IRS Eases Reporting Burden On Corporations And Shareholders

by Leroy Baker, Tax-News.com, New York

30 May 2006

The Internal Revenue Service has announced new regulatory revisions that will reduce the reporting burden on corporations and shareholders while also simplifying electronic tax return filing.

The announcement is part of an ongoing effort by the IRS to remove impediments to e-filing from its regulations. In addition, the agency has reviewed a number of regulations to simplify, clarify and eliminate a number of reporting requirements that have unnecessarily added to the burden of corporations and shareholders.

“This is a win-win situation for businesses, shareholders and the IRS,” observed IRS Commissioner Mark W. Everson.

“Businesses and shareholders will be relieved of excessive reporting obligations that really no longer made sense while the IRS will still receive the information it needs for compliance. As a bonus, a number of roadblocks to IRS e-file also will be removed," he added.

The changes apply to more than 20 regulations involving corporate and shareholder reporting requirements. A number of the revisions apply to rules governing corporate transactions, such as transfers to a corporation, mergers, spin-offs or liquidations.

For example, Internal Revenue Code Section 351 covers transfers of property to corporations. The code section applies not only to transfers of property to large multi-national corporations but also to transfers of property to small corporations, such as those formed when a partnership or sole proprietorship opts to become a corporation.

The regulations for Section 351 imposed reporting requirements on anyone who owned a share of a company involved in a Section 351 transfer and on the company itself. Those reporting requirements involved 18 information items from shareholders and 20 information items from corporations.

The revised regulations will limit the Section 351 reporting requirement to only those stockholders who own either 5 percent or more of a public company or 1 percent or more of a privately held company – drastically reducing the number of stockholders who must file a report.

Also, the revised regulations will reduce the reportable information to four items: the name and employer identification of the company; the date of the asset transfer; the fair market value and basis of the assets transferred; and the date of any IRS private letter ruling.

The revised regulations also eliminate several requirements for taxpayers to provide their signatures, allowing more taxpayers to file their returns electronically.

Most large corporations and tax-exempt organizations are now required to file their tax returns electronically.

The popularity of IRS e-file is increasing, particularly among individual taxpayers. So far this year, more than 70 million out of 124 million taxpayers have filed their Form 1040 electronically, a new record for the electronic filing program.

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