Updated E-Filing Requirements for Tax Preparers


In the IRS's point of view, preventing fraud and abuse of the electronic filing system is the shared responsibility of both the IRS and authorized e-file providers. In an effort to stop the fraud, abuse, and resulting identity theft, the IRS has issued a revised Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns.

The handbook is not exactly clear. When the revised Publication 1345 was released, many thought the identity verification requirements on pages 23-24 applied to all e-filed returns. Among the new requirements included in this handbook is the requirement for a preparer to request photo identification of the client, and if you are not physically meeting with your preparer, "record checks with the applicable agency or institution or through credit bureaus or similar databases." After coming down from the initial shock of the requirement, some preparers are now pointing out that the ID requirement may only apply to electronic signatures; handwritten signatures on a paper return are not be covered. (A return can be e-filed with either type of signature; the taxpayer is signing the tax return and authorizing the preparer to e-file.) If the requirement only applies to electronic signatures, many preparers will likely take one step back from going paperless and have the taxpayer sign a paper copy by hand instead of an electronic signature. Many hope the confusion will lead to a clarification of the publication.  

Regardless of what type of signatures these requirements apply to, it seems the new ID requirements are unlikely to stop  identity thieves or those abusing the e-file system. As Joe Kristan pointed out in his Tax Update Blog, "ID thieves don't walk into legitimate tax shops and pay to have fraudulent refunds claimed." The identity thieves are likely filing the returns on their own or if the preparer is the one abusing the system, it seems he could abuse this system as well.  This publication only applies to "Authorized IRS e-file Providers." The requirements do not apply to individuals preparing and e-filing their own tax return (so no worries, you don't have to ID or run a credit check on yourself, regardless of how you sign your return). 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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