With so many of us moving to a #firmofthefuture business model, the use of e-signatures for Forms 8878 & 8879 are becoming more common. The Internal Revenue Service issued e-signature guidance on November 5, 2018 that provides the acceptable method for your practice. There are many questions around this topic, and we are here to help answer them.
The IRS is strict about the e-signatures for Form 2848 (Power of Attorney) and does not accept this form of signature from a taxpayer. Those forms still require a physical hand-written signature. For the Forms 8878 & 8879, it isn’t complicated to understand what methods are acceptable. They range from an original signature to a mark captured as a scalable graphic. But what is most important is what the software records when the signature is completed. Straight from the IRS guidance, you will find the following data MUST be recorded:
- A digital image of the signed form.
- Date and time of the signature.
- Taxpayers computer IP address (for remote transactions).
- Taxpayers login identification – username (for remote transactions).
- Identity Verification (Remote Transactions): KBA – Knowledge Based Authentication passed results.
- Identity Verification (In Person): Confirmation that government picture identification has been verified.
- Method used to sign the records (a typed name, for example); or a system log; or other audit trail that reflects the completion of the electronic signature process by the signer.
What is extremely interesting about this list are items 5 and 6. Item 5 discusses what information is necessary for e-signatures to be acceptable. The signatures must have a knowledge-based authentication process. This is the same type of process you go through when you set up an account on the IRS website. There are questions that typically only the taxpayer will know. The identity verification requirements must be in accordance with the National Institute of Standards and Technology, Special Publication 800-63, Electronic Authentication Guideline, Level 2 assurance level and knowledge-based authentication or assurance level. Don’t try googling that today, with the government shut down, you can’t get access to the PDF! Regardless, what does that all mean?
Essentially, the increased awareness of cyber-crime and identity theft has risen at such a rapid rate, the IRS is working hard to protect taxpayers from this crime. They are requiring we, the professionals, to assist them in this fight by giving us guidance on the best way to minimize the risk of a breach. The discussion around the tax professionals as targets for these crimes has been going on for a long time. It is now time to implement a system that will minimize that risk and protect you from potential fraudulent activity including the violation of an innocent spouse situation or a stolen identity and subsequent tax return fraudulent filing act.
As for item 6, how many times have you documented your client’s government issued identification when they sign the 8879!? And to make matters a little scarier, according to Publication 3112, page 28-29, if the IRS calls you and requests a copy of the 8879 that you just transmitted and cannot provide the identity verification information in the list above, you could be sanctioned. Can you image getting a letter from the IRS stating that you are on hold from e-filing for 30 days? Or, imagine the IRS denying your participation for a length of years?
Thankfully, we as preparers, do not need to be IT specialist to make all these requirements happen.
SOLUTION: Consider signing yourself up for a SmartVault account and utilizing their integration with DocuSign to solve these problems for you. It is affordable, and quite frankly, it’s the law.
Author Bio: Dawn W. Brolin is a Certified Public Accountant, Certified Fraud Examiner, and CEO of Powerful Accounting, LLC, a nationally recognized accounting, tax, forensic and fraud, IRS Representation as well as a QuickBooks consulting firm. Dawn’s list of professional accomplishments is extensive and includes speaking and consulting for prestigious companies. Named “Top 25 Most Powerful Women in Accounting” 2012-2017 by CPA Practice Advisor, a “Top 10 Managing Partner Elite – Great Accounting Firm Leader” in 2017 by Accounting Today, and selected as a “Top 40 Under 40” by CPA Technology Magazine.