu of a separate 
writing obtained from the taxpayer; (3) the IRS accept IRS Form 8948 
(Preparer Explanation for Not Filing Electronically) if the check-box 
for taxpayer choice to file in paper format is checked; or (4) the IRS 
allow a contemporaneous email (unsigned) from the taxpayer to the 
preparer, containing the recommended language.
    The Treasury Department and the IRS have considered these 
suggestions in finalizing the revenue procedure on taxpayer choice 
statements and do not adopt them at this time. See Revenue Procedure 
2011-25. Regarding the recommendations that the IRS create a new form 
or add a check-box to the individual income tax return forms affected 
by section 6011(e)(3), it is unclear how the provision of an additional 
form would be any more beneficial, easier to implement, or time or cost 
effective than the taxpayer choice statement provided because that 
statement is short and easy and inexpensive to reproduce. Regarding use 
of the Form 8948, because this form is completed by a specified tax 
return preparer and is not signed by the taxpayer, checking a box on 
Form 8948 is insufficient proof of a taxpayer's choice to file in paper 
format. Finally, an email message from the taxpayer is insufficient 
proof of a taxpayer's choice to file an individual income tax return in 
paper format. If sent as a scanned

[[Page 17525]]

attachment to an email, however, a copy of a hand-signed statement in 
compliance with the final regulations and related guidance will 
suffice. See Rev. Proc. 2011-25. The Treasury Department and the IRS 
have concluded that the taxpayer's hand-written signature is necessary 
to establish that the taxpayer chose to file in paper format and should 
be required on all taxpayer choice statements. See Sec.  301.6011-
7(a)(4)(ii).

4. Undue Hardship Waivers

    The proposed regulations contain a provision which would provide an 
exclusion from the electronic filing requirement in cases of undue 
hardship. The Treasury Department and the IRS received several comments 
supporting this provision and the relief that it would provide. The 
final regulations adopt this exclusion, recognizing that there may be 
facts and circumstances in which the electronic filing requirement 
would create an undue hardship on the specified tax return preparer. 
Specified tax return preparers may request an undue hardship waiver 
from the IRS in the time and manner as set forth in the regulations and 
other published guidance.
    One commentator recommended that taxpayers should be able to submit 
a hardship waiver request to the IRS. This recommendation was not 
adopted. The electronic filing requirement of section 6011(e)(3) and 
the final regulations is imposed on a specified tax return preparer, 
not on a preparer's taxpayer-client. Since the burden of compliance 
rests with the specified tax return preparer, the preparer should be 
the person responsible for submission of undue hardship waiver 
requests.
    As mentioned above, the Treasury Department and the IRS published 
Notice 2010-85 and received comments on the proposed undue hardship 
waiver procedures. All comments were considered and some adopted in the 
revenue procedure published concurrently with these final regulations. 
See Rev. Proc. 2011-25.

5. Administrative Exemptions

    The proposed regulations contain a provision that would provide an 
exclusion from the electronic filing requirement pursuant to 
administrative exemptions established by the IRS in additional 
guidance. The Treasury Department and the IRS received several comments 
in support of this provision, suggesting several possible 
administrative exemptions. The final regulations adopt this provision. 
The Treasury Department and the IRS considered the comments and 
included many of the suggested administrative exemptions in Notice 
2011-26, which provides administrative exemptions to the electronic 
filing requirement and is being issued contemporaneously with these 
final regulations.
    Among the suggested administrative exemptions, Notice 2011-26 
includes exemptions for (1) Certain specified tax return preparers who 
are members of certain religious groups, certain foreign preparers 
without social security numbers, or specified tax return preparers who 
are currently ineligible for the IRS e-file program due to an IRS e-
file sanction; (2) individual income tax returns that are not 
electronically filed due to technological difficulties, including a 
return that a specified tax return preparer was unable to e-file 
because the return was rejected, a return prepared by a tax return 
preparer or specified tax return preparer whose e-file software package 
does not support one or more forms or schedules that are part of the 
return, or a return prepared by a tax return preparer or specified tax 
return preparer who experiences a short-term inability to 
electronically file the return or returns due to some other verifiable 
and documented technological problem; and (3) individual income tax 
returns currently not accepted electronically (for example, Forms 1040-
NR and 990-T) or any documentation or attachments not accepted 
electronically, such as documentation for section 6707A disclosures or 
required appraisals to support charitable contributions. Some 
individual income tax returns, however, can be filed electronically and 
the attachments mailed to the IRS using a transmittal Form 8453 (U.S. 
Individual Income Tax Transmittal for an IRS e-file Return) or Form 
8453-F (U.S. Estate or Trust Income Tax Declaration and Signature for 
Electronic Filing). The associated return must be filed electronically 
if prepared and filed by a specified tax return preparer and otherwise 
capable of being e-filed, and the attachments mailed to the IRS using a 
transmittal Form 8453. See the instructions to Form 8453 and the 
instructions to Form 8453-F.

6. Transition Period

    To enhance compliance and to promote effective and efficient 
administration of the electronic filing requirement of section 
6011(e)(3), the proposed regulations would provide a transition rule 
that would phase in the new electronic filing requirement for specified 
tax return preparers over a two-year period--100 or more returns in 
2011 and 11 or more returns starting in 2012. Solely for the 2011 
calendar year, a tax return preparer would 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.
    Several commentators supported the concept of a transition rule. 
For various reasons, primarily the issuance of these final regulations 
and other guidance at the beginning of the 2011 filing season, some 
commentators urged that the effective date of the electronic filing 
requirement be delayed until January 2012. Due to similar concerns, 
another commentator recommended that the transition period be expanded 
by lengthening the period to three years and increasing the filing 
threshold for calendar year 2011 from 100 to 200 individual income tax 
returns. This commentator pointed out that some states used 200 returns 
for their state return electronic filing requirement at least for the 
initial filing season. Either approach would allow tax return preparers 
more time to become familiar with these final regulations and to give 
those subject to the new rules more time to make the necessary 
preparations and arrangements to comply with the rules.
    The final regulations adopt the transition period proposed in the 
proposed regulations--100 or more individual income tax returns in 
2011, and 11 or more individual income tax returns in 2012 and 
thereafter. This approach maintains the congressionally-mandated 
effective date applicable to all individual income tax returns filed 
after December 31, 2010, while providing both tax return preparers and 
the IRS with the ability to effectively and efficiently transition to 
the mandatory electronic filing of individual income tax returns. In 
addition, tax return preparers who have not already entered the IRS e-
file system and who have always prepared their clients' individual 
income tax returns in paper format are unlikely to be adversely 
affected by the difference between 100 and 200 returns. Since the final 
regulations (like the proposed regulations) do not count the paper 
individual income tax returns filed by taxpayers who sign a taxpayer 
choice statement to file in paper format, these tax return preparers 
may not meet the definition of ``specified tax return preparer'' if the 
tax return preparers either reasonably expect their clients to continue 
to file their individual income tax returns in paper format or obtain 
this statement from their clients.
    It is also noted that throughout 2010 the IRS performed extensive 
educational

[[Page 17526]]

outreach across the country, informing the tax return preparer 
community of the anticipated 100-return transition rule for 2011. This 
educational outreach included, among other things, a discussion of the 
administrative exemptions that the IRS anticipated would be included in 
final guidance.

7. Electronic Filing Burden

    Some commentators stated that the electronic filing requirement is 
burdensome, including imposing additional costs on tax return preparers 
and their clients, and questioned the accuracy of the hour burden 
estimates set forth in the Paperwork Reduction Act section of the 
proposed regulations. The proposed regulations, however, did not 
provide an estimate of the burden related to the electronic filing of 
individual income tax returns, but rather the burden, measured in 
hours, to obtain the recommended statements from taxpayer-clients to 
document their choice to file individual income tax returns in paper 
format and submit the returns to the IRS themselves. See Sec.  
301.6011-7(a)(4)(ii). Any burden associated with the congressionally-
mandated electronic filing requirement of section 6011(e)(3) was not at 
issue in or established by the proposed regulations, but is a direct 
result of that statutory requirement. One commentator remarked that 
there should not be an electronic filing mandate if the government does 
not reimburse the tax return preparer for any additional cost of 
electronic filing. The Congress, however, established the requirement, 
which does not include a reimbursement requirement.
    In its comments, the Small Business Administration Office of 
Advocacy (SBA) stated that the proposed regulations, if finalized, 
would impact small business tax return preparers by ``increasing the 
scope of specified tax return preparers.'' Specifically, the SBA stated 
that, because the proposed regulations would require specified tax 
return preparers to electronically file individual income tax returns 
and would define a specified tax return preparer as a tax return 
preparer who reasonably expects to file more than 10 individual income 
tax returns in a calendar year, the proposed regulations would increase 
the scope of specified tax return preparers. For the same reasons, the 
SBA stated that the proposed regulations contain a significant 
collection of information and have the potential to have a significant 
economic impact on a substantial number of small entities if the 
proposed regulations are adopted as final regulations. The SBA stated 
that the certification in the proposed regulations that a Regulatory 
Flexibility Analysis under the Regulatory Flexibility Act, 5. U.S.C. 
chapter 6 (RFA), was not required was not supported by a factual basis. 
The SBA recommended that the IRS publish for public comment either a 
supplemental RFA assessment or an Initial Regulatory Flexibility 
Analysis.
    The Treasury Department and the IRS disagree with the SBA's 
conclusions and do not adopt its recommendation. As discussed in the 
preamble of the proposed regulations, the 10-return threshold for 
determining whether a tax return preparer is a specified tax return 
preparer is a statutory condition under section 6011(e)(3). The 
Congress by statute, and not the proposed regulations, established the 
electronic filing requirement, including the 10-return threshold for 
specified tax return preparers. As a result, a Regulatory Flexibility 
Analysis under the RFA is not required regarding the electronic filing 
requirement and its burden. The Treasury Department and the IRS have 
certified in the proposed regulations (and again in these final 
regulations) that the only collection of information contained in the 
regulations (the taxpayer choice statement) would not have a 
significant impact on a substantial number of small entities.
    In its comments the SBA stated:

    Prior to passage of the Worker, Homeownership, and Business 
Assistance Act of 2009 (the Act), the IRS was prohibited from 
requiring filers of individual income tax returns to file 
electronically unless the person was required to file at least 250 
returns during the calendar year. The Act authorized the IRS to 
issue this NPRM to increase the scope of specified tax return 
preparers.

    Page 2, SBA Office of Advocacy Letter of December 20, 2010.
    Prior to the Act, the IRS was prohibited from requiring that income 
tax returns for individuals, estates, and trusts be other than on paper 
forms regardless of the number of returns filed, as specifically 
provided by the last sentence of section 6011(e)(1). The referenced 
250-return rule, contained in section 6011(e)(2), is only applicable to 
non-individual taxpayer filers, for example, corporations and 
partnerships. Following passage of the Act, there are now two separate 
rules that can affect individual taxpayers. The first rule is still 
provided by section 6011(e)(1), which prohibits the IRS from requiring 
income tax returns of individuals, estates, and trusts be on anything 
other than paper forms if the individual taxpayer prepares and files 
the taxpayer's income tax return. The second rule is the newly enacted 
rule, contained in section 6011(e)(3), that applies when an individual 
taxpayer uses the services of a tax return preparer to prepare the 
taxpayer's income tax return. The 250-return rule similarly is not 
applicable to either of these rules.
    In addition, the requirements and restrictions contained in section 
6011(e)(2) only apply to ``regulations [prescribed] under paragraph 
[6011(e)](1),'' while the proposed and final regulations involved here 
are being prescribed pursuant to section 6011(e)(3) and the specific 
requirement detailed in section 6011(e)(3)(A) (``The Secretary shall 
require tha[t] any individual income tax return prepared by a tax 
return preparer be filed on magnetic media if[hellip]''). There is no 
``increase'' in the scope of specified tax return preparers provided by 
the regulations. Prior to the Act and section 6011(e)(3), specified tax 
return preparers did not exist. The taxpayer choice statement 
provision, together with the provision for administrative exemptions, 
may work to reduce the number of specified tax return preparers because 
individual income tax returns affected by these provisions are not 
counted in determining whether a tax return preparer files more than 10 
(100 or more in 2011) individual income tax returns in a calendar year. 
Further, these provisions, as well as the undue hardship waiver 
provision, will benefit tax return preparers in their efforts to comply 
with the electronic filing requirement placed upon them by section 
6011(e)(3). Furthermore, even if a tax return preparer is a specified 
tax return preparer, under both the proposed and final regulations a 
preparer would not have to electronically file an individual income tax 
return that a taxpayer chooses to have prepared in paper format and 
which the taxpayer will file with the IRS, providing a further 
compliance benefit to all tax return preparers subject to section 
6011(e)(3).
    The collection of information analysis in the proposed regulations 
was limited to the sole collection of information contained in the 
proposed regulations; that is, the taxpayer choice statements. The 
proposed regulations, in the preamble, stated:

    This information [taxpayer choice statement] 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.


[[Page 17527]]


    As discussed in this preamble, the electronic filing requirement 
applicable to specified tax return preparers is congressionally 
mandated and flows directly from the statute, that is, section 
6011(e)(3); therefore, a Regulatory Flexibility Analysis under the RFA 
is not required. The Treasury Department and the IRS have adequately 
and appropriately certified in the proposed regulations that the 
taxpayer choice statement would not have a significant impact on a 
substantial number of small entities. This collection of information 
has been reviewed and approved by OMB.
    As previously mentioned, the certification in the proposed 
regulations was sufficient. This certification certified that the 
collection of information contained in the proposed regulations, the 
collection related to the taxpayer choice statement, would not have a 
significant economic impact on a substantial number of small entities 
and referred to the Paperwork Reduction Act section in the preamble to 
the proposed regulations for further information as to why economic 
impact on affected small entities was not significant. That section 
identified the small entities likely affected, estimated the number of 
affected firms, and discussed the time and nature of preparation and 
recordkeeping. Although the certification in the proposed regulations 
did not reduce the paperwork burden items to monetary costs, the 
proposed regulations solicited ``Estimates of capital or start-up costs 
and costs of operation, maintenance, and purchases of service to 
provide information.'' No such estimates were received during the 
public comment period.
    Section 605(b) of the RFA requires that the certification appear in 
either the proposed or final rule. Although not required, these final 
regulations include another certification that a Regulatory Flexibility 
Analysis under the RFA is not required. See the Special Analyses 
section.

8. Filing Perfection Period

    One commentator recommended a 10-day perfection period for 
individual income tax returns. Because of issues that could arise with 
technology, the IRS e-file systems allow perfection of the e-file 
submission if the initial submission was made on or before the return 
due date, the submitter received a ``rejection'' of the return from the 
IRS, and the submitter resolved the issue to successfully e-file the 
return to the IRS within a prescribed period. The current perfection 
period for individual returns is five days. The Treasury Department and 
the IRS do not adopt this recommendation in these final regulations 
because this type of provision is more appropriate for inclusion in 
administrative procedures.

Special Analyses

    It has been determined that this Treasury decision is not a 
significant regulatory action as defined in Executive Order 12866. 
Therefore, a regulatory assessment is not required. It has also been 
determined that section 553(b) of the Administrative Procedure Act (5 
U.S.C. chapter 5) does not apply to these regulations.
    When an Agency issues a rulemaking proposal, the Regulatory 
Flexibility Act, 5 U.S.C. chapter 6 (RFA), requires the Agency to 
``prepare and make available for public comment an initial regulatory 
flexibility analysis'' which will ``describe the impact of the proposed 
rule on small entities.'' 5 U.S.C. 603(a). Section 605 of the RFA 
allows an Agency to certify a rule, in lieu of preparing an analysis, 
if the proposed rulemaking is not expected to have a significant 
economic impact on a substantial number of small entities.
    The collection of information in these final regulations is in 
Sec.  301.6011-7(a)(4)(ii) (taxpayer choice statement). This 
information will be used by tax return preparers and specified tax 
return preparers 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 these final 
regulations, thus reducing the burden on tax return preparers and 
specified tax return preparers. This collection of information is 
voluntary to obtain a benefit, that is, conclusive proof of a 
taxpayer's choice to file an individual income tax return in paper 
format, which will be used by tax return preparers and specified tax 
return preparers to demonstrate to the IRS that the individual income 
tax return filed in paper format was not required to be filed 
electronically.
    The final regulations affect self-employed specified tax return 
preparers and small businesses that employ specified tax return 
preparers who prepare individual income tax returns in exchange for 
compensation. Section 601(3) of the RFA defines a small business as 
having the same meaning as ``small business concern'' under section 3 
of the Small Business Act, 15 U.S.C. 632. The IRS estimates that 
135,000 firms in 2011 and 312,000 in 2012 qualifying as small 
businesses will obtain taxpayer choice statements from taxpayers who 
choose to have their individual income tax returns prepared in paper 
format and will submit the paper returns to the IRS. (These estimates 
are based on Tax Year 2007 figures, including firms that filed all of 
their individual income tax returns on paper and those firms that 
electronically filed individual income tax returns for that tax year.) 
Therefore, the Treasury Department and the IRS have determined that 
this Treasury decision will have an impact on a substantial number of 
small businesses.
    The IRS has also determined, however, that the impact on entities 
affected by these final regulations will not be significant. The 
recordkeeping burden associated with obtaining and keeping 
documentation of a taxpayer choice to file in paper format is minimal. 
It is estimated that five minutes of preparation time is needed for a 
preparer to explain the purpose of the information and obtain the 
taxpayer choice statement from the taxpayer in the manner prescribed by 
the IRS, and six minutes for maintaining a copy in the preparer's 
records. A tax return preparer generally will not be submitting this 
documentation to the IRS. Based on the estimated numbers of firms 
(135,000 in 2011 and 312,000 in 2012) and estimates for the number of 
individual income tax returns that taxpayers chose to file (6,669,900 
in 2011 and 9,217,800 in 2012), the estimated hours per firm is 9.06 in 
2011 and 5.42 in 2012; with an average number of 1.2 preparers per 
firm, the estimated hours per preparer is 7.55 in 2011 and 4.51 in 
2012.
    Additionally, the Treasury Department and the IRS note that section 
6011(e)(3) and these regulations only prescribe the method of filing 
individual income tax returns that are already required to be filed. 
Further, these regulations are implementing the electronic filing 
requirement imposed by statute on specified tax return preparers, as 
defined in section 6011(e)(3)(B). The taxpayer choice statement reduces 
any burden associated with the electronic filing requirement because 
paper individual income tax returns for which the tax return preparer 
obtains a taxpayer choice statement from the taxpayer are not counted 
in determining whether a tax return preparer files more than 10 (100 or 
more in 2011) individual income tax returns in a calendar year. There 
are no capital or start-up costs, such as the purchase of tax software, 
associated with the taxpayer choice statement; tax return preparers do 
not have to buy tax software to obtain a signed statement from their 
clients. Finally, the IRS has provided procedures for specified tax 
return preparers to request a waiver of

[[Page 17528]]

the electronic filing requirement in cases of undue hardship. 
Therefore, specified tax return preparers who receive an approved 
hardship waiver would not have to obtain taxpayer choice statements for 
any individual income tax returns that are covered under the waiver.
    Accordingly, the Treasury Department and the IRS hereby certify 
that the collection of information contained in these regulations will 
not have a significant economic impact on a substantial number of small 
entities. Therefore, a Regulatory Flexibility Analysis under the 
Regulatory Flexibility Act is not required. Pursuant to section 7805(f) 
of the Code, the notice of proposed rulemaking preceding these final 
regulations was submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
businesses.

Drafting Information

    The principal author of these final 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.

Adoption of Amendments to the Regulations

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

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 is amended by adding 
entries 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(a). * * *
    Section 1.6011-7 also issued under 26 U.S.C. 6011(e). * * *


0
Par. 2. Section 1.6011-6 is added and reserved to read as follows:


Sec.  1.6011-6  [Reserved]

0
Par. 3. Section 1.6011-7 is added to read as follows:


Sec.  1.6011-7  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 section 6011(e)(3) and 
Sec.  301.6011-7 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

0
Par. 4. The authority citation for part 301 is amended by adding an 
entries in 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(a). * * *
    Section 301.6011-7 also issued under 26 U.S.C. 6011(e). * * *


0
Par. 5. Section 301.6011-6 is added and reserved to read as follows:


Sec.  301.6011-6  Statement of series and series organizations 
[Reserved]

0
Par. 6. Section 301.6011-7 is added to read as follows:


Sec.  301.6011-7  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, a person is 
considered a member of a firm if the person 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 individual income 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 transmission, 
sending, mailing or otherwise delivering of the paper individual income 
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.
    (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 individual income tax return is 
filed, a hand-signed and dated statement from the taxpayer (by either 
spouse if a joint return) that states the taxpayer chooses to file the 
individual income tax return in paper format, and that the taxpayer, 
and not the preparer, will submit the paper individual income tax 
return to the IRS. The IRS may provide guidance through forms, 
instructions or other appropriate guidance regarding how tax return 
preparers and specified tax return preparers can document a taxpayer's 
choice to file an individual income tax return 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

[[Page 17529]]

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. Individual income tax 
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 following examples illustrate the rules of 
paragraphs (a) through (d) of this section.

    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 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 
Forms 1040 (U.S. Individual Income Tax Return) 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 returns (seven) in 2012. Consequently, A 
is not required to electronically file the individual income tax 
returns he prepares and files 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. A obtained a 
hand-signed and dated 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 expec