[Federal Register Volume 83, Number 105 (Thursday, May 31, 2018)]
[Proposed Rules]
[Pages 24948-24950]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2018-11749]


 ========================================================================
 Proposed Rules
                                                 Federal Register
 ________________________________________________________________________
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 This section of the FEDERAL REGISTER contains notices to the public of 
 the proposed issuance of rules and regulations. The purpose of these 
 notices is to give interested persons an opportunity to participate in 
 the rule making prior to the adoption of the final rules.
 
 ========================================================================
 

  Federal Register / Vol. 83, No. 105 / Thursday, May 31, 2018 / 
Proposed Rules  

[[Page 24948]]



DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 301

[REG-102951-16]
RIN 1545-BN36


Filing Requirements for Information Returns Required on Magnetic 
Media (Electronically)

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Notice of proposed rulemaking.

-----------------------------------------------------------------------

SUMMARY: This document contains proposed regulations amending the rules 
for determining whether information returns must be filed using 
magnetic media (electronically). The proposed regulations would require 
that all information returns, regardless of type, be taken into account 
to determine whether a person meets the 250-return threshold and, 
therefore, must file the information returns electronically. The 
proposed regulations also would require any person required to file 
information returns electronically to file corrected information 
returns electronically, regardless of the number of corrected 
information returns being filed. The proposed regulations will affect 
persons required to file information returns.

DATES: Written or electronic comments and requests for a public hearing 
must be received by July 30, 2018.

ADDRESSES: Send submissions to: CC:PA:LPD:PR (REG-102951-16), Room 
5205, Internal Revenue Service, P.O. Box 7604, Ben Franklin Station, 
Washington, DC 20044. Submissions may be hand-delivered Monday through 
Friday between the hours of 8:00 a.m. and 4:00 p.m. to CC:PA:LPD:PR 
(REG-102951-16), Courier's Desk, Internal Revenue Service, 1111 
Constitution Avenue NW, Washington, DC 20224. Alternatively, persons 
may submit comments electronically via the Federal eRulemaking Portal 
at http://www.regulations.gov (IRS REG-102951-16).

FOR FURTHER INFORMATION CONTACT: Concerning the proposed regulations, 
Michael Hara, (202) 317-6845; concerning the submission of comments and 
requests for a public hearing, Regina L. Johnson, (202) 317-5177 (not 
toll-free calls).

SUPPLEMENTARY INFORMATION: 

Background

    This document contains proposed amendments to the Regulations on 
Procedure and Administration (26 CFR part 301) under section 6011(e) 
relating to the filing of information returns on magnetic media. 
Section 6011(e) authorizes the Secretary to prescribe regulations 
regarding the filing of returns on magnetic media.
    Section 6011(e)(2)(A) prohibits the Secretary from requiring 
persons to file returns on magnetic media unless the person is required 
to file at least 250 returns during the calendar year. Section 
6011(e)(2)(B) provides that, in prescribing regulations, the Secretary 
shall consider the taxpayer's ability to comply at reasonable cost with 
the regulations' requirements. Section 301.6011-2(a)(1) provides that 
magnetic media includes any magnetic media permitted under the 
applicable regulations, revenue procedures, or publications, or, in the 
case of returns filed with the Social Security Administration, any 
magnetic media permitted under Social Security Administration 
publications, including electronic filing.
    Section 301.6011-2 provides rules for when information returns 
described in Sec.  301.6011-2(b), such as Form 1042-S, ``Foreign 
Person's U.S. Source Income Subject to Withholding;'' forms in the 1099 
series; and Form W-2, ``Wage and Tax Statement,'' must be filed 
electronically. Under Sec.  301.6011-2(c), a person is not required to 
file a type of information return covered by Sec.  301.6011-2(b) 
electronically unless the person is required to file 250 or more such 
returns during the calendar year. Sections 301.6011-2(c)(1)(i) and 
(iii) and the Examples in Sec.  301.6011-2(c)(1)(iv) describe that the 
250-return threshold applies separately to each type of information 
return and each type of corrected information return filed, and, 
therefore, the forms are not aggregated for purposes of determining 
whether the 250-return threshold is satisfied.
    Section 301.6011-2(c)(2) allows the Commissioner to waive the 
requirement to file electronically if the request for waiver 
demonstrates hardship and provides that the principal factor in 
determining hardship will be the extent, if any, to which the cost of 
electronic filing exceeds the cost of filing on other media.
    When the rules for determining the 250-return threshold, including 
the rule providing that each type of information return is counted 
separately and not aggregated, were originally published, electronic 
filing was in the early stages of development and was not as commonly 
used as it is today. The non-aggregation rule helped to reduce cost and 
ease burden on taxpayers, given the existing limits on technology and 
accessibility to such technology. Since then, significant advances in 
technology have made electronic filing more prevalent and accessible. 
As a result, electronic filing is less costly and most often easier 
than paper filing. In fact, most information returns are filed 
electronically. In tax year 2015, approximately 98 percent of 
information returns were filed electronically. In tax year 2016, the 
percentage of information returns filed electronically rose to 98.5 
percent. Advances in tax return preparation software, as well as the 
prevalence of tax return preparers and third-party service providers 
who offer information return preparation and electronic filing, have 
also contributed to the increase in electronic filing.
    The concerns regarding taxpayer burden and cost associated with 
electronic filing have been significantly mitigated since the non-
aggregation rule in Sec.  301.6011-2(c)(1)(i) and (iii) of the 
regulations was first published. Therefore, determining the 250-return 
threshold on a form-by-form basis without aggregation is no longer 
necessary to relieve taxpayer burden and cost. Accordingly, these 
regulations simplify the rules for determining the 250-return threshold 
by requiring aggregation of all information returns covered by Sec.  
301.6011-2(b) for purposes of determining the 250-return threshold. In 
addition, these regulations provide that corrected information returns 
must be filed electronically if the original information returns were 
filed electronically. These rule changes will help facilitate efficient 
and effective tax administration.

[[Page 24949]]

Explanation of Provisions

    These proposed regulations remove the non-aggregation rule in Sec.  
301.6011-2(c)(1)(iii) that counts the number of information returns 
required to be filed on a form-by-form basis. The proposed regulations 
add a new paragraph (4) to Sec.  301.6011-2(b) to provide that if 
during a calendar year a person is required to file a total of 250 or 
more information returns of any type covered by Sec.  301.6011-2(b), 
the person is required to file those information returns 
electronically. For example, under these proposed regulations, if a 
person is required to file 200 Forms 1099-INT, ``Interest Income,'' and 
200 Forms 1099-DIV, that person must file all Forms 1099-INT and Forms 
1099-DIV electronically because that person is required to file, in the 
aggregate, at least 250 information returns covered by Sec.  301.6011-
2(b). Corrected information returns are not taken into account in 
determining whether the 250-return threshold is met under proposed 
Sec.  301.6011-2(b)(4) for purposes of determining whether information 
returns covered by Sec.  301.6011-2(b) must be filed electronically. 
Examples in proposed Sec.  301.6011-2(c)(1)(iv) illustrate this rule.
    The proposed regulations also provide that corrected information 
returns covered by Sec.  301.6011-2(b) must be filed electronically if 
the information returns originally filed for the calendar year are 
required to be filed electronically. If fewer than 250 returns covered 
by Sec.  301.6011-2(b) are required to be filed for the calendar year, 
the original returns for the calendar year, as well as the corrected 
returns for the calendar year, are not required to be filed 
electronically. See proposed Sec.  301.6011-2(c)(1)(iv), Example 4.
    The proposed regulations also amend Sec.  301.6721-1(a)(2)(ii) 
regarding the penalty for failure to file correct information returns 
to remove references to the prior rule for determining the number of 
returns on a form-by-form basis and the prior corrected return rule.
    The proposed regulations do not amend the existing regulations 
allowing persons who are required to file returns electronically to 
request a waiver of the electronic-filing requirement. See Sec.  
301.6011-2(c)(2). This waiver authority will be exercised so as not to 
unduly burden taxpayers lacking the necessary data-processing 
capabilities or access to return preparers and third-party service 
providers at a reasonable cost.

Proposed Effective/Applicability Date

    These proposed regulations will be effective on the date of the 
publication of the Treasury Decision adopting these rules as final in 
the Federal Register. However, to give information-return filers 
sufficient time to comply with these regulations, these proposed 
regulations will not apply to information returns required to be filed 
before January 1, 2019. Accordingly, these proposed regulations provide 
that Sec. Sec.  301.6011-2(b)(4) and 301.6721-1(a)(2)(ii), as amended, 
will be effective for information returns required to be filed after 
December 31, 2018. Section 301.6011-2(b)(5), as amended, will be 
effective for corrected information returns filed after December 31, 
2018.

Special Analyses

    This regulation is not subject to review under section 6(b) of 
Executive Order 12866 pursuant to the Memorandum of Agreement (April 
11, 2018) between the Department of the Treasury and the Office of 
Management and Budget regarding review of tax regulations.
    When the Internal Revenue Service issues a proposed rulemaking 
imposing a collection of information requirement on small entities, the 
Regulatory Flexibility Act (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(b) 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.
    This proposed rule directly affects information-return filers that 
file more than 250 returns of any type covered by Sec.  301.6011-2(b), 
which includes a substantial number of small entities. However, the IRS 
has determined that the economic impact on small entities affected by 
the proposed rule would not be significant. Under sections 6011(e) and 
Sec.  301.6011-2(c)(1), information-return filers already must file 
information returns electronically if during a calendar year a person 
is required to file a total of 250 or more information returns of any 
type covered by Sec.  301.6011-2(b). The proposed rule merely amends 
the method of counting those 250 returns to determine if the 250-return 
threshold is met. Information filers may request a waiver of the 
electronic-filing requirement if they lack the necessary data-
processing capabilities or access to return preparers and third-party 
service providers at a reasonable cost, and the IRS routinely grants 
meritorious hardship waiver requests. Accordingly, the burden on the 
limited number of small entities that are not currently filing 
electronically will be slight, and small entities that would experience 
a hardship because of this proposed rule may seek a waiver. The 
Commissioner of the IRS hereby certifies that this rule will not have a 
significant economic impact on a substantial number of small entities. 
The IRS invites comment from members of the public who believe there 
will be a significant impact on small information return filers. 
Pursuant to section 7805(f) of the Code, this notice of proposed 
rulemaking has been submitted to the Chief Counsel for Advocacy of the 
Small Business Administration for comment on its impact on small 
business.

Comments and Requests for Public Hearing

    Before these proposed regulations are adopted as final regulations, 
consideration will be given to any electronic and written comments that 
are submitted timely to the IRS as prescribed in this preamble under 
the ADDRESSES heading. The Treasury Department and the IRS request 
comments on all aspects of the proposed rules. All comments will be 
available at www.regulations.gov or upon request. A public hearing will 
be scheduled if requested in writing by any person that timely submits 
written comments. If a public hearing is scheduled, then notice of the 
date, time, and place for the public hearing will be published in the 
Federal Register.

Drafting Information

    The principal author of these proposed regulations is Michael Hara 
of the Office of the Associate Chief Counsel (Procedure and 
Administration).

List of Subjects in 26 CFR Part 301

    Income taxes, Penalties, Reporting and recordkeeping requirements.

Proposed Amendments to the Regulations

    Accordingly, 26 CFR part 301 is proposed to be amended as follows:

PART 301--PROCEDURE AND ADMINISTRATION

0
Paragraph 1. The authority citation for part 301 is amended by adding a 
sectional authority for 301.6721-1 to read as follows:


[[Page 24950]]


    Authority: 26 U.S.C. 7805 * * *
* * * * *
    Section 301.6721-1 is also issued under 26 U.S.C. 6011(e).
* * * * *
0
Par. 2. Section 301.6011-2 is amended as follows:
0
a. Paragraphs (b)(4) through (6) are added.
0
b. Paragraphs (c)(1)(iii) and (iv) are removed.
0
c. Paragraph (g)(2) is revised.
    The additions and revisions read as follows:


Sec.  301.6011-2   Required use of magnetic media.

* * * * *
    (b) * * *
    (4) Aggregation of returns. For purposes of determining whether the 
number of returns a person is required to file meets the 250-return 
threshold under paragraph (c)(1)(i) of this section, all types of 
returns covered by paragraphs (b)(1) and (2) of this section required 
to be filed during the calendar year are aggregated. Corrected returns 
are not taken into account in determining whether the 250-return 
threshold is met.
    (5) Corrected returns. Any person required to file returns covered 
by paragraphs (b)(1) and (2) of this section on magnetic media for a 
calendar year must file corrected returns covered by paragraphs (b)(1) 
and (2) of this section for such calendar year on magnetic media.
    (6) Examples. The provisions of paragraphs (b)(4) and (5) of this 
section are illustrated by the following examples:

    Example 1. For the 2018 calendar year, Company W is required to 
file 200 Forms 1099-INT, ``Interest Income,'' and 200 Forms 1099-
DIV, ``Dividends and Distributions,'' for a total of 400 returns. 
Because Company W is required to file 250 or more returns covered by 
paragraphs (b)(1) and (2) of this section for the calendar year, 
Company W must file all Forms 1099-INT and Forms 1099-DIV 
electronically.
    Example 2. During the 2018 calendar year, Company X has 200 
employees in Puerto Rico and 75 employees in American Samoa, for a 
total of 275 returns. Because Company X is required to file 250 or 
more returns covered by paragraphs (b)(1) and (2) of this section 
for the calendar year, Company X must file Forms 499R-2/W-2PR, 
``Commonwealth of Puerto Rico Withholding Statement,'' and Forms W-
2AS, ``American Samoa Wage and Tax Statement,'' electronically.
    Example 3. For the 2018 calendar year, Company Y files 300 
original Forms 1099-MISC, ``Miscellaneous Income.'' Later, Company Y 
files 70 corrected Forms 1099-MISC for the 2018 calendar year. 
Because Company Y is required to file 250 or more returns covered by 
paragraphs (b)(1) and (2) of this section for the calendar year, 
Company Y must file its original 300 Forms 1099-MISC, as well as its 
70 corrected Forms 1099-MISC for the 2018 calendar year, 
electronically.
* * * * *
    (g) * * *
    (2) Paragraphs (a)(1), (b)(1) and (2), (c)(1)(i), (c)(2), (d), (e), 
and (f) of this section are effective for information returns required 
to be filed after December 31, 1996. For information returns required 
to be filed after December 31, 1989, and before January 1, 1997, see 
section 6011(e) [26 U.S.C. 6011(e)]. Paragraph (b)(4) of this section 
is effective for information returns required to be filed after 
December 31, 2018. Paragraph (b)(5) of this section is effective for 
corrected information returns filed after December 31, 2018.
* * * * *
0
Par. 3. Section 301.6721-1 is amended as follows:
0
a. By removing the fifth through seventh sentences in paragraph 
(a)(2)(ii).
0
b. Adding paragraph (h).
    The revisions and addition reads as follows:


Sec.  301.6721-1   Failure to file correct information returns.

* * * * *
    (h) Effective dates. Paragraph (a)(2)(ii) of this section is 
effective for information returns required to be filed after December 
31, 2018.

Kirsten Wielobob
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2018-11749 Filed 5-30-18; 8:45 am]
 BILLING CODE 4830-01-P