States require electronic filing for certain types of returns

According to recent statistics published by the Internal Revenue Service (IRS), during the 2014 tax filing season, the IRS received 149 million tax returns. Of the total returns received, 125 million were electronically filed, representing greater than 84 percent of the total returns received. Given the high rate of electronically filed federal tax returns, many states are moving to compel taxpayers to electronically file certain state tax returns. As outlined below, several states will mandate certain tax returns be electronically filed for the upcoming filing season, unless the taxpayer receives an appropriate waiver.

California

California’s Franchise Tax Board (FTB) announced new e-file requirements for business entities beginning Jan. 1, 2015, for taxable years beginning on or after Jan. 1, 2014. Absent a waiver, any business entity that files an original or amended tax return prepared using tax preparation software is required to file its return electronically.

Affected businesses can request a waiver by submitting, directly to the FTB, an online fillable form that will be available on the website beginning Jan. 2, 2015. The following reasons justify the granting of a waiver request:

• Technology constraints, such as the inability of the tax preparation software used by a taxpayer to electronically file the return due to the inadequacy of the software or the complex nature of the return;
• Where compliance would result in undue financial burden; or
• Circumstances that constitute reasonable cause and not willful neglect.

Pennsylvania

The Pennsylvania Department of Revenue (DOR) issued a notice mandating e-filing for third-party preparers of Pennsylvania Directory of Corporate Partners Returns (Form PA-65 Corp) with 11 or more pass-through entity filers.

The notice provides that “for all calendar years following a calendar year in which a third-party preparer prepares 11 or more PA Directory of Corporate Partners Returns, the third-party preparer is required to electronically file (e-file) in the manner prescribed by Departmental instructions for Form PA-20S/PA-65."

Virginia

As of Jan. 1, 2015, the Virginia Department of Taxation (VaDOT) requires all pass-through entities to file their annual returns and make all payments electronically. This is effective beginning with tax year 2014 returns, return payments, and withholding payments.

Pass-through entities that are unable to file and pay electronically may request a waiver.

According to the VaDOT, a pass-through entity is “any entity other than an individual estate or trust that is recognized as a separate entity for federal income tax purposes and the owners of which report their distributive or pro rata shares of the entity's income, gains, losses, deductions and credits on their own returns.” For purposes of the filing requirement, the VaDOT defines a "pass-through entity" to include S corporations, general partnerships, limited partnerships, limited liability partnerships, limited liability companies, electing large partnerships, and business trusts.

Ohio

Ohio has released a draft version of a new statute requiring all International Fuel Tax Agreement returns to be filed and paid electronically, effective June 1, 2015.

Taxpayers will be able to do this through the Ohio Business Gateway or through an electronic filing and payment system that will be accessible from the Ohio Department of Taxation’s webpage. Those wishing to be excused from the requirement may apply to the tax commissioner, who will issue written notification of his decision.