CPAs have become familiar with the electronic filing requirements and filing Form 8879, IRS efile Signature Authorization, especially since the IRS has mandated e-filing for almost all tax practitioners. This requirement, in effect, has added one more step to the tax preparation process for practitioners. Instead of being able to mark a return as "complete" once it was printed and delivered to the client to mail, the responsibility of submitting the tax return now is with practitioners, and a preparer has not truly completed the process until the tax return is electronically transmitted and accepted by the IRS or state filing authorities.
Thus, CPAs face issues that did not exist a decade ago, since now they must ensure that they receive signed authorizations from clients before electronically submitting tax returns. That is where the Form 8879 series comes in. Form 8879 is used for Form 1040, U.S. Individual Income Tax Return; Form 8879-PE, IRS efile Signature Authorization for Form 1065; Form 8879-C, IRS efile Signature Authorization for Form 1120;and Form 8879-S, IRS efile Signature Authorization for Form 1120S.
Each filing season, practitioners have concerns about what their requirements and responsibilities are for these forms and for the electronic submission of their clients' tax returns. In most cases, a CPA firm is the Electronic Return Originator (ERO), which is the authorized e-file provider originating the electronic submission of a return to the IRS. The ERO's responsibility is separate from that of tax return preparation, but it must comply with several requirements, including the following:
- Timely originating the electronic submission of returns;
- Submitting any required supporting paper documents to the IRS;
- Providing copies of tax returns to the taxpayer; and
- Retaining records and making records available to the IRS if requested.
In e-filing returns for their clients, CPAs generally use the practitioner PIN method, which allows the ERO to enter a personal identification number (PIN) or generate a PIN for the taxpayer, and while e-signature options are now available to obtain digital signatures from the taxpayer, in most cases, a Form 8879 is required to be printed and signed by both the ERO and the taxpayer before the return is submitted to the IRS. The Form 8879 contains a taxpayer declaration that the taxpayer must sign and date, stating that he or she has reviewed the tax return and has ensured the tax return information of the Form 8879 matches the information on the return. That declaration and signature authorization on Form 8879 gives the ERO permission to electronically submit the return.
In light of these requirements, what can go wrong with the process? As CPAs can attest, it seems that every filing season something does.
Problem No. 1: Failure to send a copy of the tax return to the taxpayer with Form 8879
Technology is an ever-increasing part of a CPA's daily life, as are deadlines. Clients submit tax information via email, fax, or a secure client portal. Often that information can come in with little time to spare, so being able to deliver a copy of the client's tax return personally or by mail may be difficult. Clients can be anxious to get their tax returns submitted with deadlines approaching quickly, so they may request that the practitioner send the Form 8879 electronically so that it can be signed and the return submitted promptly.
However, as stated above, the ERO is required to provide a copy of the return to the client, and the disclosure that the client signs on the Form 8879 states that he or she has reviewed the tax return before signing the form. So, while it may be tempting for a CPA to quickly email the Form 8879 to the client, especially under pressure from a client who assures the practitioner that "it will be fine," the practitioner should always send an electronic copy of the complete tax return along with the Form 8879 so the client can review the return before signing Form 8879.
If the ERO is also the tax preparer, failure to provide the return could result in preparer penalties being assessed under Secs. 6694 and 6695. Under Sec. 6695(a), the penalty for failure to furnish a copy of the return is $50 for each failure to comply, unless the failure is due to reasonable cause and not willful neglect. A maximum penalty of $25,500 applies based on all documents filed during a calendar year. Even if the ERO is not considered the tax preparer, the practitioner is at risk for sanctions for violating ERO regulations, as explained below, and could possibly lose the ability to participate in the IRS e-file program. Such sanctions would severely impact the CPA's ability to practice.
Problem No. 2: Failure to obtain signed Form 8879 before submitting the return
The practitioner does not have authorization to electronically submit the return until a signed Form 8879 is received. The taxpayer's signature should be dated on or before the date the ERO submits the return. The IRS requires the ERO to transmit the return for e-filing within three days of receiving the signed Form 8879. A client may be out of town and unable to receive mail or may not have access to email, or fax or scanning capabilities. Often a client will give verbal instructions to the CPA to transmit the returns.
While it may be tempting for the practitioner to take the verbal authorization from the client, the practitioner should be aware that this violates the ERO regulations. These IRS requirements for e-filing must be adhered to by practitioners, and CPAs should also consider other applicable ethics standards, such as those under Treasury Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), the AICPA Code of Professional Conduct, and the AICPA Statements on Standards for Tax Services. Clearly, the failure to get signed authorizations from clients could put the ERO status at risk, so CPAs should make every effort to have a signed Form 8879 in hand before transmitting the return.
Problem No. 3: Failure to keep signed Forms 8879 on file
EROs are required to keep the signed Forms 8879 on file for three years after the date the return was received by the IRS or the due date of the return, whichever is later. If these recordkeeping rules are not complied with, the ERO is subject to IRS sanctions, as mentioned above. In its monitoring of EROs, the IRS categorizes infractions as level one, two, or three (see Internal Revenue Manual §126.96.36.199.11, Levels of Infractions), and an ERO is subject to written reprimand, suspension, or expulsion from the IRS e-file program depending on the seriousness of the infraction. This monitoring is done through visits to providers' offices. IRS Publication 3112, IRS e-file Application and Participation, explains these types of infractions and the actions that may be taken.
Problem No. 4: Concerns about signatures on Form 8879
The taxpayer declaration on the Form 8879 series of forms must be signed by a person authorized to sign tax returns for the taxpayer. For a corporation, that would be an officer of the company. For a partnership, it would be a general partner or managing member. For individual returns, the authorization must be given by the taxpayer or by both the taxpayer and spouse if filing a joint return. CPAs may be questioned as to who can sign an authorization, so they should be aware of some special cases in which a taxpayer can sign Form 8879 for someone else.
If the taxpayer is deceased, the Form 8879 can be signed by the executor or administrator of the decedent's estate. A taxpayer can sign his or her spouse's name if the spouse is unable to sign due to injury, disease, or deployment in a combat zone, and verbal permission is given. A taxpayer who has a power of attorney (POA) can also sign returns on behalf of someone else, although care should be taken that the POA clearly authorizes the person to sign tax returns. Otherwise, Form 2848, Power of Attorney and Declaration of Representative, must be used. A parent can sign on behalf of a dependent child if the child is not old enough to sign the return. Unless these exceptions apply, the Form 8879 must be signed by the taxpayer and spouse if applicable. Practitioners are not required to be present when the Forms 8879 are signed, but they should advise clients to ensure that proper signatures are obtained by all parties.
There are options for e-signature of tax returns, and practitioners may find that getting those digital signatures is more efficient than having to get a paper Form 8879 signed. In March 2014, the IRS updated policies to allow for e-signatures. Practitioners should consult IRS Publication 1345, Handbook for Authorized IRS e-File Providers of Individual Income Tax Returns, for more details regarding the acceptable methods of digital signatures allowed, and the additional steps that practitioners must take each year to authenticate the taxpayer's name, Social Security number, address, and date of birth.
Whether a tax preparer is a sole practitioner or a large firm, policies and procedures should be in place to ensure that all IRS requirements for EROs are met. Publication 1345 is a good resource to develop best practices in this area. In addition, since all aspects of the e-filing of tax returns inevitably require the use of technology, practitioners should also be mindful of email protocols and client security issues, and sensitive information that could be sent electronically when emailing or faxing tax returns and/or Forms 8879.
Practitioners should ensure that the tax preparation software they use is up to date in providing security and privacy of client information. And, finally, the practitioner should use the e-filing process as a tool to educate clients. The tax system is complicated, and many clients may not be able to understand the system's complexities — that is why they hire CPAs. However, if a client better understands the tax return and his or her responsibilities, there is less risk of miscommunication with the practitioner. And reviewing tax returns with clients each year could lead to more compliant clients, making the CPA happier and resulting in more long-term, successful client relationships.
Valrie Chambers is an associate professor of accounting at Stetson University in Celebration, Fla. Jan Lewis is a tax partner with Haddox Reid Eubank Betts PLLC in Jackson, Miss. Ms. Lewis is immediate past chair of the AICPA Tax Practice and Procedures Committee. For more information about this column, contact email@example.com.