If a corporate taxpayer required to e-file fails to comply with the electronic filing requirements, the IRS may determine that the taxpayer has failed to file the return. This non-compliance can result in several consequences:
- Penalties for Failure to File: The taxpayer may be subject to penalties under §6651 for failure to file the return. Specifically, §6651(a)(1) imposes a penalty of 5% of the amount of tax required to be shown on the return for each month or fraction thereof during which the failure continues, not exceeding 25% in the aggregate. If the failure to file is fraudulent, the penalty increases to 15% per month, up to a maximum of 75%.
- Invalid Elections: Any elections made on a return that is not filed electronically as required will be considered invalid. This means that the taxpayer may lose the benefit of certain tax elections that could have been advantageous.
- Separate Penalties for Forms: Additional penalties may apply for each Form 5471 (Information Return of U.S. Persons With Respect to Certain Foreign Corporations) that is improperly filed. The penalty for failing to file Form 5471 is $10,000 per form.
- Monitoring and Enforcement: The IRS monitors paper filing submissions and enforces the electronic filing requirements. The IRS contacts taxpayers who report assets exceeding $10 million and file 250 returns in a year to explain the electronic filing requirements and work with them to ensure compliance.
- Special Rules for Tax Return Preparers: For tax return preparers, if they are considered "specified tax return preparers" (those who reasonably expect to file 10 or more individual income tax returns during the calendar year), they must file returns on magnetic media. Failure to comply with this requirement can also result in penalties.
- Financial Institutions: Financial institutions required to file returns related to withholding on foreign transfers must comply with electronic filing requirements regardless of the number of returns filed.
In summary, failure to comply with the electronic filing requirements can lead to significant penalties, invalidation of tax elections, and additional scrutiny from the IRS. It is crucial for corporate taxpayers to adhere to these requirements to avoid these adverse consequences.
Sources:
§ 6011. General requirement of return, statement, or list
§ 6651. Failure to file tax return or to pay tax
IRM Part 21. Customer Account Services. Chapter 7. Business Tax Returns and Non-Master File Accounts. Section 4. Income Taxes/Information Returns
IRM Part 3. Submission Processing. Chapter 42. Electronic Tax Administration. Section 4. IRS e-file for Business Tax Returns
IRM Part 20. Penalty and Interest. Chapter 1. Penalty Handbook. Section 2. Failure To File/Failure To Pay Penalties
