New Identification Rules Go Over Like a Lead Balloon

Joe Kristan had a post this morning noting the reaction of 250 Iowa tax professionals to the new rules on third-party verification rules. The reaction was “You must be kidding me.”

The problem was that the IRS wasn’t kidding.

Jason Dinesen (who is an Iowa EA) noted that the debate between the two of us on what a “remote” signature is over. Unfortunately, I was right and Jason was wrong. This is one time I’d like to have been wrong.

Let me explain the issue for those who are just joining this discussion. The IRS released a new version of Publication 1345. That’s the bible for Electronic Return Originators–people who efile tax returns (like me). We’re required to follow the rules in this publication. There was one piece of good news in the new version of Publication 1345: The IRS will allow electronic signatures. That was outweighed by lots of bad news, including mandatory ID checks for anyone whose return I file when they come into my office (yes, mom, I need to see your ID) and mandatory third-party identity verifications for remote transactions.

Jason has done some research with his attorney and found the same issue that I and other Nevada tax professionals will face: It’s probably illegal for us under state law to run credit checks and similar verifications. The only time it’s legal is if we’re going to offer credit. The IRS is apparently telling us to violate state law. I don’t want to visit ClubFed nor do I want to visit the High Desert State Prison.

In this morning’s post, Joe Kristan told his readers to call the IRS. I agree; I urge all tax professionals to speak to or email their IRS Stakeholder Liaison.

(The above link is to the IRS list. You likely have a local Stakeholder Liaison. Be advised that your local Stakeholder Liaison may know nothing at all about this issue. When I was attending a continuing education event last week I brought this issue up with both my local Stakeholder Liaison and a representative from the Taxpayer Advocate; neither knew anything about this.)

Additionally, if you are a member of a professional society such as AICPA or NAEA, make sure you contact someone with government relations in your organization. The more people who are aware of this issue, the more likely it will be resolved favorably to tax professionals (and the public).

Joe Kristan updated his post and noted,

I received a call from an IRS representative this morning saying that they have been getting phone calls as a result of this post (well-done, readers!). She tried to reassure me by telling me that the third-party verification doesn’t apply to in-person visits. I knew that. I told her that as I read the rules, there are either “in-person” or “remote” transactions, with no third category of, say, “I’ve worked with this client for many years and they’re fine.” She didn’t disagree, though she still thinks I’m overreacting. She did say IRS field personnel are “elevating” the issue and seeking “clarification” from the authors of these new rules, including what “authentication” means for in-person visits and what a “remote transaction” is that would require third-party verification. Keep it up, folks!

In a tweet today, Jason Dinesen wondered why this was released with little fanfare. The cynic in me felt that the IRS hoped that this would be a fait accompli so that tax professionals would be stuck with the new rules.

My hope is that the IRS will adjust the definition of a remote signature so that the new rules will only apply for electronic signatures. If not, the IRS can expect a large increase in paper returns for next tax season.


For those wondering what the reaction of the tax professionals in Iowa was, I immediately thought of the reaction of the audience in this scene from The Prodcuers.

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  1. [...] Fox, New Identification Rules Go Over Like a Lead Balloon: In this morning’s post, Joe Kristan told his readers to call the IRS. I agree; I urge all tax [...]

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