Are You Electronically Filing the Notes and Statements You Think You're Filing?

Eva Rosenberg, MBA, EA - [updated 04-16-08] to include ProSystem fx Tax

Here in the San Fernando Valley our CSEA chapter does something pretty special. We have a twice-monthly breakfast meeting which is a purely a round-table discussion. We field questions from each other and share our expertise. It's not only informative; it's a lot of fun.

(If you don't already have something like this within driving distance of your area, consider setting something up.)

At the last meeting, someone brought up some alarming news. He had just learned that his tax software provider was not sending his notes and disclosure statements with his electronic tax returns.

This is particularly disturbing since IRS issued tougher penalty guidelines for those of us subject to Circular 230. You already know that we have a higher burden of accountability than ever before.

The only way to avoid preparer penalties for taking positions on a variety of issues (for which no forms exist), is to include detailed disclosure statements with the tax return. The better your explanation, the more apt you are to limit IRS's recourse to three years, instead of 6 six years under § 6501(e)(1)(A)(ii). Naturally, where a disclosure form or election exists, use it.)

In the past, we've had to file paper returns, and include the statements as attachments.

Now, IRS is strongly urging us to use electronic filing in all instances. In fact, IRS is expanding the acceptable forms and entities, in order to reduce input errors by their staff, and to speed up processing.

In a lively discussion with IRS's legal counsel early this year at a Los Angeles Stakeholder meeting, we discussed whether electronic disclosure statements and detailed notes would be meet the standards of disclosure under § 6501(e)(1)(A)(ii). Or would it be necessary to include paper attachments. The 3 members of IRS's legal counsel all agreed electronic statements were adequate - if they included sufficient information. I reported that discussion.

So, here we are, blithely include notes and explanations on the "print with return" schedules...only to learn those are NOT going with the return. All those disclosures never went to IRS?

Oh no! Are we going to have to file amended returns simply in order to attach the disclosures?

You bet we will!

At least in same cases.

I started doing a little digging - and hope to get your help in getting information from more tax software providers. Please add the instructions for your software, as Comments to this blog entry.

Today, I will give you the instructions from three software companies. This may not be what you've been doing. So pay attention!

    Lacerte by Intuit:

    Preparer Notes: Entered on Screen 47. The ‘Statement’ radio button must be selected in the left navigation bar [on this screen] under ‘Print As’ in order for the note to be included for electronic filing.

    Election Explanations: Elections are entered on Screen 46. Each election is selected by checking the corresponding box and there are input fields to capture the information required for the explanation statement.

    ProSeries by Intuit:

    Preparer Notes: From the forms menu choose ‘Selected form’ which can also be accessed by F6 or Crtl-F. In the ‘find’ window of the Open Forms dialog type ‘P’ then ‘N’ or simply scroll top to the right and observe that Preparer Notes is close to the bottom of the second to last column of forms.

    Election Explanations: Explanation statements are entered throughout the ProSeries program by using the QuickZoom buttons labeled as ‘Explain’ and can be found next to the lines on the forms to which they apply.


    We have several schedule and notes that can be sent along with the return in the actual efile transmission.

    Some examples:

    1. Anything keyed on the SCH screen will go unless marked as in-house note. It will either go as a Statement, EF_NOTE, ELECTION, or Regulatory explanation. Depending on what is chosen at the top of the screen under type of attachment.

    2. The Preparer Notes page (shows up as "EF_NOTE" in view) DOES go electronically. Most Statements go electronically, although there may be some keyed on the SCH screen that prohibit the entire return from being e-filed.

    3. Also, "REG_NOTE" (Regulatory Explanation) and "ELECTION" (Election explanation) both will go electronically.

    This has not always been the case, mainly because the IRS has not always allowed for attachments. It has really been in the last few years that this has been an option.

    UltraTax by Thomson
    [Contributed by Brian F Tankersley, CPA, CITP of in Knoxville, TN and the folks at K2 Enterprises]

    General footnote is automatically included in the preparer notes section of the electronic file.

    Elections are automatically included in the election statement of the electronic file.

    Preparer notes are automatically included in the preparer notes section of the electronic file.

    No additional steps are necessary on the part of the preparer to include this information in the e-filed return.

    ProSystem fx Tax by CCH, a Wolters Kluwer Business:

    Elections are automatically included in the election statement of the electronic file.

    Preparer notes, entered on the electronic filing worksheet/Interview forms, are automatically included in the preparer notes section of the electronic file.

    No additional steps are necessary on the part of the preparer to include this information in the e-filed return.

I will be adding more providers' instructions if people send them to me privately instead of posting to Comments.

If you find that you haven't used the correct form for your transmitted notes, consider filing the amendments immediately after your April 15th breather - to cut the 6-year statute off ASAP.



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Eva Rosenberg, MBA, EA, is the publisher of, and author of the weekly syndicated Ask TaxMama column. She provides answers to tax questions from taxpayers and tax professionals worldwide.

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