TAX ALERT |
Authored by RSM US LLP
On Jan. 25, 2021, the IRS launched a new option to electronically submit third-party authorization forms. Under the new procedure, the forms may contain either handwritten or electronic signatures (e-signatures). Third-party authorizations, i.e., Form 2848, Power of Attorney and Declaration of Representative, which must be signed by both taxpayer and tax professional and Form 8821, Tax Information Authorization, which only the taxpayer must sign, grant authority upon tax professionals to receive a taxpayer’s confidential tax information directly from the IRS. These forms were not included in the 2019 overhaul of the IRS e-Signature program. These new procedures expand electronic options to Forms 2848 and 8821 while similarly protecting the taxpayer’s identity and assuring that only authorized signers are completing the transaction.
Previously, Forms 2848 and 8821 containing manual signatures could only be mailed or faxed to the IRS. As a result of these new guidelines, tax professionals, with a Secure Access account such as an e-Services account, may submit the Forms online with either an image of a manual signature or an electronic signature. It is important to distinguish that the IRS has now endorsed the use of electronic signatures – not digital signatures – on the forms. The two are similar and often used interchangeably but electronic signatures demonstrate the party’s intention to sign the document and, most notably, lack the digital certificate that is affixed to digital signatures. Specifically, the IRS endorses the following as acceptable electronic signature methods:
- A scanned or digitized image of a handwritten signature that is attached to an electronic record
- A handwritten signature input onto an electronic signature pad
- A handwritten signature, mark or command input on a display screen with a stylus device
- A typed name that is typed into a signature block.
Prior to submitting the electronic signature for a new client, tax professionals must first authenticate the client’s identity. The Authentication section of the online option’s FAQs indicate that certain authentication steps must be followed for taxpayers if the tax professional does not personally know the taxpayer. The IRS mandates that tax professionals must:
- Inspect the taxpayer’s government-issued photo ID and compare it to the physical image of the taxpayer – observed either through a self-photo taken by the taxpayer or video conference;
- Record the taxpayer’s name, SSN or ITIN, address and date of birth from the photo ID; and
- Verify the information reported on the photo ID by comparing it to secondary documentation, such as a federal or state tax return.
Tax professionals must also authenticate business taxpayers. The individual with authority to represent the business may differ depending upon the entity type of the organization. However, that individual, once identified, will also need to complete Step 1 listed above by providing a government-issued photo ID, which must be compared to a physical image. For Steps 2 and 3 above, the business’ EIN and address must be recorded and compared to secondary documentation – such as an income tax return or tax information reporting form.
The new procedures do not replace the current procedures. Tax professionals may continue to mail or fax third-party authorization forms to the IRS. Faxed or mailed forms must contain a handwritten signature; electronic signatures on faxed or mailed Forms 2848 and 8821 are not acceptable. Therefore, this new procedure is viewed as a flexible option that saves time for both the taxpayer and the tax professional. Forms 2848 and 8821 submitted online will still be filed with the IRS’s Central Authorization File (CAF) Unit on a first-in-first-out basis along with mailed or faxed forms. At present, the CAF Unit is significantly behind in processing Forms 2848. For this reason, tax professionals should be ready to fax the forms to the IRS when contacting the practitioner priority line to resolve their client specific issues.
The IRS plans to launch a Tax Pro account on irs.gov during the summer of 2021 that will provide another option for taxpayers to sign authorizations electronically. This account will require taxpayers to set up an IRS online account. The tax professionals may then initiate a third-party authorization and send it to that taxpayer’s IRS online account. Individual taxpayers may then access their online account and digitally sign the authorization, prior to sending it to be filed by the CAF Unit. Details remain limited about the pending Tax Pro account but the IRS expects this new method to dramatically speed up processing times for the CAF Unit.
This article was written by Alina Solodchikova, Evan Stone, Cindy Hull and originally appeared on 2021-01-27.
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