Starting 2012 (2011 Tax year) all tax returns, prepared by tax return preparers who are paid for their services and prepare more than 10 tax returns, must be electronically filed. That includes 1040, 1120, 1120S, 1041, 1065, 990, and all extensions. IRS counts extensions as part of 10 returns. According to the IRS rules if you prepare more than 10 tax returns and do not file tax returns electronically there will be a $50 penalty to the taxpayer. Most states have jumped at the chance of reducing their work force as well. New York, for example, has made it mandatory to e-file and e-pay returns and in 2012 there will be more states that will follow.