How do I determine whether the corporation meets the 250-return threshold

To determine whether a corporation meets the 250-return threshold, you need to aggregate all returns required to be filed by the corporation or members of a controlled group of corporations during the calendar year. This includes all types of returns such as income tax returns, information returns (e.g., Forms W-2 and Forms 1099), excise tax returns, and employment tax returns. Here are the steps and considerations:

1. Identify All Returns Filed: Count all returns filed by the corporation or controlled group during the calendar year. This includes:
   • Income tax returns (e.g., Form 1120)
   • Information returns (e.g., Forms W-2, 1099)
   • Employment tax returns (e.g., Forms 940, 941)
   • Excise tax returns (e.g., Form 720)
2. Include All Members of a Controlled Group: If the corporation is part of a controlled group as defined by IRC §1563(a), include all returns filed by each member of the group. The aggregation applies to all C corporations and foreign corporations within the controlled group.
3. Exclude Certain Returns: Do not count corrected returns, amended returns, or forms filed with the 1120, 1120S, or 1120-F tax return, such as Form 5471.
4. Examples for Clarification:
   • Example 1: A corporation filing a consolidated return with 5 subsidiaries, each having 25 employees, one subsidiary filing 100 Forms 1099, and another filing 3 Forms 720. The total count includes:
     • 150 Forms W-2
     • 6 Forms 940
     • 24 Forms 941
     • 100 Forms 1099
     • 3 Forms 720
     • 1 Form 1120 consolidated return
     • Total: 284 returns, meeting the 250-return threshold.
   • Example 2: A controlled group with 3 member corporations, all filing Form 1120S. Only the member with 300 employees meets the threshold since aggregation does not apply to Forms 1120S.
   • Example 3: A controlled group with 5 members, including C corporations and S corporations. Aggregation applies to all C corporations, resulting in meeting the threshold if the total returns filed by the group exceed 250.
5. Special Considerations for Foreign Corporations: Include foreign corporations in the count if they have effectively connected income (ECI) or U.S. source income with unsatisfied tax liability by withholding.
6. Regulatory Reference: According to § 301.6011-5(d)(5), a corporation or controlled group is required to file at least 10 returns if, during the calendar year ending with or within the taxable year, they are required to file at least 10 returns of any type.

By following these steps and considering the examples, you can determine whether the corporation meets the 250-return threshold for mandatory electronic filing.

Sources:
§ 6033. Returns by exempt organizations
§ 1.6033-2. Returns by exempt organizations and returns by certain nonexempt organizations.
Publication 4163 (12/2023)
Publication 4206
§ 301.6011-5. Required use of electronic form for corporate income tax returns.