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.
