Which of the following tax return preparers must file federal income tax returns electronically?
A) Bob, who provides tax assistance under the Volunteer Income Tax Assistance program
B) Ellen, who prepares a return of the employer by whom she is employed
C) Peter, a tax return preparer who expects to file 20 individual income tax returns
D) Lynn, who prepares 20 tax returns as a fiduciary
The correct answer and explanation is:
Correct Answer: C) Peter, a tax return preparer who expects to file 20 individual income tax returns
According to the Internal Revenue Service (IRS) guidelines, certain tax return preparers are required to electronically file (e-file) federal income tax returns. This requirement is governed by IRS regulations under the mandate for tax professionals who meet a specific threshold of tax return preparation.
The IRS requires any tax return preparer who prepares 11 or more individual federal income tax returns in a calendar year and files them for compensation to e-file those returns. This requirement applies to both individual income tax returns (Form 1040 series) and other applicable returns when filed electronically. The key factors here are the number of returns prepared and whether the preparer is compensated.
Peter, as a tax return preparer who expects to file 20 individual income tax returns, clearly exceeds the threshold of 10 returns. Because he is doing this professionally and presumably for compensation, he is legally required to e-file those returns.
On the other hand:
- Bob, who works under the Volunteer Income Tax Assistance (VITA) program, is not required to e-file under this rule because he is a volunteer and not compensated.
- Ellen prepares a return for her employer, not for public clients. Preparing returns in this context does not count toward the threshold since it is not done for compensation as a paid preparer serving the general public.
- Lynn, who prepares fiduciary returns, is subject to different filing rules. Even if she prepares 20 returns, they may not be individual income tax returns (Form 1040), so the mandatory e-filing rule for individual returns may not apply.
In conclusion, Peter is the only one who clearly meets both the volume and compensation criteria required to file federal income tax returns electronically under IRS rules.