Posts Tagged ‘efiling’

Business Efiling Annual Shutdown on Friday

Tuesday, December 23rd, 2014

The IRS will begin its annual business electronic filing shutdown on Friday, December 26th. This shutdown enables the IRS to add the new year (2014) tax products for business electronic filing. I’d expect business efiling to resume in mid to late January (2015).

IRS Clarifies Electronic Signature Requirements

Tuesday, November 18th, 2014

The IRS released a new version of Publication 1345 today (html version only is available for now). Included in it is the following:

Note: An electronic signature via remote transaction does not include handwritten signatures on Forms 8878 or 8879 sent to the ERO by hand delivery, U.S. mail, private delivery service, fax, email or an Internet website.

Thus, if a client signs a signature document in ink, hands it to me, mails it to me, faxes it to me, or uploads it to me via our web portal (or even if he emails it to me), it’s not an electronic signature and I don’t have to check id, etc. (So, mom, I don’t need to see your ID.)

Additionally, the IRS will accept Form 3115 as a pdf attachment to an electronically filed return. This is one less bad thing with the new property repair/capitalization regulations.

California Mandates E-Filing of Business Returns

Saturday, September 27th, 2014

The California legislature passed a law mandating e-filing of most business returns beginning with 2014 returns filed in 2015. This legislation was signed into law. Exemptions are available but must be requested from the Franchise Tax Board. Although not mentioned in the law, presumably a return that fails in e-filing (is rejected by the FTB) would also be allowed to be paper filed.

The exemptions that are available are for technology issues and other items that constitute “reasonable cause and not willful neglect.” A penalty of $100 for an initial failure is in the law, with repeated violations being charged $500. The requirement applies to C-Corporations, S-Corporations, partnerships, LLCs, and exempt organizations.

There is one major issue with the law that I see: Most tax software today does not allow for electronic filing of a single-member LLC return (a disregarded entity). While there is no federal return for such an entity, California does require the return to be filed (and an $800 annual fee be paid). California also does not have its own online system to e-file business returns. My software currently does not have the ability to e-file a California single-member LLC return. I’ll be asking my software provider about this…but not until after October 15th.

New Identification Rules Go Over Like a Lead Balloon

Wednesday, May 21st, 2014

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.

When Two Intelligent Individuals Reach the Opposite Conclusion…

Sunday, May 11th, 2014

…You know there’s a problem. Welcome to the brave new world of signature documents.

Jason Dinesen has a post where he believes that I am wrong about the conclusions I’ve drawn on signature documents. Jason might be right or I may be correct.

What’s a fax? Is it a handwritten signature document or an electronic signature document? What’s a scan of a handwritten signature document? Consider that many tax professionals now scan every document they receive; we don’t keep paper. IRS policies allow for the keeping of scanned documents (as long as there’s a system to track them and as long as you can print them). Let’s assume that the IRS audits us and wants copies of all the “handwritten” signature documents. We print them all out. How can the IRS tell which ones were scanned and which ones were handwritten in my office? Mind you, if the IRS tells me that scanned signature documents are electronic signature documents, I’ll note that.

Jason and I reached the opposite conclusion on what this new policy means. The only way to know for sure which of is right is for the IRS to issue guidance on the questions I asked in my original post. As Jason said, “But the fact that two smart tax pros like us can have different takes on this just drives home the fact that the IRS needs to clarify this.” On that I agree completely.

Yes, Mom, I Need to See Your ID

Sunday, May 4th, 2014

UPDATE: The IRS released a new version of Publication 1345 on November 18th that clarified that a Form 8878 or 8879 signed in ink and hand delivered, faxed, mailed, emailed, or uploaded via a web portal is not an electronic signature.

OK, I’ve known my mother for all of my life. But as of now I must check her ID when I file her tax return.

The IRS released a new version of Publication 1345 this past week. This is the publication that guides electronic return originators (EROs) in how we accept electronic returns. The changes might be called good ideas, questionable implementation, bad results.

If you come into our office to file your tax return, we must check your identification. We also must record the identification we checked. From Publication 1345 on “In-Person Transaction[s]”:

The ERO must inspect a valid government picture identification; compare picture to applicant; and record the name, social security number, address and date of birth. Verify that the name, social security number, address, date of birth and other personal information on record are consistent with the information provided through record checks with the applicable agency or institution or through credit bureaus or similar databases. For in-person transactions, the record checks with the applicable agency or institution or through credit bureaus or similar databases are optional…If there is a multi-year business relationship, you should identify and authenticate the taxpayer.

Yes, it doesn’t matter how long I’ve known you, I must see your ID and record it.

Note also I’m supposed to do a record check with the applicable agency or credit bureaus on remote returns (it’s optional on in-person returns). There are major problems with this in some states. You need a valid reason in some states under state law to run a credit check. I will be checking with my attorney on the legality of my running such checks. (I don’t think it’s legal here in Nevada.) So do I violate state law, or federal rules?

There are other issues with remote transactions. I assume a faxed signature document or a scanned document is considered an electronic signature. Let’s see what the IRS says about this:

Electronic signatures appear in many forms, and may be created by many different technologies. No specific technology is required. Examples of currently acceptable electronic signature methods include:
– A handwritten signature input onto an electronic signature pad;
– A handwritten signature, mark or command input on a display screen by means of a stylus device;
– A digitized image of a handwritten signature that is attached to an electronic record;
– A typed name (e.g., typed at the end of an electronic record or typed into a signature block on a website form by a signer);
– A shared secret (e.g., a secret code, password or PIN) used by a person to sign the electronic record;
– A digital signature; or ,
– A mark captured as a scalable graphic.

The software must record the following data:
– Digital image of the signed form;
– Date and time of the signature;
– Taxpayer’s computer IP address (Remote transaction only);
– Taxpayer’s login identification — user name (Remote transaction only);
– Identity verification: taxpayer’s knowledge based authentication passed results and for in-person transactions, confirmation that government picture identification has been verified; and,
– Method used to sign the record, e.g., typed name; or a system log; or other audit trail that reflects the completion of the electronic signature process by the signer.

This will add to the cost of tax preparation. If I have to run credit checks, this cost will be passed on to the customer directly (I’ll call it exactly what it is: “Required IRS Credit Check”). There is no means for a private party to verify a driver’s license or other government issued identification today, so I have been told by the IRS I must run a credit check on every client. There’s the additional time to write this information down and scan it into each client’s record (1-2 minutes per client, but if you consider 500 clients, that’s 750 minutes, or another 18.75 hours of work–time I don’t have in the middle of tax season).

I have the following questions for the IRS:

1. What do you consider a faxed signature to be? Given that some fax machines have headers while others don’t, what information do I record when Mr. & Mrs. Smith fax their signature document to me? Do I need Mr. & Mrs. Smith to also fax me copies of their government issued IDs?

2. What do you consider a scanned signature to be? I assume that’s an electronic signature. Most scans do not record IP addresses and the other information that you are requesting. If I have the clients mail me a copy of the scanned signatures afterwards, is that sufficient? How do I explain to my older clients what an IP address is? (For my younger clients who are chuckling, ask your grandparents what an IP address is.)

3. What do I do to verify the signatures for my long-time clients Mark & Mary Smythe of London [United Kingdom]? They scan their signatures through our secure web portal. I can’t run a credit check (I have no means to run a credit check on non-US residents). I can have them scan copies of their passports, I suppose.

4. Is the IRS going to provide me a system where I can check government issued IDs such as driver’s licenses and passports? (See #5 below on why this might be necessary.)

5. Given that state law may not allow me to run credit checks (because the purpose of my running the credit check is not to issue/verify credit/credit-worthiness but to verify identification), must I paper-file all returns?

6. When a credit check is run on an individual, it generally causes that individual’s “credit score” to drop. I suspect consumer advocates are unaware of this new IRS policy. How are you (the IRS) going to respond to this? Additionally, there has been a hue and outcry among many about having identifications checked for various activities (such as voting). What will your response be to civil libertarians (e.g. ACLU) when they hear about this policy?

7. Buried in the publication is that we must implement a “Web site Challenge-Response Test” when we “…own or operate a Web site through which taxpayer information is collected, transmitted, processed or stored. These Providers shall implement an effective challenge-response protocol (e.g., CAPTCHA) to protect their Web site against malicious bots.” Is a password system (requiring a log-in) sufficient or is CAPTCHA required?

8. Given that this publication was issued on or about May 1st, is it effective for the remainder of the 2014 tax filing season or the 2015 tax filing season?

9. What about corporate, partnership, and fiduciary returns? I assume I need to check IDs for the officers of those returns. Do I also need to verify their positions? For corporations, do I need to see a copy of the minutes so that I know that John Doe is authorized to sign the return? Do I need to see paperwork that identifies John Doe as the Tax Matters Partner for a partnership? What do I do when these returns are signed remotely?

There are likely many more questions that need to be answered by the IRS. While I understand the reasoning behind this new policy (to cut down on identity theft), as of today I am unsure on whether I can efile any returns except for clients who come into my office. Our practice has many remote clients, including clients who live on other continents (where it is impossible for me to check their credit or verify their identifications). Some of my clients are young individuals who don’t yet have credit. How do I verify Joe in Maine’s ID when this is the first tax return he’s ever filed? From my vantage point these new rules look like good intentions, questionable implementation with much in the way of unintended consequences.

I happen to be heading to Washington, DC this week for a meeting with the National Association of Enrolled Agents. I will definitely be letting them know of this situation.

More Work for Tax Professionals: Submission IDs for Efiled Returns

Wednesday, January 22nd, 2014

When a taxpayer efiles his or her tax return, he or she (or a married couple if it’s a joint return) sign Form 8879. There was a change to Form 8879 for 2013 that tax professionals need to be aware of. Here’s instruction 6 of ERO (Electronic Return Originator) responsibilities:

6. Enter the 20-digit Submission Identification Number (SID) assigned to the tax return, or associate Form 9325, Acknowledgement and General Information for Taxpayers Who File Returns Electronically, with Form 8879 after filing. [emphasis added]

In the past, the taxpayer signs the 8879, the tax professional signs it and files it away. Now, the taxpayer signs it, the tax professional signs it, and the return is filed. Once the IRS accepts the return, the software company will assign the Submission Identification Number (SID) to the return. The tax professional must either print another copy of the Form 8879 (this one would have the SID on it) and attach it to the Form 8879, print a copy of Form 9325 (Acknowledgement and General Information for Taxpayers Who File Returns Electronically), or the tax professional must write the SID on the original 8879.

This isn’t a big deal, but tax professionals need to be aware that there’s an additional step you must go through after the return is efiled. For tax professional like me that keep scanned copies of originals, there’s another document that will have to be scanned. This adds a small amount of time to each tax return. It doesn’t seem like much, but that extra minute for every tax return probably equates to an additional 500 minutes of time if you efile 500 returns in a tax season.

Do note that this new procedure appears to only apply to federal individual returns (Form 1040). The Form 8879-C (signature document for corporate returns, Form 1120), Form 8879-S (signature Document for S-Corporation returns, Form 1120S), and Form 8879-F (signature document for fiduciary returns, Form 1041) do not have SIDs. I also looked at California signature documents and did not see any reference to SIDs.

We Will Soon be Able to Efile Past Due Individual Tax Returns

Thursday, January 16th, 2014

One of the annoyances of tax preparation work is that past due tax returns must be paper-filed. Well, that will no longer be the case for 2012 tax returns. Tax professionals will be able to efile 2012 individual tax returns when the IRS begins to accept 2013 tax returns (on January 31, 2014).

From what I’ve been told by my software provider, the IRS’s Modernized efile Program has been adapted to accepting these returns. If your software provider will allow it, 2012 tax returns can be safely filed with a few keystrokes.

Unfortunately, amended personal tax returns still must be paper filed. I’ve been told the IRS is working on this, but don’t expect to efilie amended returns this year.