You Will eFile in New York

I have a few clients in New York (about 20). I have one client who strongly dislikes efiling. It appears he won’t have a choice for his 2010 tax return if I prepare his return. New York has implemented mandatory efiling for most tax professionals.

New York has removed the option of client’s opting out of efiling, and they’ve rescinded their form that allowed for this (Form TR-800 no longer exists). And most tax professionals will fall under the requirement that mandates efiling. If you prepared 100 or more returns for any jurisdiction in 2009 and prepare one or more New York returns for 2010 using tax software, you fall under this mandate for the 2010 tax year. Alternatively, if you fell under the New York efile rules in a prior year the mandate applies to you.

While Robert Flach won’t fall under this mandate (he doesn’t use tax software), almost every other tax professional will. And I don’t like it one bit. It’s not that I’m against efiling (I’m not, and believe it’s the best way of filing returns in most cases) there are situations where efiling is not the best choice. These usually involve complex returns where I want to include additional documentation with the return. (A few states allow pdf files to be submitted with an efiled tax return. It’s unclear whether this will be available for New York returns in 2010.)

Finally, it’s the client that should have the final say in this matter. Take my client who dislikes efiling. If he continues to utilize my services, I’m required to efile his returns. I could lose his business over this mandate and there’s nothing I can do about it (except violating the law). It may be that this law overreaches and is, in some way, unconstitutional. That said, most of my clients are outside of New York and the loss of one client won’t be a big deal for me. Still, possibly losing a client for this reason really irks me.

7 Responses to “You Will eFile in New York”

  1. Jaeger says:

    You know way more about this than I do, but I don’t really understand what the big deal is.

    Don’t they just take the return, have some minimum wage droid keypunch the numbers, and then throw the remainder into some huge file.

    My guess is, if your client’s complex return is going to trigger a question or an audit, they’re not going to look at that remainder file before they contact you anyway.

    So doesn’t shipping a .PDF file violate the standard tax preparer/attorney advice of “never answer any question they don’t ask”?

    • Russ says:

      There are numerous reasons why you would want to attach an explanation to a return.

      One reason, and this is specific to New York, is partnership withholding. As fellow tax blogger Joe Kristan pointed out this morning, New York has problems matching withholding for partners on partnership tax returns to the actual partners’ tax return. So say you are a partner in a New York partnership (or a member in a New York LLC), and $5,000 has been withheld by the partnership. On your personal tax return, you claim that $5,000 as money withheld (as you rightly should). It’s likely that New York won’t correctly match the withholding to you. Joe Kristan has been attaching explanations to returns so that notices aren’t generated. When the matching issue is noted, the examiner (hopefully) looks at the attached explanation, verifies the withholding, and a lot less time has to be spent by all. (I’ve done this, too.)

      Notices cost clients time and money. Attaching explanations can forestall this, saving the client and the tax agency time and money.

      There are many other reasons why you would attach an explanation to a tax return, too.

  2. Steven Latus says:

    Russ, the new federal and state e-mail mandates ARE irritating (encourage – yes; compel – NO), but I think you’re off the hook at least for next year.

    See http://www.tax.state.ny.us/elf/tp_pit_mandate.htmand. Read about halfway down, where you will see this under the section dealing with how to determine if you meet the 100 return threshold:

    “Don’t count extensions, amended returns, returns filed for prior years, federal returns or returns for other states.”

    But there’s also this:

    “Count individual income tax, fiduciary and partnership returns (including IT-204-LL) for tax year 2009 prepared in calendar year 2010.”

    So it’s not a matter of simply counting the number of individual New York returns, either.

    But the important part for you is that, if it’s not a New York State individual, fiduciary or partnership return, it doesn’t count toward the 100 return threshold. And since you have only about 20 NY clients, Bob’s your uncle (assuming that your 2009 New York return count was below 100).

  3. Steven Latus says:

    In my haste to tell you more details about the New York e-file mandate, I lost focus on the bigger picture – the federal e-file mandate.

    So even though you may not be subject to the New York mandate, you will likely be subject to the federal one, which takes effect as follows:

    “Many Tax Return Preparers Required to Use IRS e-file Beginning in 2011

    Congress recently approved a federal e-file mandate for tax return preparers, based on recommendations from the IRS, the Treasury Inspector General for Tax Administration and the Electronic Tax Administration Advisory Council.

    The requirement will be phased in over two years. As a result of the new rules, preparers will be required to start using IRS e-file beginning:

    *
    January 1, 2011— for those of you who anticipate preparing 100 or more federal individual or trust tax returns during the year; or
    *
    January 1, 2012— for those of you who anticipate preparing 11 or more federal individual or trust tax returns during the year.”

    The link is http://www.irs.gov/taxpros/providers/article/0,,id=223832,00.html.

    So you may not have to e-file his New York return, but you may well have to e-file his federal return – which leaves you with the same dilemma, I’m afraid.

  4. gerrry says:

    for tax year 2010

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