Mandatory e-filing for 5500-EZ

I'm just curious if anyone has had a 5500-EZ filer who was required to file electronically because they have at least 10 electronic returns (as my understanding effective 1/1/24)?

Does the IRS actually check this?

I don't think the IRS can monitor this now for small taxpayers.  However, AI will make it easier.

Failing to file electronically when required can be considered a failure to file so the penalties can add up quickly.

16 hours ago, Dare Johnson said:

I don't think the IRS can monitor this now for small taxpayers.  However, AI will make it easier.

Failing to file electronically when required can be considered a failure to file so the penalties can add up quickly.

Sure they can. They know how many returns you have filed.  DOL is getting pretty good at data mining and analysis.  Just like late or missing returns, it is only a matter of time before they start enforcing electronic filing mandates.  We file all EZ electronically.

Pardon my ignorance, I never understood this.  Are they speaking of a TPA filing 5500s for more than 10 clients?  If so, how would IRS have this information.

In form, the rule applies on the filer—the employer, and not directly on a submitter. (Although other rules might apply regarding a submitter.)

Consider some law sources:

Form 5500-EZ Instructions: Mandatory electronic filing. A filer must file the Form 5500-EZ electronically using the EFAST2 Filing System for plan year beginning on or after January 1, 2024 if the filer is required to file at least 10 returns of any type with the IRS, including information returns (for example, Forms W-2 and Forms 1099), income tax returns, employment tax returns, and excise tax returns, during the calendar year that includes the first day of the applicable plan year. If a filer is required to file a Form 5500-EZ electronically but does not, the filer is considered to have not filed the form even if a paper Form 5500-EZ is submitted. See Treasury Regulations section 301.6058-2 (T.D. 9972) for more information on mandatory electronic filing of employee retirement benefit plan returns.

Consider that an information return required under Internal Revenue Code of 1986 § 6058 is filed not only by the plan’s administrator but also by the employer.

Here’s the rule: 26 C.F.R. § 301.6058-2 https://www.ecfr.gov/current/title-26/section-301.6058-2.

Definition of filer.  For purposes of this section, the term filer means the employer or employers maintaining the plan and the plan administrator within the meaning of section 414(g). 26 C.F.R. § 301.6058-2(d)(3)(ii) https://www.ecfr.gov/current/title-26/part-301/section-301.6058-2#p-301.6058-2(d)(3)(ii).

The rule’s example shows how an owner+spouse business might file at least ten tax returns. 26 C.F.R. § 301.6058-2(e)(1) https://www.ecfr.gov/current/title-26/part-301/section-301.6058-2#p-301.6058-2(e)(1).

Here’s another illustration: A 100% shareholder of a professional corporation does not employ her spouse. Yet, that employer with only one shareholder-employee might file for each year at least ten Federal tax returns: Form 1120-S (1), Form W-2 (1), Form 940 (1), Form 941 (4), Form 945 (1), Form 1099-R (1) [for a yearly rollover from her § 401(a) plan into an IRA], and Form 5500-EZ (1).

Rather than sort for which clients might file fewer than ten tax returns for a particular year, a third-party administrator might prefer the efficiency of preparing all clients’ Form 5500-EZ returns in electronic form.

We might not know whether EBSA’s or the IRS’s software is smart enough to count all tax returns filed under an employer identification number. Yet, even if a practitioner advises about nonenforcement or nondetection on other points, I’m not readily seeing why a client might risk it for Form 5500-EZ.

40 minutes ago, Peter Gulia said:

Rather than sort for which clients might file fewer than ten tax returns for a particular year, a third-party administrator might prefer the efficiency of preparing all clients’ Form 5500-EZ returns in electronic form.

I agree with @Peter Gulia.  It takes far more time to file on paper than to file electronically.  This is the practical business reason to file electronically.

The biggest exposure is a plan that is eligible to file on paper can choose to file electronically, but a plan that is not eligible to file on paper but does file on paper is considered by the IRS not to have filed.  Why risk being subject to penalties, particularly if the plan sponsor cannot accurately count all of the forms that they filed with the IRS during the year?  This is the practical penalty avoidance reason to file electronically.

Can the IRS count the number of forms a filer submitted during the year?  Yes, they can.  The IRS has Entity Control Units in Kansas City, MO and Ogden, UT that manage EINs across all filings.  Betting that the IRS cannot easily get a count of forms is not a good bet.

Just some thoughts.

Thank for information.  Would be practical for the IRS "amnesty" program to be done electronically with a credit card, as well; just as DOL DFVC.