On December 12, 2022, the IRS released early system specifications for the latest version of the Information Return Intake System, or IRIS, which is its e-file system for 1099 e-file information returns. This online system was made so that end users can e-file 1099 returns for free using a standard CSV file format or an interactive user interface for staging, validating, editing, and submitting forms.
Who can e-file forms 1099 on IRIS?
Anyone or any organization. The IRS allows users of all types to e-file forms 1099 on the IRIS system:
- Individuals and small businesses
- Large businesses
- Tax exempt organizations
- Government agencies
- Software developers
- Third party filers
What 1099 forms can you file on IRIS?
According to the IRS, you can file the following forms on the IRIS system:
- Form 1099-A, Acquisition or Abandonment of Secured Property
- Form 1099-B, Proceeds from Broker and Barter Exchange Transactions
- Form 1099-C, Cancellation of Debt
- Form 1099-CAP, Changes in Corporate Control and Capital Structure
- Form 1099-DIV, Dividends and Distributions
- Form 1099-G, Certain Government Payments
- Form 1099-H, Health Coverage Tax Credit (HCTC) Advance Payments
- Form 1099-INT, Interest Income
- Form 1099-K, Payment Card and Third-Party Network Transactions
- Form 1099-LS, Reportable Life Insurance Sale
- Form 1099-LTC, Long-Term Care and Accelerated Death Benefits
- Form 1099-MISC, Miscellaneous Information
- Form 1099-NEC, Nonemployee Compensation
- Form 1099-OID, Original Issue Discount
- Form 1099-PATR, Taxable Distributions Received from Cooperatives
- Form 1099-Q, Payments from Qualified Education Programs (Under Section 529 and 530)
- Form 1099-QA, Distributions from ABLE Accounts
- Form 1099-R, Distributions from Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
- Form 1099-S, Proceeds from Real Estate Transactions
- Form 1099-SA, Distributions From an HSA, Archer MSA, or Medicare Advantage MSA
- Form 1099-SB, Seller’s Investment in Life Insurance Contract
Why did the IRS create the IRIS 1099 E-File System?
In 2019, the Tax Payer First Act authorized the Treasury and the IRS to reduce the 250-return electronic filing requirement to 100
in calendar year 2021 and from 100 to 10 after 2021. It is likely that the IRIS system was created to give small businesses a free way to e-file, download, and distribute their 1099s to meet the new regulations.
In the past, the system for filing information returns was known as the Filing Information Returns Electronically (or FIRE) system. This system has been around for many years and primarily relies on old, antiquated flat files with fixed width spacing as its primary data format.
The formatting of FIRE files is problematic since editing a fixed width file greatly increases the chances that end users could corrupt data by not padding data entries correctly. From a development standpoint, this format presents many challenges in that developers must know the alignment and padding rules for each column. Developers must also take care to keep up with all formatting changes as any changes to box numbers could break their file format, or worse, silently fail allowing systems to submit incorrect data.
The new IRS IRIS system addresses these shortcomings by providing an interactive interface and a more modern file format that can be easily validated and isn’t prone to corruption. Check out a quick demo of the UI in this sneak peek of the new IRIS system.
How do you e-file with IRS IRIS?
Similar to Affordable Care Act filing, the new IRIS system is expected to provide a manual user interface for uploading data files and an application to application (or A2A) interface with a schema based development API that will allow developers to quickly identify data constraints and adapt to yearly changes.
Since the exact schemas have yet to be released, experts in the field expect the IRS to implement an XML based schema and transmit over a SOAP based protocol. Data definition files in XML, known as XSD files, are implemented in a way that provides built-in field-by-field type checking and validation to allow developers test their generated data files. The use of XSD files allows developers to auto-generate code for any given schema and greatly reduce the likelihood of errors to ensure that yearly changes are caught and addressed early in the development cycle.
While this is a significant step up from the current fixed width based format from the FIRE system, we would have liked to see a modern RESTful interface that uses JSON for data templating. Prior IRS implementations of the SOAP protocol are notorious for not following conventions and standards for SOAP development, so we are hopeful these interfaces will be implemented in a standards compliant way to allow users to consume the APIs in a simple way.
How to apply for an IRIS-TCC?
To apply for an IRIS-TCC (or Transmitter Control Code), users can visit the Application for IRIS Transmitter Control Code. Before you can access this, you will need an IRS account and you will need to create a profile via Secure Access or via the new ID.me authentication method.
The new IRIS-TCC is very similarly named to the IR-TCC that was recently announced for information return filing. It’s possible that this is a matter of the IRS not coordinating new development efforts with prior initiatives, but this remains to be seen.
After setting up an IRS account, users can complete the application and are given the chance to select whether they prefer to submit data files over a UI channel or via an A2A channel (below). Most users will want to select the portal method as this doesn’t require development and is significantly easier to implement.
Users will also need to specify 2 responsible individuals for the application in order to proceed. This requirement is a challenge for many employers since the IRS business account must be tied to an individual that is required to provide a significant amount of personal information during account setup. If these responsible individuals were to leave their employer, it could result in the transmitter not having an authorized IRS contact to take on their role.
While the portal interface is the easiest to implement and use, the limitation of 100 forms per CSV file upload will make this tedious to use for all except the smallest of filers. This limitation gives a hint of the real audience for this tool: very small businesses that need a quick, easy, and free e-file tool for filing and downloading 1099s.
What is the IRIS ATS System?
The IRIS Assurance Testing System or ATS, is the test system that filers will use to test their data files prior to sending their data to the IRS on the production portal.
While the exact specifications for this system are not currently available, experts expect that this will accompany a release of test scenarios that filers must submit to the IRS for approval before being granted a production TCC for filing on the IRIS system.
What are the benefits of the new IRIS filing system?
As mentioned above, the primary goals of the system are to provide a simple, free tax filing system for very small filers that allows users to file corrections, download copies of their forms, request automatic extensions, manage payers/issuers and more. Since the newer system will use XML data files, testing and development for A2A based systems should be simpler and significantly streamlined.
When will the IRS IRIS system open up?
According to the IRS, testing will open up in May 2023, so the IRIS system will NOT be required for tax year 2022 1099 filing. Based on testing and filing timelines from similar systems, we estimate that testing and acceptance of data files could take several weeks. As is the case with new IRS systems, we expect to see many new gotchas and bugs with the new e-file system along with mid-tax season specification updates as necessary.
What’s Next: The Future of 1099 E-Filing
We expect the new IRS IRIS system will provide significant value to small filers who will be able to e-file, download, file corrections, file for a time extension, and manage their payer data for free. While this is great for filers with a few forms, we expect the process and user interface will not be ideal for medium to large filers, and the new XML based programming interface could prove to be a huge barrier to entry for the new system.
We expect many employers to turn to an IRS authorized 1099 e-file provider to handle the logistics of bulk filing and manage the corrections, rejections, and replacements process.
BoomTax, The Boom Post, and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors prior to engaging in any transaction.