E-file and digital signatures: where are we now?

• Author: Etienne, Jina

PREVIEW

Obtaining digital signatures on e-file authorization forms allows practitioners to have a completely paperless return preparation and e-file process.

A variety of acceptable digital signatures are now permitted on e-file authorization forms, including signatures input on pads using pens or styluses, shared secrets, and typed signatures.

The new rules were announced too late for this filing season, but practitioners now have time to decide which procedures to adopt for next year.

In 2005, I started e-filing tax returns for clients. I initially offered e-file as an option but did not e-file as a matter of routine. I quickly realized that offering e-file while maintaining my standard paper assembly/delivery process took more time, cost more money, and sometimes confused clients.

So, after two years of offering e-file as an optional service, I shifted to it as a standard process. All returns were e-filed, all returns were delivered electronically (via email or portal), and I charged a fee if clients wanted paper copies or PDF files on a CD. By the time I sold my practice, I was entirely paperless. I sent organizers and received client documents via secure email or portal. I scanned all client documents upon receipt, then sent them back to the client. I delivered all returns by email or through the portal. However, one step in the process still had to be done on paper: The e-file authorization form required a pen-on-paper signature. That is no longer the case. On March 11, the IRS issued updated guidance on electronic signatures. As a result, the e-file process can now be completely digital and paperless. Because the change was announced during filing season, most firms likely did not change their e-file administrative process midstream. So, now is a good time to review the new guidance and consider what changes to implement, in both process and technology.

The E-File Process

Mandatory e-filing for tax practitioners began with the 2011 filing season and was phased in over two years. Today, a tax return preparer who reasonably expects to file 11 or more returns during the year is required to transmit them electronically. Practitioners cannot mail returns as a courtesy to clients. Practitioners also cannot direct clients to opt out of electronic filing as a matter of routine or process. The IRS provides guidance for taxpayers who want to opt out of electronic filing, allows practitioners to apply for hardship waivers, and provides for some administrative exemptions. However, submitting tax returns electronically is now routine for most firms.

One of the biggest challenges with e-filing has been managing the process of obtaining the...