For tax year (TY) 2000 partnership returns, IRS implemented the Legislative Mandate, Section 1224 of the Taxpayer Relief Act of 1997. The legislation requires partnerships with more than 100 partners (Schedules K-1) to file their return on magnetic media (electronically as prescribed by the IRS Commissioner) for taxable years ending on or after December 31, 2000.

IRS published fact patterns describing situations in which waivers will generally be granted, or not granted, under IRS Regulation section 301.6011-3, which provides waiver guidance for partnerships that cannot meet electronic filing requirements.

IRS may determine that a partnership has failed to file if it files a paper return instead of a required electronically filed return without first receiving a waiver. Additionally, elections attached to the paper filed return may be deemed invalid. The taxpayer may also be subject to additions to tax under I.R.C. §6651, which typically result in imposition of monetary penalties on the underpayment.

Another potential consequence is that Forms 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations, attached to the paper filed return may be considered filed late, which may subject the taxpayer to the late filing penalty of $10,000 per form under I.R.C. § 6038(b).

Situations in Which e-file Waivers Will Generally be Granted

• Catastrophic Event - A taxpayer who was subject to a catastrophic event and continues to incur undue hardship even after the period provided for under any specific IRS disaster or emergency relief procedures may request a waiver from the requirement to e-file. If approved, the taxpayer will be allowed to file a paper return.
• Bankruptcy (Chapter 7) - The taxpayer, otherwise required to e-file, has filed a petition with the bankruptcy court under Chapter 7 of the Bankruptcy Act.
• Final Return - If tax year 2007 is the first tax year that the taxpayer is required to e-file and this is the final return.

Situations in Which e-file Waivers Will Generally Not be Granted

• Software Limitations - The Service will generally not approve a request to waive the electronic filing requirement if the software purchased or licensed by a taxpayer or a return preparer does not include all of the features necessary to comply with the Modernized e-file requirements set forth in IRS regulations, revenue procedures, publications, and other instructions posted to the irs.gov website.