[Federal Register Volume 72, Number 218 (Tuesday, November 13, 2007)]
[Rules and Regulations]
[Pages 63807-63813]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-22147]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Parts 1 and 301

[TD 9363]
RIN 1545-BD65


Returns Required on Magnetic Media

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Final regulations and removal of temporary regulations.

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SUMMARY: This document contains final regulations relating to the 
requirements for filing corporate income tax returns and returns of 
organizations required to file returns under section 6033 on magnetic 
media pursuant to section 6011(e) of the Internal Revenue Code (Code). 
The term magnetic media includes any magnetic media permitted

[[Page 63808]]

under applicable regulations, revenue procedures, or publications, 
including electronic filing. The final regulations are necessary to 
update and clarify the rules and procedures for corporations and 
organizations that are required to file their returns electronically. 
The final regulations affect corporations, including electing small 
business corporations (S corporations), with assets of $10 million or 
more that file Form 1120, U.S. Corporation Income Tax Return, or Form 
1120S, U.S. Income Tax Return for an S Corporation; exempt 
organizations with assets of $10 million or more that are required to 
file returns under section 6033, and private foundations or section 
4947(a)(1) trusts that are required to file returns under section 6033.

DATES: Effective Date: These regulations are effective November 13, 
2007.
    Applicability Date: These regulations are applicable November 13, 
2007.

FOR FURTHER INFORMATION CONTACT: Michael E. Hara, (202) 622-4910 (not a 
toll-free number).

SUPPLEMENTARY INFORMATION:

Background

    On January 12, 2005, the IRS published a notice of proposed 
rulemaking (by cross reference to temporary regulations) and a notice 
of public hearing, (REG-130671-04) (70 FR 2075). The proposed 
regulations require certain large corporations, including S 
corporations, to file their corporate income tax returns 
electronically. The proposed regulations also require certain large 
exempt organizations, nonexempt charitable trusts, and exempt and 
nonexempt private foundations to electronically file those returns 
required to be filed under section 6033.
    A public hearing was held on March 16, 2005. After consideration of 
all the comments, the proposed regulations are adopted as revised by 
this Treasury decision. The temporary regulations under sections 6011, 
6033, and 6037 are removed.

Summary of Comments and Explanation of Revisions

1. Returns Covered

    The proposed regulations required electronic filing of Forms 1120 
and 1120S by corporations required to file at least 250 returns during 
the calendar year, required to file corporate income tax returns, and 
that had total assets of $50 million or more as shown on Schedule L of 
their Form 1120 or 1120S for taxable years ending on or after December 
31, 2005. The proposed regulations also required electronic filing of 
Forms 1120 and 1120S by corporations required to file at least 250 
returns during the calendar year, required to file corporate income tax 
returns, and that had total assets of $10 million or more as shown on 
Schedule L of their Form 1120 or 1120S for taxable years ending on or 
after December 31, 2006. The proposed regulations also required 
electronic filing of Form 990, Return of Organization Exempt From 
Income Tax, by organizations required to file at least 250 returns 
during the calendar year, required to file Form 990 and that had, for a 
taxable year ending on or after December 31, 2005, total assets as of 
the end of the taxable year of $100 million or more or that, for a 
taxable year ending on or after December 31, 2006, had total assets as 
of the end of the taxable year of $10 million or more. The proposed 
regulations also required electronic filing of Form 990-PF, Return of 
Private Foundation or Section 4947(a)(1) Nonexempt Charitable Trust 
Treated as a Private Foundation, regardless of total assets, by 
organizations required to file at least 250 returns during the calendar 
year that were required to file Form 990-PF for taxable years ending on 
or after December 31, 2006.
    Except as described in the preamble, the final regulations clarify 
that the electronic filing requirement applies to all members of the 
Form 1120 and Form 1120S series of returns, including amended and 
superseding returns, and to all members of the Form 990 series of 
returns, including amended and superseding returns. A member of the 
Form 1120 series includes, for example, the Form 1120-F, U.S. Income 
Tax Return of a Foreign Corporation.
    The IRS currently does not have the capability to accept electronic 
filing of certain types of Form 1120, Form 1120S, and Form 990 series 
of returns, such as a Form 1120 for a taxpayer that has changed its 
accounting period, or a Form 990 or Form 990-PF for an organization not 
recognized as exempt or one that has an application for exempt status 
pending. These regulations thus exclude those returns from the 
electronic filing requirement. The IRS will announce the returns in the 
Form 1120, Form 1120S, and Form 990 series that are required to be 
filled electronically and the returns that are excluded from electronic 
filing under these regulations in its publications, forms and 
instructions, including those instructions and Frequently Asked 
Questions (FAQs) posted electronically to the IRS.gov Web site. The 
Treasury Department and the IRS intend to require electronic filing of 
additional corporate income tax returns, excise tax returns and returns 
required to be filed under section 6033 in the Form 1120, Form 1120S, 
and Form 990 series as the IRS increases its capability to receive 
these forms electronically, provided that the Treasury Department and 
the IRS determine that filers are able to comply with the electronic 
filing requirements at a reasonable cost.

2. First Year and Last Year Exclusions

    The proposed regulations provided exclusions from the requirement 
to file electronically for certain corporations and organizations that 
had not had a longstanding filing obligation. Under the proposed 
regulations, corporations and organizations were not required to file 
their returns electronically if they were not required to file a Form 
1120, Form 1120S, Form 990, or Form 990-PF for the preceding taxable 
year or had not been in existence for at least one calendar year prior 
to the due date (not including extensions) of their Form 1120, Form 
1120S, Form 990, or Form 990-PF. These transition rules were designed 
to relieve taxpayer burden during the first year of implementation of 
the mandatory electronic filing regulations, but caused unnecessary 
complexity in determining whether a corporation or other organization 
was entitled to the first year exclusion when the corporation or 
organization was a part of a reorganization. The Treasury Department 
and the IRS have determined that these transition rules are no longer 
necessary and that corporations and other organizations should be able 
to comply at a reasonable cost with the requirement to file returns 
electronically.

3. 250 Return Requirement

    Under the proposed regulations, the determination of whether an 
entity is required to file at least 250 returns is made by aggregating 
all returns, regardless of type, that the entity is required to file 
over the calendar year, including, for example, income tax returns, 
returns required under section 6033, information returns, excise tax 
returns, and employment tax returns. The final regulations clarify that 
in the case of a short year return, an entity is required to file 
electronically if, during the calendar year which includes the short 
taxable year of the entity, the entity is required to file at least 250 
returns of any type, including, for example, income tax returns, 
returns required under section 6033, information returns, excise tax 
returns, and employment tax returns.

[[Page 63809]]

4. Hardship Waiver

    Three commentators requested that the IRS institute procedures 
allowing the Service to waive the requirement to file returns 
electronically. One commentator recommended that the final guidance on 
waivers include a clear definition of what constitutes justification 
for a waiver, and a flexible standard on when a filer would qualify for 
a waiver. One commentator contended that cost to the filer should be a 
principal factor in obtaining a hardship waiver. On November 28, 2005, 
the IRS issued Notice 2005-88, 2005-2 C.B. 1060, which provides 
procedures for filers to request a waiver of the requirement to 
electronically file their returns. Notice 2005-88 provides that in 
determining whether to approve or deny a waiver request, the IRS will 
consider the filer's ability to timely file its return electronically 
without incurring an undue economic hardship. The Notice provides that 
the IRS will generally grant waivers for filing returns electronically 
where the filer can demonstrate the undue hardship that would result by 
complying with the electronic filing requirement, including any 
incremental costs to the filer.
    Another commentator contended that technological failures beyond 
the control of the filer should also not result in the assertion of 
penalties. For this reason, the commentator recommended that waivers be 
granted, especially during the first year or two during which a 
taxpayer is required to file electronically, in the following 
circumstances:
    1. Where the software vendor used by the filer is unable to produce 
the software needed to e-file any return or schedule within a 
reasonable time period, perhaps six months before the end of the year 
for which the return is to be filed.
    2. Where the filer discovers significant flaws in either the 
developer's software program or its own self-developed software during 
the first three months of the year in which the return is to be filed.
    3. Where the filer after significant testing determines the need to 
switch software vendors in order to comply with the e-filing mandate.
    4. Where the filer attempts to timely file the return 
electronically by the statutory deadline (including extensions), but 
transmission errors (such as Internet traffic, misrouting of 
information packets, or disconnects in the transmission) prevent the 
filing of the return.
    Although Notice 2005-88 does not refer to these specific 
situations, the Notice provides that the IRS will generally grant 
waivers for filing returns electronically where technology issues 
prevent the filer from filing its return electronically. The Treasury 
Department and the IRS believe, however, that it is the responsibility 
of the filer to review the capabilities and efficacy of the software 
they use to file their returns, to ensure that the software used will 
meet their specific filing requirements.
    One commentator stated that there might be circumstances when an 
entity otherwise subject to the electronic filing requirements should 
be eligible for an automatic waiver as opposed to being required to 
file a formal waiver request. Another commentator recommended that the 
purchase and use of software developed by an approved vendor be 
sufficient evidence that a filer has made a good faith effort to comply 
with the regulations. The Treasury Department and the IRS believe that 
waiver requests should be considered on a case-by-case basis, based on 
each filer's particular facts and circumstances.
    Additional guidance on situations in which returns are excluded 
from the electronic filing mandate is available in IRS Publication 
4163, Modernized e-file Handbook for Authorized e-file Providers for 
Form 1120/1120S; IRS Publication 4206, Modernized e-File information 
for Authorized e-file Providers of Exempt Organization Filings; and on 
the IRS.gov Internet site.

5. Date of Filing

    One commentator supported the concept and use of an electronic 
postmark, but requested clear and concise guidance as to when an 
electronically submitted return is deemed filed when such a return is 
rejected either because of transmission issues or IRS acceptance 
criteria. Notice 2005-88 provides that if the portion of a return 
required to be filed electronically is transmitted on or before the due 
date (including extensions) and is ultimately rejected, but the 
electronic return originator and the filer comply with the specific 
requirements for timely submission of the return, the return will be 
considered timely filed and any elections attached to the return will 
be considered valid. The Notice also provides that for taxable years 
ending on or after December 31, 2005, the IRS will allow the filer 20 
calendar days from the date of first transmission to perfect the return 
for electronic resubmission.

6. Effective Dates.

    Three commentators recommended that the IRS delay implementation of 
the requirement to file returns electronically. Both Treasury and the 
IRS believe that the vendor software is available, that the IRS' 
systems can accommodate the electronic filing requirement and that 
implementation of the electronic filing mandate can be accomplished 
successfully without undue burden by filers. Through October 2006, over 
500,000 corporations of all sizes successfully electronically filed 
their Forms 1120 or 1120S for 2005, of which over 18,000 were 
corporations with assets exceeding $10 million. In addition, through 
December 2006, over 15,300 organizations of all sizes successfully 
electronically filed their Forms 990, 990-EZ or 990-PF for 2005. 
Accordingly, the recommendation to delay implementation has not been 
adopted.

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 Treasury decision affects corporations required to file 
corporate income tax returns that are required to file at least 250 
returns during the calendar year and have total assets of $10 million 
or more for taxable years ending on or after December 31, 2006. 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 of the 6,294,000 entities 
required to file Forms 1120 or 1120S, 22,000 entities are required to 
electronically file these Forms. The IRS estimates that of the 22,000 
entities required to electronically file Forms 1120 or 1120S, there are 
9,500 organizations that will be required to file the Forms 1120 or 
1120S electronically that qualify as small businesses. The 9,500 
corporation estimate is based on Large and Mid-Size Business Division's 
estimates of the

[[Page 63810]]

number of corporations that have assets between $10 million and $50 
million as shown on their Schedule L of their Form 1120 or 1120S for 
taxable years ending on or after December 31, 2006, and that may have 
at least 250 employees based on the number of returns the corporation 
has filed, including Forms W-2. Therefore, the IRS has determined that 
this Treasury decision will have an impact on a substantial number of 
small businesses.
    The Treasury decision also affects those organizations required to 
file Form 990 that are required to file at least 250 returns during the 
calendar year and have total assets of $10 million or more for taxable 
years ending on or after December 31, 2006. The Treasury decision also 
affects those organizations that are required to file Form 990-PF, 
Return of Private Foundation or Section 4947(a)(1) Nonexempt Charitable 
Trust Treated as a Private Foundation, regardless of total assets. 
Section 601(4) of the RFA defines a small organization as any not-for-
profit enterprise that is independently owned and operated and not 
dominant in its field (for example, private hospitals and educational 
institutions). The IRS estimates that of the 263,000 entities that are 
required to file the Form 990, there are 6,000 organizations that will 
be required to file the Form 990 electronically that qualify as small 
organizations. The 6,000 organization estimate is based on Tax Exempt 
and Government Entities Division's estimates of the number of entities 
that have assets between $10 million and $100 million as shown on their 
Schedule L of their Form 990 for taxable years ending on or after 
December 31, 2006 and that may have at least 250 employees based on the 
number of returns the corporation has filed, including Forms W-2. The 
IRS also estimates that of the 85,000 entities that are required to 
file the Form 990-PF, there are 50 organizations that will be required 
to file the Form 990-PF electronically that qualify as small 
organizations. The 50 organizations estimate is based on Tax Exempt and 
Government Entities Division's estimates of the number of entities that 
may have at least 250 employees based on the number of returns the 
corporation has filed, including Forms W-2. Therefore, the IRS has 
determined that this Treasury decision will have an impact on a 
substantial number of small organizations.
    The IRS has also determined, however, that the impact on entities 
affected by the proposed rule will not be significant. The IRS and 
Treasury Department note that these regulations only prescribe the 
method of filing returns that are already required to be filed. 
Further, these regulations are consistent with the requirements imposed 
by statute. The burden on small entities to purchase the software to 
file its returns electronically is minimal as the software is widely 
available. Pricing for electronic filing software varies considerably. 
In many instances, the price for electronic filing is bundled with 
other services and products. Some software providers offer volume 
discounts, or unlimited filing for a fixed price. Some software 
providers offer free electronic filing if the taxpayer purchases a 
suite of other products or services. And in many cases, taxpayers will 
use the services of a tax practitioner to prepare and electronically 
file their return. Accordingly, direct comparison of the cost for 
electronic filing is difficult. The cost for the software to file 
returns electronically for small entities from software providers 
starts from $12.50 per return for on-line electronic filing of Forms 
1120, and is free for Form 990 filers with less than $100,000 in gross 
revenue.
    Finally, the IRS has provided procedures for filers to request a 
waiver of the requirement to electronically file their returns. Notice 
2005-88 provides that in determining whether to approve or deny a 
waiver request, the IRS will consider the filer's ability to timely 
file its return electronically without incurring an undue economic 
hardship.
    Accordingly, the IRS hereby certifies 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 Michael E. Hara, 
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

0
Accordingly, 26 CFR parts 1 and 301 are amended as follows:

PART 1--INCOME TAXES

0
Paragraph 1. The authority citation for part 1 continues to read in 
part as follows:

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


0
Par. 2. Section 1.6011-5 is added to read as follows:


Sec.  1.6011-5  Required use of magnetic media for corporate income tax 
returns.

    The return of a corporation that is required to be filed on 
magnetic media under Sec.  301.6011-5 of this chapter must be filed in 
accordance with Internal Revenue Service revenue procedures, 
publications, forms, or instructions, including those posted 
electronically. (See Sec.  601.601(d)(2) of this chapter).


Sec.  1.6011-5T  [Removed]

0
Par. 3. Section 1.6011-5T is removed.


0
Par. 4. Section 1.6033-4 is added to read as follows:


Sec.  1.6033-4  Required use of magnetic media for returns by 
organizations required to file returns under section 6033.

    The return of an organization that is required to be filed on 
magnetic media under Sec.  301.6033-4 of this chapter must be filed in 
accordance with Internal Revenue Service revenue procedures, 
publications, forms, or instructions, including those posted 
electronically. (See Sec.  601.601(d)(2) of this chapter).


Sec.  1.6033-4T  [Removed]

0
Par. 5. Section 1.6033-4T is removed.


0
Par. 6. Section 1.6037-2 is added to read as follows:


Sec.  1.6037-2  Required use of magnetic media for income tax returns 
of electing small business corporations.

    The return of an electing small business corporation that is 
required to be filed on magnetic media under Sec.  301.6037-2 of this 
chapter must be filed in accordance with Internal Revenue Service 
revenue procedures, publications, forms, or instructions, including 
those posted electronically. (See Sec.  601.601(d)(2) of this chapter).


Sec.  1.6037-2T  [Removed]

0
Par. 7. Section 1.6037-2T is removed.

PART 301--PROCEDURE AND ADMINISTRATION

0
Par. 8. The authority citation for part 301 is amended by removing the 
entries

[[Page 63811]]

for ``Section 301.6011-5T'', ``Section 301-6033-4T'', and ``Section 
301.6037-2T'' and adding entries, in numerical order, to read as 
follows:

    Authority: 26 U.S.C. 7805 * * *
    Section 301.6011-5 also issued under 26 U.S.C. 6011. * * *
    Section 301.6033-4 also issued under 26 U.S.C. 6033. * * *
    Section 301.6037-2 also issued under 26 U.S.C. 6037. * * *

0
Par. 9. Section 301.6011-5 is added to read as follows:


Sec.  301.6011-5  Required use of magnetic media for corporate income 
tax returns.

    (a) Corporate income tax returns required on magnetic media--(1) A 
corporation required to file a corporate income tax return on Form 
1120, ``U.S. Corporation Income Tax Return,'' under Sec.  1.6012-2 of 
this chapter must file its corporate income tax return on magnetic 
media if the corporation is required by the Internal Revenue Code or 
regulations to file at least 250 returns during the calendar year. 
Returns filed on magnetic media must be made in accordance with 
applicable revenue procedures, publications, forms, or instructions. In 
prescribing revenue procedures, publications, forms, or instructions, 
the Commissioner may direct the type of magnetic media filing. (See 
Sec.  601.601(d)(2) of this chapter.)
    (2) All members of a controlled group of corporations must file 
their corporate income tax returns on magnetic media if the aggregate 
number of returns required to be filed by the controlled group of 
corporations is at least 250.
    (b) Waiver. The Commissioner may grant waivers of the requirements 
of this section in cases of undue hardship. A request for waiver must 
be made in accordance with applicable revenue procedures or 
publications. The waiver also will be subject to the terms and 
conditions regarding the method of filing as may be prescribed by the 
Commissioner.
    (c) Failure to file. If a corporation fails to file a corporate 
income tax return on magnetic media when required to do so by this 
section, the corporation is deemed to have failed to file the return. 
(See section 6651 for the addition to tax for failure to file a 
return). In determining whether there is reasonable cause for failure 
to file the return, Sec.  301.6651-1(c) and rules similar to the rules 
in Sec.  301.6724-1(c)(3) (undue economic hardship related to filing 
information returns on magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any magnetic 
media permitted under applicable regulations, revenue procedures, or 
publications. These generally include magnetic tape, tape cartridge, 
and diskette, as well as other media, such as electronic filing, 
specifically permitted under the applicable regulations, procedures, 
publications, forms, or instructions. (See Sec.  601.601(d)(2) of this 
chapter).
    (2) Corporation. The term corporation means a corporation as 
defined in section 7701(a)(3).
    (3) Controlled group of corporations. The term controlled group of 
corporations means a group of corporations as defined in section 
1563(a).
    (4) Corporate income tax return. The term corporate income tax 
return means a Form 1120, ``U.S. Corporation Income Tax Return,'' along 
with all other related forms, schedules, and statements that are 
required to be attached to the Form 1120, and all members of the Form 
1120 series of returns, including amended and superseding returns.
    (5) Determination of 250 returns. For purposes of this section, a 
corporation or controlled group of corporations is required to file at 
least 250 returns if, during the calendar year ending with or within 
the taxable year of the corporation or the controlled group, the 
corporation or the controlled group is required to file at least 250 
returns of any type, including information returns (for example, Forms 
W-2, Forms 1099), income tax returns, employment tax returns, and 
excise tax returns. In the case of a short year return, a corporation 
is required to file at least 250 returns if, during the calendar year 
which includes the short taxable year of the corporation, the 
corporation is required to file at least 250 returns of any type, 
including information returns (for example, Forms W-2, Forms 1099), 
income tax returns, employment tax returns, and excise tax returns. If 
the corporation is a member of a controlled group, the determination of 
the number of returns includes all returns required to be filed by all 
members of the controlled group during the calendar year ending with or 
within the taxable year of the controlled group.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(5) of this section:

    Example. The taxable year of Corporation X, a fiscal year 
taxpayer with assets in excess of $10 million, ends on September 30. 
During the calendar year ending December 31, 2007, X was required to 
file one Form 1120, ``U.S. Corporation Income Tax Return,'' 100 
Forms W-2, ``Wage and Tax Statement,'' 146 Forms 1099-DIV, 
``Dividends and Distributions,'' one Form 940, ``Employer's Annual 
Federal Unemployment (FUTA) Tax Return,'' and four Forms 941, 
``Employer's Quarterly Federal Tax Return.'' Because X is required 
to file 252 returns during the calendar year that ended within its 
taxable year ending September 30, 2008, X is required to file its 
Form 1120 electronically for its taxable year ending September 30, 
2008.

    (f) Effective/applicability dates. This section applies to 
corporate income tax returns for corporations that report 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 taxable years ending on 
or after December 31, 2006, except for the application of the short 
year rules in paragraph (d)(5) of this section, which is applicable for 
taxable years ending on or after November 13, 2007.


Sec.  301.6011-5T  [Removed]

0
Par. 10. Section 301.6011-5T is removed.
0
Par. 11. Section 301.6033-4 is added to read as follows:


Sec.  301.6033-4  Required use of magnetic media for returns by 
organizations required to file returns under section 6033.

    (a) Returns by organizations required to file returns under section 
6033 on magnetic media. An organization required to file a return under 
section 6033 on Form 990, ``Return of Organization Exempt from Income 
Tax,'' or Form 990-PF, ``Return of Private Foundation or Section 
4947(a)(1) Trust Treated as a Private Foundation,'' must file its Form 
990 or 990-PF on magnetic media if the organization is required by the 
Internal Revenue Code or regulations to file at least 250 returns 
during the calendar year ending with or within its taxable year. 
Returns filed on magnetic media must be made in accordance with 
applicable revenue procedures, publications, forms, or instructions. In 
prescribing revenue procedures, publications, forms, or instructions, 
the Commissioner may direct the type of magnetic media filing. (See 
Sec.  601.601(d)(2) of this chapter).
    (b) Waiver. The Commissioner may grant waivers of the requirements 
of this section in cases of undue hardship. A request for waiver must 
be made in accordance with applicable revenue procedures or 
publications. The waiver also will be subject to the terms and 
conditions regarding the method of filing as may be prescribed by the 
Commissioner.
    (c) Failure to file. If an organization required to file a return 
under section 6033 fails to file an information return on magnetic 
media when required to do so by this section, the organization is 
deemed to have failed to file the return.

[[Page 63812]]

(See section 6652 for the addition to tax for failure to file a 
return.) In determining whether there is reasonable cause for failure 
to file the return, Sec.  301.6652-2(f) and rules similar to the rules 
in Sec.  301.6724-1(c)(3) (undue economic hardship related to filing 
information returns on magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any magnetic 
media permitted under applicable regulations, revenue procedures, or 
publications. These generally include magnetic tape, tape cartridge, 
and diskette, as well as other media, such as electronic filing, 
specifically permitted under the applicable regulations, procedures, 
publications, forms or instructions. (See Sec.  601.601(d)(2) of this 
chapter).
    (2) Return required under section 6033. The term return required 
under section 6033 means a Form 990, ``Return of Organization Exempt 
from Income Tax,'' and Form 990-PF, ``Return of Private Foundation or 
Section 4947(a)(1) Trust Treated as a Private Foundation,'' along with 
all other related forms, schedules, and statements that are required to 
be attached to the Form 990 or Form 990-PF, and all members of the Form 
990 series of returns, including amended and superseding returns.
    (3) Determination of 250 returns. For purposes of this section, an 
organization is required to file at least 250 returns if, during the 
calendar year ending with or within the taxable year of the 
organization, the organization is required to file at least 250 returns 
of any type, including information returns (for example, Forms W-2, 
Forms 1099), income tax returns, employment tax returns, and excise tax 
returns. In the case of a short year return, an organization is 
required to file at least 250 returns if, during the calendar year 
which includes the short taxable year of the organization, the 
organization is required to file at least 250 returns of any type, 
including information returns (for example, Forms W-2, Forms 1099), 
income tax returns, employment tax returns, and excise tax returns.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(3) of this section. In the example, the organization is a 
calendar year taxpayer:

    Example. In 2006, Organization T, with total assets in excess of 
$10 million, is required to file one Form 990, ``Return of 
Organization Exempt from Income Tax,'' 200 Forms W-2, ``Wage and Tax 
Statement,'' one Form 940, ``Employer's Annual Federal Unemployment 
(FUTA) Tax Return,'' four Forms 941, ``Employer's Quarterly Federal 
Tax Return,'' and 60 Forms 1099-MISC, ``Miscellaneous Income.'' 
Because T is required to file 266 returns during the calendar year, 
T must file its 2006 Form 990 electronically.

    (f) Effective/applicability dates. This section applies to any 
organization required to file Form 990 for a taxable year ending on or 
after December 31, 2006, that has total assets as of the end of the 
taxable year of $10 million or more. This section applies to any 
organization required to file Form 990-PF for taxable years ending on 
or after December 31, 2006, except for the application of the short 
year rules in paragraph (d)(3) of this section, which is applicable for 
taxable years ending on or after November 13, 2007.


Sec.  301.6033-4T  [Removed]

0
Par. 12. Section 301.6033-4T is removed.
0
Par. 13. Section 301.6037-2 is added to read as follows:


Sec.  301.6037-2  Required use of magnetic media for returns of 
electing small business corporation.

    (a) Returns of electing small business corporation required on 
magnetic media. An electing small business corporation required to file 
an electing small business return on Form 1120S, ``U.S. Income Tax 
Return for an S Corporation,'' under Sec.  1.6037-1 of this chapter 
must file its Form 1120S on magnetic media if the small business 
corporation is required by the Internal Revenue Code and regulations to 
file at least 250 returns during the calendar year ending with or 
within its taxable year. Returns filed on magnetic media must be made 
in accordance with applicable revenue procedures, publications, forms, 
or instructions. In prescribing revenue procedures, publications, 
forms, or instructions, the Commissioner may direct the type of 
magnetic media filing. (See Sec.  601.601(d)(2) of this chapter).
    (b) Waiver. The Commissioner may grant waivers of the requirements 
of this section in cases of undue hardship. A request for waiver must 
be made in accordance with applicable revenue procedures or 
publications. The waiver also will be subject to the terms and 
conditions regarding the method of filing as may be prescribed by the 
Commissioner.
    (c) Failure to file. If an electing small business corporation 
fails to file a return on magnetic media when required to do so by this 
section, the corporation is deemed to have failed to file the return. 
(See section 6651 for the addition to tax for failure to file a 
return.) In determining whether there is reasonable cause for failure 
to file the return, Sec.  301.6651-1(c) and rules similar to the rules 
in Sec.  301.6724-1(c)(3) (undue economic hardship related to filing 
information returns on magnetic media) will apply.
    (d) Meaning of terms. The following definitions apply for purposes 
of this section:
    (1) Magnetic media. The term magnetic media means any magnetic 
media permitted under applicable regulations, revenue procedures, or 
publications. These generally include magnetic tape, tape cartridge, 
and diskette, as well as other media, such as electronic filing, 
specifically permitted under the applicable regulations, procedures, 
publications, forms, or instructions. (See Sec.  601.601(d)(2) of this 
chapter).
    (2) Corporation. The term corporation means a corporation as 
defined in section 7701(a)(3).
    (3) Electing small business corporation return. The term electing 
small business corporation return means a Form 1120S, ``U.S. Income Tax 
Return for an S Corporation,'' along with all other related forms, 
schedules, and statements that are required to be attached to the Form 
1120S, and all members of the Form 1120S series of returns, including 
amended and superseding returns.
    (4) Electing small business corporation. The term electing small 
business corporation means an S corporation as defined in section 
1361(a)(1).
    (5) Determination of 250 returns. For purposes of this section, a 
corporation is required to file at least 250 returns if, during the 
calendar year ending with or within the taxable year of the 
corporation, the corporation is required to file at least 250 returns 
of any type, including information returns (for example, Forms W-2, 
Forms 1099), income tax returns, employment tax returns, and excise tax 
returns. In the case of a short year return, a corporation is required 
to file at least 250 returns if, during the calendar year which 
includes the short taxable year of the corporation, the corporation is 
required to file at least 250 returns of any type, including 
information returns (for example, Forms W-2, Forms 1099), income tax 
returns, employment tax returns, and excise tax returns.
    (e) Example. The following example illustrates the provisions of 
paragraph (d)(5) of this section. In the example, the corporation is a 
calendar year taxpayer:

    Example. In 2007, Corporation S, an electing small business 
corporation with

[[Page 63813]]

assets in excess of $10 million, is required to file one Form 1120S, 
``U.S. Corporation Income Tax Return,'' 100 Forms W-2, ``Wage and 
Tax Statement,'' 146 Forms 1099-DIV, ``Dividends and 
Distributions,'' one Form 940, ``Employer's Annual Federal 
Unemployment (FUTA) Tax Return,'' and four Forms 941, ``Employer's 
Quarterly Federal Tax Return.'' Because S is required to file 252 
returns during the calendar year, S is required to file its 2007 
Form 1120S electronically.

    (f) Effective/applicability dates. This section applies to returns 
of electing small business corporations that report total assets at the 
end of the corporation's taxable year that equal or exceed $10 million 
on Schedule L of Form 1120S for taxable years ending on or after 
December 31, 2006, except for the application of the short year rules 
in paragraph (d)(5) of this section, which is applicable for taxable 
years ending on or after November 13, 2007.


Sec.  301.6037-2T  [Removed]

0
Par. 14. Section 301-6037-2T is removed.

Kevin M. Brown,
Deputy Commissioner for Services and Enforcement.
    Approved: November 6, 2007.
Eric Solomon,
Assistant Secretary of the Treasury.
 [FR Doc. E7-22147 Filed 11-9-07; 8:45 am]
BILLING CODE 4830-01-P