State Tax E-Filing Update: Corporate, Partnership and S Corporation Returns

Transcription

1 Presenting a live 110-minute teleconference with interactive Q&A State Tax E-Filing Update: Corporate, Partnership and S Corporation Returns Mastering Latest Rules and Technologies for Mandatory and Optional Electronic Filing TUESDAY, NOVEMBER 27, pm Eastern 12pm Central 11am Mountain 10am Pacific Today s faculty features: Terry Hunt, E-File Manager, Kansas Department of Revenue, Topeka, Kan. Aaron Lindwall, Support Analyst, Corptax, Los Angeles For this program, attendees must listen to the audio over the telephone. Please refer to the instructions ed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at ext. 10.

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5 State Tax E-Filing Update: Corporate, Partnership and S Corporation Returns Seminar Nov. 27, 2012 Aaron Lindwall, Corptax alindwall@corptax.com Terry Hunt, Kansas Revenue Department terry.hunt@kdor.state.ks.us

6 Today s Program Upcoming E-File Mandates [Aaron Lindwall] Slide 8 Slide 22 Update On The Federal/State E-File Program [Terry Hunt] Slide 23 Slide 45 General Guidance For Dealing With States On E-Filing [Aaron Lindwall] Slide 46 Slide 57

7 Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser. 7

8 Aaron Lindwall, Corptax UPCOMING E-FILE MANDATES

9 Agenda For This Section I. States with new mandates for TY12 A. Colorado B. Illinois adding partnerships C. Michigan transitioning from MBT (Michigan business tax) to CIT (corporate income tax) returns D. Rhode Island E. Tennessee F. Virginia G. West Virginia 9

10 New Mandates For TY12 Colorado Effective Jan. 1, 2012 (Senate Bill ) Businesses claiming EZ (enterprise zone) tax credits are required to file electronically with the Revenue Department. Businesses are required to receive pre-certification each year prior to earning EZ business tax credits, and then must receive final certification from their local EZ administrator after earning the credit. An online system is available to receive pre-certification and certification of EZ business tax credits. Mandate applies to filers of Form 112 (C corporation) and Form 106 (partnership, S corporation) with EZ tax credits. 10

11 New Mandates For TY12 (Cont.) Illinois adding partnership returns for TY12 Regulation Sect , electronic returns: Beginning with returns required to be filed for taxable years ending on or after December 31, 2011, any taxpayer required to file its federal income tax return by electronic means is required to file its equivalent Illinois income tax return for the same taxable year by electronic means. This subsection (c)(4) does not require electronic filing of amended returns or of returns of individuals or estates, or to any return the Department has announced cannot be filed by electronic means. TY11 TY12 IL-1120 (single and combined C corporation) IL-1120 Insurance (single and combined) IL-1120-ST (S corporation) Adding support for IL-1065 (partnership) 11

12 New Mandates For TY12 (Cont.) Illinois (Cont.) Short period returns Illinois determines which form year to use based on end date. The TY11 form is, for tax years ending on or after 12/31/2011 and on or before 12/30/2012. Most state use the beginning date. For short-year filers, this has two implications: Short period returns with an ending date before 12/31/2011 are prepared on TY10 forms and do not fall within the mandate. They can be paper-filed. Short-year partnership returns can not be e-filed until they have a EOY date in 2013, because Illinois did not produce a schema until TY12. Example: A short period of 1/1/2012-6/30/2012 return will have to be prepared and filed in the TY11 e-file schema. Depending on how your system handles schema changes from year to year, this could affect how you import data for Illinois. 12

13 New Mandates For TY12 (Cont.) Michigan Effective Jan. 1, 2013, Michigan has an enforced e-file mandate for MBT and CIT. Software developers producing MBT and CIT tax preparation software and computer-generated forms must support e- file for all eligible Michigan forms that are included in their software package. All eligible MBT and CIT returns prepared using tax preparation software or computer-generated forms must be e-filed. The Treasury Department will be enforcing the e-file mandate for MBT and CIT. The enforcement includes not processing computergenerated paper returns that are eligible to be e-filed. A notice will be mailed to the taxpayer indicating that the taxpayer's return was not filed in the proper form and content, and it must be e-filed. Payment received with a paper return will be processed and credited to the taxpayer s account, even when the return is not processed. 13

14 New Mandates For TY12 (Cont.) Michigan (Cont.) 14 While e-file is not new for Michigan, the state is transitioning from the MBT (Michigan business tax) to the CIT (corporate income tax). All eligible returns prepared using tax preparation software or computer-generated forms, must be e-filed. Most taxpayers will be filing the CIT for TY12. MBT election enables certain MBT taxpayers with certificated or awarded credits to continue using those credits once the CIT is in place. Such taxpayers may elect to continue filing and paying under the MBT until the expiration of the previously awarded, certificated credits.

15 New Mandates For TY12 (Cont.) Michigan (Cont.) Special considerations for fiscal filers Taxpayers with a federal fiscal year beginning in 2011 and ending in 2012 must file two short-period returns. One to report its final 2011 MBT liability, for the period from the beginning of its fiscal year through Dec. 31, The other to report either its initial CIT liability for the period from Jan. 1, 2012 to the end of its fiscal year; or, for taxpayers electing to continue MBT to claim certain certificated credits, a 2012 MBT return for the period from Jan. 1, 2012 to the end of its fiscal year 15

16 New Mandates For TY12 (Cont.) Michigan (Cont.) Special considerations for fiscal filers (Cont.) Furthermore, the final MBT return must use the same method as the second CIT/MBT return. A taxpayer that is subject to the MBT and the CIT for fractional parts of the same fiscal tax year must use the same method to compute the MBT as used to compute the CIT for the other portion of the tax year. MCL (2) and MCL More specifically, MCL (1) directs that a taxpayer subject to the CIT may elect to compute the tax for the portion of the tax year to which the CIT applies by 1 of the following methods: 1. Annual: The tax may be computed as if the CIT was effective on the first day of the taxpayer s annual accounting period, and the amount computed shall be multiplied by a fraction, the numerator of which is the number of months in the taxpayer s first tax year and the denominator of which is the number of months in the taxpayer s annual accounting period. 2. Actual: The tax may be computed by determining the corporate income tax base in the first tax year in accordance with an accounting method satisfactory to the department that reflects the actual corporate income tax base attributable to the period. The method of accounting used in prior fiscal years will be assumed to reflect the actual tax base attributable to the period. 16

17 New Mandates For TY12 (Cont.) Michigan (Cont.) Special considerations for fiscal filers (Cont.) MCL (2) further states that the method chosen by the taxpayer to compute the CIT shall be the same method used by that same taxpayer when computing the MBT for the other portion of that same tax year. Software providers will have to make changes to the TY11 MBT calculations. Verify the timing of these changes with your vendor 17

18 New Mandates For TY12 (Cont.) Michigan (Cont.) Special considerations for fiscal filers Automatic extension to file (not to pay) Fiscal-year taxpayers will be granted an automatic extension for their 2012 fiscal year annual CIT return or 2012 fiscal year annual MBT election return. Returns for fiscal years ending in 2012 will be due on the same date as 2012 calendar-year returns, which is April 30, An extension request form need not be filed unless required to transmit payment of any tax due with the annual return. The annual return tax due must be paid by the original due date, which is the last day of the fourth month after the end of the fiscal year. A fiscal-year taxpayer may request an additional extension on Form 4, Application for Extension of Time to File Michigan Tax Returns, if the extension to April 30, 2013 is not sufficient (e.g., a taxpayer with a fiscal year ending November 2012, with a federal extension granted through September 2013). 18

19 New Mandates For TY12 (Cont.) Rhode Island Regulation ELF implements of the Rhode Island General Laws. Grants the tax administrator the authority to require paid preparers to file personal and business tax returns electronically with the Division of Taxation Effective Jan. 1, 2009, any paid preparer who filed more than 100 Rhode Island returns during the previous calendar year must file all eligible returns electronically. While the state had the authority to require electronic filing since Jan. 1, 2009, it did not exercise that authority until TY12. The Taxation Division will begin enforcing that mandate Jan. 1, 2013, with respect to paid preparers of corporate returns on the Form RI-1120 series and Form RI Thus, all returns filed on or after Jan. 1, 2013 on Form RI- 1120C, Form RI-1120S or Form RI-1065 must be e-filed. Mandated tax returns for TY12 include RI-1120C, RI-1120S and RI-1065 that are completed by a paid preparer who filed more than 100 Rhode Island returns in the previous year (including personal and corporate income tax returns and other types of Rhode Island tax returns). 19

20 New Mandates For TY12 (Cont.) Tennessee Beginning Jan. 1, 2013, certain franchise and excise tax, certain sales and use tax, and all professional privilege tax returns must be filed electronically pursuant to Public Chapter 657 (2012). It states: "The commissioner is authorized to require that any return, report, claim, statement, application, or other document filed with the department, including any payment or remittance that accompanies such document, be submitted electronically in a manner approved by the commissioner beginning no sooner than ninety days after the commissioner has certified that a system is in place for the electronic submission of such document or payment." This notice serves as such certification. Forms currently accepted through the IRS Modernized e-file (MeF) Program include the franchise and excise tax return (FAE170), application for extension of time to file (FAE173), and quarterly franchise and excise tax declarations (FAE172). 20

21 New Mandates For TY12 (Cont.) Virginia Corporation electronic filing mandate The Appropriations Act (273 of HB Acts of Assembly 2012 Special Session I, Chapter 3), effective Jan. 1, 2013, requires all corporations to file estimated tax payments and their annual income tax return and final payment using an electronic medium in a format prescribed by the tax commissioner. Accordingly, for taxable years beginning on or after Jan. 1, 2012, corporations must file and make return payments electronically. Estimated tax payments must be made electronically for taxable years beginning on or after Jan. 1, Waivers may be granted only if the tax commissioner finds that this requirement creates an unreasonable burden on the corporation. All requests for waiver are to be submitted to the tax commissioner in writing. FAX waiver requests to: (804) Form 500 filers (C corporation) must e-file. Form 502 files (S corporation and partnership) are not supported by e-file. 21

22 New Mandates For TY12 (Cont.) West Virginia 22 West Virginia will begin enforcement of its mandate, which has been in place since Jan. 1, Reg D-1 through D-9, West Virginia State Tax Department, effective May 16, 2011 West Virginia has amended its electronic filing regulations to provide that for tax years beginning on or after Jan. 1, 2012, electronic filing is mandated for those taxpayers that had annual remittance for any single tax type equal to or greater than $10,000 during the immediately preceding taxable year. Previously, the $10,000 threshold was to take effect for tax years beginning on or after Jan. 1, 2011, for taxpayers that had total annual liability for any single tax of $10,000 or more during the preceding tax year. Other amendments to the regulations conform to statutory changes. Mandate applies to Form 120 (C corporation) and Form 100 (S corporation and partnership)

23 Terry Hunt, Kansas Revenue Department UPDATE ON THE FEDERAL/STATE E-FILE PROGRAM

24 Federal/State E-File Program Update I. States implementation of 1120/1120S/1065 e-file A program growth B. State plans for future implementation II. Nuts and bolts of fed/state business e-file platforms A. Schemas, TIGERS and manifests! B. IRS shared data structures C. State common components D. State customizable sections of schemas 24

25 Federal/State F-File Program Update (Cont.) III. Errors and rejected submissions A. XML parse errors B. State business rule errors C. Resolve errors and re-submit submissions IV. State coordination with software providers A. Software developer guides B. Business rule listings C. Testing of software D. Software approval process and compliance agreements 25

26 1120/1120s/1065 State E-File Growth 26

27 Participating States Filing Season 2012 State Total State Returns Corporate Linked Partnership Linked Corporate Unlinked Partnership Unlinked Alabama 97,305 23,456 19,399 35,751 18,699 Arkansas 41,440 5,376 4,883 21,381 9,800 Colorado 121,832 31,786 24,699 40,943 24,404 Delaware 10,207 5, ,463 0 Florida 133,600 39, ,765 0 Georgia 227,110 57,510 37,607 96,943 35,050 Iowa 48,203 10,992 7,550 20,533 9,128 Idaho 43,830 5,336 4,811 19,080 14,603 Illinois 88,389 31, ,434 0 Kansas 62,118 12,752 10,285 24,377 14,704 Louisiana 58,424 18, ,580 0 Maryland 141,858 35,072 24,990 56,819 24,977 Maine 8,303 3,302 2,795 1, Mississippi 85,558 51,453 13,807 16,857 3,441 Minnesota 128,189 31,204 19,145 54,213 23,627 Missouri 48,412 13, ,336 0 Massachusetts 17,027 2,946 2,514 7,320 4,247 Montana 32,937 7,583 4,114 13,707 7,533 North Dakota 15,602 5,918 4,659 3,191 1,834 New Jersey 1, ,222 0 New York City 451,472 95,822 50, ,996 77,069 New York State 1,302, , , , ,055 Oklahoma 3,993 1, ,664 0 Oregon 52,177 12, ,763 0 Pennsylvania 300,057 60,215 45, ,738 64,017 Rhode Island 17,296 7,107 4,177 4,310 1,702 South Carolina 61,268 19, ,728 0 Tennessee 13,598 5,364 3,210 3,939 1,085 Utah 65,419 5,457 6,084 37,769 16,109 Virginia 16,977 6, ,026 0 Wisconsin 157,237 38,004 30,326 55,812 33,095 West Virginia 5,935 2,339 1,513 1, Total: 3,859, , ,942 1,768, ,297 27

28 Connecticut: Launching 1065 E-File Connecticut will be accepting 1065 submissions (CT-1065/1120SI form) beginning in January 2013, followed by 1120 later in 2013 (CT-1120 form). Non-Participating States (As Of 11/27/12) Alaska Arizona California (independent) District of Columbia Hawaii Indiana Kentucky Massachusetts (independent) New Hampshire New Mexico North Carolina Ohio South Dakota Texas (independent) Vermont 28

29 Schemas, TIGERS And Manifests Schema: A plan, diagram or scheme XML: Extensible mark-up language TIGERS: Tax Implementation Group for E-Commerce Requirements Standardization Manifest: Provides basic, minimal specifications for the package contents (submission), and briefly describes what is contained in that submission Web Service: A method of communication between two electronic devices over the World Wide Web All participating states must submit their schemas for review and approval by the TIGERS schema review team. 29

30 Schemas, TIGERS And Manifests (Cont.) The IRS and states use XML schemas to document and publish electronic versions of tax forms and schedules. These schemas also enforce rules for data formatting, required entries, tax years and versioning. XML schemas provide IRS and states with cleaner tax data up front, and therefore reduce errors and adjustments to tax returns (fewer notices and letters generated to the taxpayer). Every submission must contain a manifest. The IRS opens and processes the data in the manifest for both IRS and state submissions.

31 Schemas, TIGERS And Manifests (Cont.) For state submissions, the IRS verifies that the state listed in the manifest is a participating state for the submission platform (1040, 1120, 1065). Additional checks are performed on the ETIN, and the name and EIN are matched against IRS databases. IRS checks the status of the IRS submission on linked fed/state returns. If accepted, the IRS allows the state submission to be retrieved by the state. IRS does not open or process any other data in the state submission package. The package is just simply placed in the corresponding state s retrieval queue for pick-up by the state s Web service application. States are restricted to assigned time slots for Web service requests, so that volume management can be monitored and throttled by the IRS. 31

32 IRS Shared Data Structures XML data types (e-file types) XML naming conventions Tax form structuring Schema packaging and versioning Return header information Binary attachments Common folders 32

33 33 XML Data Types And Naming Conventions

34 34 XML Data Types And Naming Conventions (Cont.)

35 State Common Components XML schema structure ReturnHeader ReturnDataState FinancialTransaction Binary attachments IRS forms (W-2s, 1099s) 35

36 36 State XML Schema Structure

37 States Customizable Schema Sections 37

38 38 States Customizable Schema Sections (Cont.)

39 Errors And Rejected Submissions Error Category Error Msg Rule Number Severity DataValue Unknown Schema Version XML Schema version unknown or missing Error Category Error Msg Rule Number Severity DataValue Duplicate Return Original return already received for this tax year by FEIN Error Category Error Msg Rule Number Severity DataValue XML PDF Mismatch XML attachments and submission attachments do not match

40 Errors And Rejected Submissions (Cont.) Error Category Error Msg Rule Number Severity DataValue XML Validation Error: The ' element is invalid - The value ' ' is invalid according to its datatype ' - The Pattern constraint failed. Line: 1 Position: Error Category Error Msg Rule Number Severity DataValue XML Validation Error: The ' AveragePercentToKsSales' element is invalid - The value ' ' is invalid according to its datatype ' - The MinInclusive constraint failed. Line: 1 Position:

41 State Business Rule Errors ErrorCategory ErrorMessage RuleNumber XML Validation <Actual XML Error Message> 50 Duplicate Return Original return already received for this tax year by FEIN. 51 Invalid Tax Year Tax Year in the Manifest is invalid and out of the range of the 52 program. Invalid Submission type Submission type in manifest not an accepted value. 53 XML PDF Mismatch XML attachments and submission attachments do not match. 54 Invalid EIN EIN does not match IRS master file. 55 Debit Date Missing Requested Settlement Date must be sent for a direct debit transaction 56 Debit Amount Error Payment Amount for a direct debit must be greater than zero 57 TaxPeriodBeginDate Missing Tax period begin date must be sent 58 TaxPeriodEndDate Missing Tax period end date must be sent 59 ABA Validation ABA Bank routing number format is invalid 60 Unknown Schema Version XML Schema version unknown or missing 100 Invalid ETIN Invalid or unauthorized transmitter 101 Invalid EFIN Invalid or unauthorized filer 102 XML Return Missing XML Return was not found in the transmission

42 Error Resolution XML parse error Decipher XML parse error message Review tax return for data elements listed in parse error message State business rule error Check rule number error and message Refer to state business rule error listings Contact software provider or State ELF office for assistance 42

43 State Coordination With Software Providers Software developer guides and business rules Made available to software partners to use in conjunction with schemas for software development Guides are uniform in structure across states, allowing developers to easily locate needed information. Guides include state program requirements, contact personnel, testing overview, acknowledgements and reject information Some states also publish this guide on the ERO section of the state Web site. 43

44 State Coordination With Software Providers (Cont.) ERO handbook Overview of state e-file programs and ERO responsibilities Business rule reject codes Available on state Web sites and/or through software providers 44

45 Software Testing And Approval Process States develop test scenarios based off high-volume forms, legislative changes and errors seen in prior years. States publish test scenarios and testing timeframes. Software developers transmit the state scenario data electronically, and the state compares that XML data received to the scenario published. Software approval is granted when the developer has successfully sent all required test scenarios. Some states require additional steps in the approval process: Letters of intent, participation agreements, compliance contracts 45

46 Aaron Lindwall, Corptax GENERAL GUIDANCE FOR DEALING WITH STATES ON E- FILING

47 Agenda For This Section I. Successful e-filing A. Planning B. Preparing the e-file return C. Reviewing your e-file return D. Filing the return with the jurisdiction 47

48 Planning Planning 48 Are you required to e-file? Many states have different mandates for paid preparers vs. self-filers. Some state have e-file mandates but have not actually built the e-file infrastructure. Some states have e-file mandates and programs but are not currently enforcing the mandate. For states where you need to e-file, what is the perfection period? Move states without a perfection period earlier in your preparation process. You must have an accepted return by the return due date.

49 Planning (Cont.) Perfection period None 5 Business Days 7 Calendar Days 10 Business Days 10 Calendar Days CO MI NJ (P-ship) NY (P-ship) NYC PA (C corp) RI TN TX VA LA MA MS (P-ship) NY (C corp) NY (S corp) AL IL FL GA OR PA (S corp) SC WI Waiting on information for WV 49

50 Planning (Cont.) Planning When will e-file functionality be delivered from your software vendor? Vendor ability to deliver functionality in a timely manner is affected by: Initial delivery of yearly schema Complexity of schema and number of business rules Testing requirements to gain software approval Attend webinars from your vendor to refresh knowledge on existing jurisdiction issues, and learn about new jurisdictions Define roles within your organization Who is responsible for the e-file function? How are errors reported back to the preparer s for correction? Who is responsible for determining the filing was successful? 50

51 Preparing Preparing the e-file return Inventory items previously included in the paper return to determine how they will be included for e-file Part of the XML file As a PDF attachment Separately submitted on paper Not supported for electronic filing (NY credit forms) What does the jurisdiction require for federal attachments? As filed federal return in XML Do they require single-entity, pro forma attachments? 51

52 Preparing (Cont.) Preparing the e-file return Does the jurisdiction allow eliminations in an eliminations entity? Are negative amounts allowed? What are the signature requirements for the return? Signature document retained in records Signature document submitted with the return Certify the return electronically Provide information like last year s revenue or a state-issued number Don t wait for the return to be completed to begin the e-file process Many of the items above can be determined early in the return preparation process by validating the return against the schema. Other items such as address issues can be identified and corrected early in the process. 52

53 Reviewing Reviewing the e-file return The e-file return is not the printed copy of the return. Does your software allow you to view the actual XML file that is being filed with the jurisdiction? Who is responsible for reviewing the e-file return? What tools are available to facilitate the e-file review? At a minimum, you should be verifying important numbers in the return (TI, tax due) and attachments included with the e-file return. 53

54 Filing Filing the return with the jurisdiction. How will you transmit the return? Direct to the jurisdiction Through a third party Direct to the jurisdiction Combined fed/state participating states can be uploaded to irs.gov. Use your EFIN/ETIN with the return You must download the acknowledgement file to determine if you were accepted or rejected. Is any additional registration needed with the jurisdiction? 54

55 Filing (Cont.) Filing the return with the jurisdiction. Through a third party Use their EFIN/ETIN (online filer) Use your EFIN, their ETIN (ERO) Do you have the ability to test the transmission process to determine if trust certificates are up to date or if any firewall issues exist? How is the accepted or rejected status (acknowledgement file) reported back to you? Maximize your perfection period for rejected returns The 10 days is actually a lookback period and is determined as of the date the return is accepted. IRS looks back 10 days from the date the return is accepted to determine if there have been any rejects for the same EIN and tax period. Plan to file early and know that you may need to re-file (and reject again) on the return due date if your return hasn t been accepted. This will secure the longest perfection period. 55

56 Filing (Cont.) If my return passed validations in my software, why would I reject with the jurisdiction? The degree to which the various jurisdictions partner with software vendors affects our ability to provide accurate error reporting that increases the likelihood of the taxpayer receiving an accepted return on the fist transmission attempt. States may not publish all the validations they perform on returns or may perform validations we cannot (e.g., is the EIN/state account number a valid combination?). If a state implements a lot of rules (Illinois, for example, had 1,500 business rules), then there is a risk that not all the rules will work in harmony for each filing scenario. What steps need to be preformed once the return is accepted? Are acknowledgement files archived in your software or somewhere else on your network? What about the XML return? Do you have the ability to lock a filed return? 56

57 Filing (Cont.) Tips for success Clearly define roles within your organization Have a point person for distributing errors to the preparers and collecting needed return attachments. That person should have a return inventory to compare with the e-file package. Have someone responsible for determining when the return has been accepted. For some jurisdictions, it is not an all or nothing proposition. You may receive a partially accepted return. Begin the process early Many errors can be resolved before the return is completed. Other issues can be determined early. Allow time for rejections; know for how long your perfection period lasts 57