Are New Tax Laws Increasing Your Liability as a Tax Professional?

New regulations have dramatically increased the number of e-filed returns in recent years. While this shift in the filing process saves time for tax professionals and their clients, it also opens a new window of liability for tax professionals.

Where it all Began

The increase in e-filed returns began in January 2012 when the IRS regulation took effect, requiring that any tax return preparer who anticipates preparing and filing 11 or more Forms 1040, 1040A, 1040EZ and 1041 during a calendar year must use IRS e-File. As a result, the rate of e-filed tax returns has climbed to its current peak of 91 percent in 2015. Considering the percentage of returns completed by individuals who file on their own without using e-file, this number is very close to 100 percent adoption.

The Burden of Proof

This means that in addition to shouldering the responsibility of accurate tax preparation, you must also bear the burden of proof that your tax clients have authorized you to file returns on their behalf. To support this, the IRS requires you, the Electronic Return Originator, to obtain a client signature on Form 8879, IRS e-File Signature Authorization, and retain the form for three years from the return due date, or the IRS received date — whichever is later. A return transmitted prior to, or without, taxpayer authorization (signature) on Form 8879, may constitute an unauthorized disclosure of taxpayer information and could fall under IRC 6713. The penalty is $250 for each unauthorized disclosure or use of information furnished for, or in connection with, the preparation of a return, with a maximum penalty of $10,000 in a calendar year.

With liability and fines in that magnitude, nearly every tax professional we spoke to has made getting Form 8879 signed a priority. 

Their Problem Became Your Problem

The logic for the IRS wanting e-filed returns is obvious: it dramatically reduces the volume of paper documents the IRS needs to manage, track and store, but now that burden sits on professional tax preparers. Not only do you need to store your clients’ tax returns with their signature, but you also need to store Form 8879. The digital return you used to keep in your tax preparation software is no longer enough, and you need a system that allows you to find exactly the right form or document at a moment’s notice, should the need arise through an audit or other legal situation.

When it comes to efficiency and organization, the answer is obvious: a secure digital workflow and storage system that can:

• Reduce the chaos and clutter of increased documentation storage.
• Provide a streamlined and efficient resource to store and, more importantly, locate critical files.
• Increase data security.
• Reduce risk of file damage or loss through fire, flood or theft.
• Save you precious time in obtaining signatures.

Some tax professionals are hesitant to shift to a digital workflow because they worry that older clients aren’t technically savvy enough to use digital signatures. However, that logic has faded as technology has evolved. Modern technology, such as Intuit® eSignature software, has become so user friendly that it walks the taxpayer through the steps of tax return review and form signature in just a few clicks, making it crystal clear where signatures are required. And, if taxpayers don’t complete the signatures when they receive the digital return, eSignature automatically reminds clients when there are steps remaining in the process. This significantly reduces the time required from the tax professional.

Perhaps, the most significant benefits of using a resource such as eSignature is that it won’t e-file the return until you have received verified signature on the return and Form 8879. You can override that feature when necessary, but the default setting ensures you have what you need to protect your liability; you and the client can return to the secure, digitally stored files at any time, if needed.

The IRS does not typically operate at the forefront of the digital frontier, so if they can make the shift to a digital workflow, it’s probably time that you did, too.

Learn more about the easy-to-use, time-saving features of eSignature here.