Attached Explanations

[Snaggletooth]

There are several situations during the course of the tax season where the instructions tell us to "attach an explanation." Quite often, this is the result of making an "election" such as the carryforward of a NOL instead of carryback.

Not sure whether this is a general question or a software question.

As I understand it, the existence of an "attached explanation" means that explanation will not be received unless the taxpayer files a paper return. I don't see any provision in the e-file protocol which accommodates such an "attached explanation."

Am I wrong? Is it a matter of software, i.e. do some tax software packages contain such a provision? Even if they do, not sure whether the explanation is effectively communicated if no one ever looks at the return...

[David1980]

The efile image allows for preparer notes, election explanations, and regulatory explanation records. The example you gave of carrying a NOL forward would be included in an election explanation on the efile image.

In the better tax software there will be a list of elections that you can select all the common elections from, which then attaches to the tax return as an election explanation. Some of the lower end will allow you to add those statements, but you have to type the content. And some simply don't support the election explanation of regulatory explanation records at all.

As far as I know everything supports the preparer notes, except maybe something like turbotax consumer version.

Page 144 of Pub 1346:

7. Preparer Note, Election Explanation and Regulatory Explanation Records
a. Preparer Note (NTE) records can be used by the paid preparer,
electronic return originator or taxpayer to provide additional,
voluntary information related to the tax return but not required
to be attached to it.
b. Election Explanation (ELC) records are used when the taxpayer makes
an election for certain tax treatment, status, exception or exemption
based on an instruction for the tax form or in a related tax publication
when there is no official IRS form designed for that purpose. The
specific “election” must be cited followed by any explanatory or
supporting information required. Multiple elections can be combined
on one page record; separate page records can be used for each applicable
election; and/or, multiple page records can be used for one election.
The maximum number of ELC page records is 20. Enter the terminus
character (#) after the last significant character in each ELC page
record.
c. Regulatory Explanation (REG) records are similar to Election Explanation
records and are used when the taxpayer cites a specific regulation for
certain tax treatment, status, exception or exemption when there is no
official IRS form designed for that purpose. The specific “regulation”
must be cited followed by any explanatory or supporting information
required. Multiple regulatory explanations can be combined on one page
record; separate page records can be used for each applicable regulation
cited; and/or, multiple page records can be used for one regulatory
explanation. The maximum number of REG page records is 20. Enter the
terminus character (#) after the last significant character in each REG
page record.

[David1980]

It should be noted that there are also statement records, these are used when you need to enter more information than the form will accept. For example, if you had a tax return with 10 kids.

Pub 1346 page 143.

5. Statement Records
Statement Records can only be used by the electronic filer when
the number of data items exceeds the number that can be contained
in the space provided on the printed schedule or form, or when the
data must be provided on a separate continuation statement record,
or when a statement of explanation is required for a specific
condition.
See Section 8 for Statement Record information.

[Snaggletooth]

Fantastic

David, thank you for this very analytical and thorough discussion. Very well done. I did want to stop long enough in this rush time to say thank you.