How to Correct Rejected E-filed Tax Returns

Murphy’s Law reminds us that anything that can go wrong, will go wrong. During most times of the year, this is a humorous reminder that the world is imperfect. But for tax practitioners approaching a filing deadline, this epigram often loses its humor.

Perhaps the most serious reminder that things can go wrong occurs when an e-filed tax return is rejected. The rejection may occur when the tax software provider prevents it from being submitted to the IRS, or the IRS may reject it. Either way, it’s cause for a tax practitioner to take immediate action to correct the problem. 

This article outlines key actions instructed by recent IRS guidance for tax practitioners. It covers steps to take if a return is rejected, guidance on contacting the IRS e-help desk, and highlights distinctions in responding to rejections between business and individual returns. Additionally, it provides insights into specific rules for handling e-filed extension rejections.

Former Provisions

IRS Notice 2010-13 has provided guidance for handling a rejected return for almost 14 years. It provided electronic filers 10 calendar days to “perfect” rejected tax returns. If the return was e-filed close to a deadline, this meant that there was a time immediately after a deadline for correcting a problem. If the problem could not be corrected to permit electronic filing, the practitioner could paper-file a return if they could not resolve the problem with assistance from the e-help desk.

Notice 2024-18

This has changed recently because Notice 2024-18 has made Notice 2010-13 obsolete. In a quiet way, the new notice provides practitioners with a waiver for electronically filing the following forms in limited situations.

• 1120, U.S. Corporation Income Tax Return
• 1120-S, U.S. Income Tax Return for an S Corporation
• 1120-F, U.S. Income Tax Return of a Foreign Corporation
• 1065, U.S. Return of Partnership Income
• Form 990, Return of Organization Exempt from Income Tax
• Form 990-PF, Return of Private Foundation or Section 4947(a)(1) Trust Treated as a Private Foundation

Notice 2024-18 provides an automatic administrative exemption from the e-file requirement for a variety of reasons, including religious reasons and technical reasons. If one of these returns is rejected, the Notice directs the tax practitioner to two IRS Publications. These publications, in turn, provide guidance for a broader set of tax returns.

The perfection periods for correcting rejected return submissions on the above business returns is discussed in IRS Publication 4163, Modernized e-File (MeF) Information for Authorized IRS e-File Providers for Business Returns. Notice 2024-18 specifically refers to IRS Publication 4164, Modernized e-File (MeF) Guide for Software Developers and Transmitters, which provides instructions for handling rejected 1040-family returns.

Business Returns

Tax practitioners are provided with a grace period for correcting rejected business returns, including the ones listed above. This grace period is termed a “perfection period” in IRS Publication 4163.

This publication requires the tax practitioner to contact the IRS e-help desk when they cannot resolve a rejected return. This IRS may grant permission to paper-file a return, in which case the return must be postmarked by the due date of the return or 10 calendar days after the date on which the IRS last notified the tax practitioner that the return was rejected, whichever is later. The original attempted filing of the return must have been timely, and the last attempt must have been made within 10 calendar days of the first transmission.

If the attempt to e-file the return is unsuccessful, the tax practitioner should take the following steps.

1. They should contact the IRS e-help desk (866-255-0654) to discuss the rejection of the business return.
2. They should prepare the paper return with the following.
   • An explanation of why a paper return is being filed after the due date
   • A copy of the reject notification
   • A history of what the practitioner did to correct the electronic return in an attempt to e-file it

3. The first page of the paper return should have the following written in red at the top: “REJECTED ELECTRONIC RETURN — [DATE]” where “[DATE]” is the day on which the return was originally rejected.
4. The taxpayer authorized to sign the business return should physically sign the paper return. Although the IRS has previously accepted e-file authorizations in lieu of signatures, the instructions in Publication 4163 suggest this will no longer be done.

In addition, the publication recommends that tax practitioners retain a copy of the rejection acknowledgment.

1040 Family Returns

IRS Pub. 4164 provides specific information about perfecting rejected returns. This publication explains the 10-day Transmission Perfection Period for 1040 family returns. If the IRS accepts a return within this period, it will consider it to have been filed on the date that the first rejection occurred within that 10-day period.

Just because the Transmission Perfection Period is 10 days long, though, does not mean that a practitioner can wait 10 days after the deadline to retransmit the return. The 10 days refers to the period of time during which the IRS can accept it so that it can still be considered timely filed. Instead, this publication provides specific dates for retransmitting forms that were timely filed. Those dates follow:

• April 20, 2024 — Last day for retransmitting timely filed Form 1040 family returns that were rejected
• June 22, 2024 — Last day for retransmitting timely filed Form 1040 family returns or Form 4868 extensions that were rejected to meet the overseas exception
• October 20, 2024 — Last day for transmitting timely filed Form 1040 family returns that were rejected after an extension on Form 4868 was timely filed

If tax practitioners are not successful in transmitting forms in three attempts, they should call the IRS e-help desk at 866-255-0654. During this phone call, the practitioner may be instructed to paper-file a return.

Extensions

Extensions can also be rejected. However, the perfection period for extensions on Forms 4868, 7004, or 8868 is only 5 days. Based on the content of the instructions, the IRS is attempting to minimize paper-filed extensions.

Publication 4163 advises the practitioner to take steps to correct the extension form. If the transmission of the extension is unsuccessful after 24 hours, the practitioner should advise their client, providing them with the reason it was not accepted. The rejection form may provide a “business rule explanation,” which should be communicated to the taxpayer.

The electronic extension application should be re-transmitted no later than 5 calendar days after the date on which the IRS notified the practitioner that the return was rejected. If the electronic extension application cannot be re-transmitted, the extension can be filed on paper. No call to the IRS e-help desk is required. However, the paper-filed extension should include an explanation of why it is being mailed after the due date and provide a printed copy of the rejection notice.

Conclusion

These instructions underscore the need to maintain contact with clients, particularly those who provide information close to the filing deadline. If an attempt to e-file a return fails, the client may need to sign a paper form. If they travel out of town around the filing deadline, an extension may need to be filed only because the taxpayer is unavailable to sign a paper form that is filed in place of a failed attempt to e-file. This combination of events is certainly worthy of consideration in light of Murphy’s law.

By John W. Richmann, EA, MBA
Tax Materials Specialist, U of I Tax School

Sources

IRS Notice 2024-18, 2024-05 IRB 625.

IRS Pub. 4163, Modernized e-File (MeF) Information for Authorized IRS e-File Providers for Business Returns, pp. 50–51 (Processing Year 2024).

IRS Pub. 4164, Modernized e-File (MeF) Guide for Software Developers and Transmitters, p. 23 (Processing Year 2024).

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