A new state electronic filing requirement – currently implemented by 33 states with possibly more to come – will likely impact many tax preparers during the filing season ahead. The requirement, the “10 Business Day Rule,” is related to the application of software updates, and applies to all software vendors, according to Shannon Bond, senior director of government relations at Wolters Kluwer Tax & Accounting.
“This new requirement has been implemented for every software company and is intended to reduce the error rate of returns filed without the latest updates, as well as to ensure a more consistent standard throughout the software industry,” she said.
Specifically, the rule requires that “users/customers of this product who attempt to e-file 10 or more business days after a production release will be required to download and apply the product update.”
The rule is a result of collaboration between the National Association of Computerized Tax Processors and the Federation of Tax Administrators, according to Bond.
“Individual states have the option to adopt or not to adopt the recommendations,” she said. “They’re trying to come up with a consistent approach.”
Currently, states that have adopted the rule are: Delaware, the District of Columbia, Georgia, Iowa, Illinois, Idaho, Kentucky, Kansas, Louisiana, Maine, Maryland, Massachusetts, Mississippi, Missouri, Montana, Nebraska, New Hampshire, New Jersey, North Carolina, North Dakota, New Mexico, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Utah, Vermont, Virginia, West Virginia, and Wisconsin.
The following example illustrates how the rule will operate in 2019:
- February 3: An Alabama state return is created on software Version 2.4, which contains a change to Alabama.
- February 4: The user calculates the return using Version 2.4 and the review period begins.
- February 7: The return is exported to electronic filing and Form 8879 is sent for signature.
- February 10: Version 2.5 of the software released, which contains a change to Alabama.
- February 16: Form 8879 is received from the taxpayer and released from electronic filing. This is within the 10-day time frame.
- February 22: All returns on Version 2.4 must be recalculated to Version 2.5 prior to e-filing. This is 10 business days from the release date of February 10. Since the return was filed within 10 business days of the release date, it will be accepted.
If an attempt is made to file a return that is past the 10 days, the return won’t be eligible for state e-filing and will be rejected, Bond observed. “And if Version 2.5 did not contain an update for Alabama, the return would not be subject to expiration,” she said.
Some vendors are building in safeguards to help preparers avoid having a state reject a return due to the rule. For example, Wolters Kluwer is adding filters that can be used to identify returns that are “nearing expiration” and that “have expired.” There will also be two new features designed to catch these expired returns more quickly in the process, she added. “For example, when the return is released from electronic filing, there will be an error message notifying the user that they need to go back and calculate the return on the latest release.” “Every firm processes returns a little differently, so the rule will impact them differently,” Bond said. “Practitioners should be aware of the rule so they can evaluate their workflow, and make sure they have the information they need.”
