When the average person considers how information tax filing works, they think of the basics: you report earnings, compensation, and other financial information about recipients, payers, and other entities to the IRS.
Many don’t consider what goes beyond this: specifically the filing process that ensues the reporting.
For those who did not get the memo, almost everyone files their information returns electronically now using the IRS’ FIRE system. Either you file it with a SaaS company like Tax1099 powered by Zenwork or through your own FIRE system obtained from the IRS.
Electronic filing reduces waste, helps avoid the stress and hassle of paper filing, and streamlines the process.
If you’re still using paper filing to process information tax reporting, those days could soon be coming to an end. At least that’s what this legislation from Washington says. And even if you use the IRS’ FIRE system, there are certain changes in the works that are all set to shape the way you file electronically.
The IRS is bringing in these changes to modernize the current filing ecosystem. These moves will certainly bring those still living in the past to the modern world while ensuring the privacy and security of the reportable data.
So, let’s dig in.
What Is The FIRE System?
The FIRE system stands for Filing Information Returns Electronically. It is a federal initiative, an online tool used for transmitting information returns and automatic extension requests to the IRS.
FIRE requires filers with more than 250 forms to file electronically. In order to file electronically, you are required to request a TCC (Transmitter Control Code) via the IR (Information Returns) application online, replacing paper and electronic versions of Form 4419.
To transmit files through this system, the IRS requires filers to use software, a service provider, or an in-house programmer that will create the file in a proper format per the requirements and record layouts.
Most filers use a service like Tax1099, which basically simplifies the filing process, where you only focus on the reporting accuracy and payments, and not about the technical aspects.
However, there are some taxpayers who do this the traditional way, and file their electronic returns through the IRS.
Changes Affecting The IRS’ FIRE System
Provisions that were put into effect due to the Taxpayer First Act of 2019 have already shaken up information tax filing.
Other changes and updates that are all set to take effect in the upcoming months could further change the way you file your returns if you already use the FIRE system.
To give you a little background, the IRS announced in 2021 that it planned to revise the system for new users. And in September 2022, these changes went into effect.
But, what is the big change?
The Secure Access Mandate
The IR application will require new users to have an account through Secure Access, a multi-factor authenticator that protects sensitive data. The existing Secure Access (SA) users, however, will be able to use their existing SA account as usual.
Here’s the catch: Secure Access mandate applies to new Responsible Officials as well. Responsible Officials are individuals designated by the registered entity with the authority and responsibility to act on behalf of the entity to ensure compliance with the select agent regulations. Think CPAs, paid preparers, agents, and others who are legally enabled to deal with your tax filings on your behalf.
And the change that just took effect in September 2022 requires all ROs listed on Form 4419 to move to the IR Application for TCC. These ROs are required to validate their identities using the latest IRS authentication process.
Why Is The IRS Updating The FIRE System Now?
Strengthening Validation Controls
One of the major reasons that the IRS admitted to, for rapidly implementing these changes, is to “protect (taxpayers) against unauthorized filing and input of fraudulent information returns”.
Increased Online Users
In 2022, the total number of returns received by the IRS was 133,624,100, out of which 133,590,198 were received by the IRS electronically. This shows that the dependency on the FIRE system is more prominent than one might think.
Reduced Paper Filing Threshold
Provision 2301 reduces the current 250 form filing threshold to 100 in 2022 and further reduced to 10 in 2023. This means that anyone who files more than ten forms in 2023 is required to file electronically.
Modernizing The Filing Ecosystem
Currently, paper filing is a lengthy process. Through FIRE, however, once you’re authenticated, you can file electronically. But you’ll have to obtain a TCC Code from the IRS and have the capabilities to create forms through the IRS’ framework.
However, with an eFiling agent like Tax1099 by your side, you can skip this process too, and go straight to reporting and filing your forms online within minutes.
Use Tax1099 To Prepare For Upcoming Changes
You may be wondering how to weather the upcoming changes to the IRS FIRE system. Many will continue to renew their FIRE TCC numbers through the IRS and that’s fine if you have the time and the energy to jump through various hoops to get your own TCC number.
But a smarter approach would be to choose an eFile provider that already has the tech stack necessary to readily eFile your returns in minutes.
It’s to avoid spending so much time on basic authentications and turnaround times is why many accountants, small businesses, and entities use tax compliance software like Tax1099 (also authorized by the IRS), which is dedicated to filing multiple forms quickly and efficiently.
When you use Tax1099, you don’t need a TCC number or a login to the FIRE system. Our team handles all of that and we can provide you with the information you need on the FIRE system within 24 hours (in the event that you need it for auditing purposes or payer corrections with the IRS).
Our platform is also capable of filing hundreds of thousands of forms at once, ensuring that once you’ve entered in your information or carried it over from one of over a dozen integrations, we will send it to the IRS.
Tax1099 offers various useful features, including:
W9/W8 Collection: Validate vendor information by Collecting W-9 Forms from your vendors online, enabling vendors to update and e-sign their forms, and getting real-time vendor profile updates. Tax1099 saves the W-9 form as a PDF on your vendor’s record.
Real-Time TIN Match: Check SSN and EIN paired with the legal name directly with the IRS database in real-time.
Tax-Exempt Check: Find out if an organization is recognized by the IRS as tax-exempt in seconds.
Real-Time Status: Get real-time status of W-9 form completion & checks through endpoints & webhooks.
Form Filing: eFile informational tax returns to the IRS and States with USPS mailings available.
API Integration: Save PDF copies of forms filed and completed W-9s to your cloud space or computer.