Avoiding e-file penalties this tax season

Published Date:
Feb 11, 2016

By Chris Gaetano  |  Trusted Professional Staff

Prior to tax season, several NYSSCPA members expressed frustration and confusion on the Society’s Exchange Open Forum after the New York State Department of Taxation and Finance (NYSDTF) penalized them for filing paper returns on behalf of their clients—sometimes, they said, for situations that were beyond their control.

Practitioners have been required to use New York state’s electronic filing, or e-file, system since 2006, and failing to do so can carry a penalty of $50 for each document, unless there’s an acceptable exception.

The issue, some members said, is that what is considered “acceptable” is a little vague.

“I have not yet received a notice, but I have sent some paper returns and I’m wondering if I’m next on some sort of list,” said Rochester Chapter Past President Thomas P. Walpole.

So, how does the NYSDTF determine who gets penalized and who is spared?

According to the state tax department, things such as client demand, failure to obtain an EFIN (Electronic Filing Identification Number), ignorance of the law or a reluctance to provide bank information electronically do not count as reasonable cause. Factors that the department will consider, on the other hand, include the following:

• Whether the preparer's New York state-approved e-file software supports the e-filing of a return

• Whether the return was e-filed, but rejected for a condition that can’t be identified or resolved

• Whether there existed an extended Internet outage at the preparer’s place of business

• Any other reasonable cause for the failure to e-file that clearly indicates an absence of willful intent to disobey the e-file mandate

• A preparer’s overall compliance with the New York state e-file mandate.

Another major factor in determining whether someone will get fined is the scale of his or her violation. The state tax department press office, in an email exchange with The Trusted Professional, said that the penalties for filing manual returns target those who filed a significant percentage of their returns on paper instead of electronically.

“These are preparers who show a significant pattern of paper filing,” said the statement. It added that, even in this case, the department is willing to hold off on the penalties “when the preparer commits to substantially improving their e-filing rates for the following year.”

Only when the preparer shows no improvement, said the statement, is the penalty finally leveled.

It also felt that “virtually any obstacle to e-filing has been all but eliminated,” as the system now accepts all forms, even PDF (Portable Document Format) attachments.

To see what else members are saying about e-filing in New York state, or to pose your own technical question to fellow Society members on the NYSSCPA’s Exchange Open Forum, go to exchange.nysscpa.org. Exchange is a free, members-only benefit. Posts to the Exchange Open Forum are not accessible to anyone except NYSSCPA members and staff.



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