The IRS has announced a release date of August 2009 for the modernized e-file (MeF) Form 1040. The MeF program is the newest generation IRS e-file computer system. It is currently required for large corporations, partnerships, and exempt entities. The Service expected to receive 1.5 million MeF returns during the 2006 filing season.
Approximately 130 million individual income tax returns are currently filed each year, and close to 54% of these are filed electronically using the existing legacy system. Thus, development of the MeF 1040 for this broader application will require a substantial time and resource commitment by both the IRS and third-party software developers.
According to Paul Mamo, director of the IRS Office of Electronic Tax Administration Development Services, the MeF 1040 August 2009 release date was chosen to accommodate a lengthy 24-month development cycle. In addition, a non-peak release date allows the IRS to more easily monitor initial system performance.
The first release of the MeF 1040 includes the base 1040 form, 10 or 11 commonly used schedules, and explanatory attachments. With the release in the planning stages, the specific list of schedules to be included has not been determined. However, an early draft does not include Schedules C, E, or F. Without substantial expansion of the schedule offering, this release of the MeF program will enable processing of only the simplest returns and will be of limited use to CPA practitioners.
This first release of the MeF will include the ability to submit amended returns electronically. (The limitation on schedules will also apply to amended returns.)
The next phases of the MeF 1040 release are planned for the summer of 2011, by which time most of the remaining forms should be available. The legacy program will operate side by side with the MeF for at least two years after the MeF is fully released. Anticipating full implementation of the MeF, the legacy program will be phased out in 2013.
Form 1040 and any attachments must be submitted electronically to the MeF in XML format. For example, in order to be allowed as an attachment with an MeF return, a broker capital gains detail schedule would need to be converted to XML format. Specifically identified documents that cannot be placed in XML will be allowed in PDF format. Examples include custody agreements and divorce decrees.
Advantages for Practitioners
Mamo has outlined several advantages for practitioners once the MeF is fully operational.
1. Faster confirmation of return acceptance or rejection: MeF returns are processed as they are received instead of being delayed in a batch system, as they are under the legacy program.
2. Specific explanation of errors: Under the legacy program, one error code may apply to multiple types of e-file errors. MeF error codes use simple wording to clarify each error that triggers a reject.
3. Ability to attach documents: The current no-attachment rule severely limits the number of returns that can be e-filed.
4. Ability to file amended or prior years’ returns: This option is not available under the current e-file program.
Once in place, the MeF can be used to amend returns from up to two years prior but will not be available for 2007 or earlier returns. The MeF will not provide data to e-services. For example, there is currently no plan to provide estimated tax payment information to e-services to allow a practitioner to check on a client’s estimated tax payments before filing a return.
The IRS expects to release the MeF program for fiduciary returns in 2013. There is no plan to release an MeF program for estate tax returns.
Once it becomes fully operational, the MeF 1040 will offer clear advantages to CPA practitioners. But due primarily to the minimal schedule availability, the planned initial release of the program will have little impact.