Enforcement of New Tax Preparer Rules

[joanmcq]

There is likely a box you check to have the software 'sign' the returns.

Now for the above scenario: there is the same risk of an unethical preparer doing the same with a paper-filed return, and then approximating your signature, if it is even on your client's copy. Or typing it in.

[okie1tax]

PTIN used by other

As an e-filed return has an EFIN associated with it, to me, it would pretty easy to show that only that one return was sent from a different EFIN. If they used the PTIN on several returns, it could get interesting. Dates, times witness accounts as to which location you were at.

[Lion]

Print

My software allows me to choose to have it print my name in the signature box for federal returns and all states that allow it. I chose that option just to protect myself if I would forget to sign a paper return, since those are the exception in my practice and could be overlooked in a rush.

[Bees Knees]

So if your software prints your name in the paid preparer's signature box, you have signed it, as long as you personally hit the key on the computer.

My software (ProSeries) does not print my name in the paid preparer's signature box. It prints it in the box labeled "Print/Type preparer's name," but the "Preparer's signature" box is left blank.

Does that mean I am not signing the return when I e-file it for a client?

[DonPriebe]

It's one thing for a person to sign a document; it's something else altogether for another person to authenticate the signature, meaning that they somehow confirm that the signature is in fact the signature of the person who signed it.

There seems to be no requirement that a paid preparer afix his signature on a return by manually writing out his name. On the contrary, Pub 17 (page 17) says ...

A paid preparer can sign the return manually or use a rubber stamp, mechanical device, or computer software program. The preparer is personally responsible for affixing his or her signature to the return.

So if your software prints your name in the paid preparer's signature box, you have signed it, as long as you personally hit the key on the computer.

[Bees Knees]

Bees, I'm not saying it could never happen, but I do think it's a little far-fetched. An ERO pulling that kind of stunt wouldn't stay in business very long.

I agree with everything you said. I was merely trying to poke holes in the current system. Interesting, though, that the very first post in this thread points out that out of the 700,000 of us that renewed or got PTINs, they found 19 ex-felons and people with court orders not to prepare tax returns who applied for PTINs, and a whole host of others trying to prepare returns without using a PTIN.

[Koss]

Signature

Bees--

You do make an interesting point. An unethical ERO could certainly put a preparer's PTIN and other identifying information into a tax return that was not actually prepared by that person. The point you are making is that the system currently in use does not authenticate the identity of the preparer. So if that's what you mean when you say that we are not "signing" returns that are filed electronically, you are correct.

It's one thing for a person to sign a document; it's something else altogether for another person to authenticate the signature, meaning that they somehow confirm that the signature is in fact the signature of the person who signed it.

Your bank does not authenticate your signature on every check that you write. Neither a person nor a machine compares your signature on the check to the signature that is on file at the bank. Under the terms and conditions of your checking account, most of the burden falls on you to review your account statements, and notify the bank of any fraudulent transactions.

That's certainly not a perfect analogy. Negotiable instruments live and breathe in a very different world than tax returns. But my point is that a signature can exist, in electronic form, without being authenticated. An analogy that is a bit closer to the tax return might be this: I can pay my phone bill on the phone company's website with an electronic check. And it doesn't really have to be my checking account. Or does it? All I need is the routing number, the account number, the name of the bank, and the name of the account holder. This type of payment will get processed, even if it isn't my account. Where the heck is the signature and the authentication for this process?

The answer is that when I submit the payment, I click on something that says that I am certifying that I have the requisite capacity to authorize an electronic payment from the account that I have identified. And the phone company that is processing the payment has in fact identified and authenticated ME, through the credentials that I used to log into the account on their website. If I don't really have the authority to draw funds from the checking account that I enter into the payment system, they definitely have the ability to identify ME as the person who performed the bad transaction.

Something similar is happening with electronic filing of tax returns. Bees may in fact have a legitimate concern. Maybe a preparer's PTIN should be linked to a password, so that a return cannot be filed with that PTIN unless the password is transmitted with it. Maybe that's coming in the near future.

I concede that the PIN we are currently using for e-filing appears to be associated only with the ERO and not with the preparer's PTIN.

But here's what shows up on my screen right above the field where I enter my ERO PIN:

I declare that the information contained in this electronic tax return (or request for refund) is the information furnished to me by the taxpayer. If the taxpayer furnished me a completed tax return, I declare that the information contained in this electronic return is identical to that contained in the return provided by the taxpayer. If the furnished return was signed by a paid preparer, I declare I have entered the paid preparer's identifying information in the appropriate portion of this electronic return. If I am the paid preparer, under the penalties of perjury I declare that I have examined this electronic return, and to the best of my knowledge and belief, it is true, correct and complete. This declaration is based on all information of which I have any knowledge.

This language covers all three scenarios: ERO filing a self-prepared return, ERO filing a return that was prepared by a paid preparer other than the ERO, and the case where the ERO is also the paid preparer.

To return to Bees' question:

At the risk of stating the obvious, if an unethical ERO puts in preparer information for a tax pro that did not actually prepare the return, it is outright fraud. If the preparer who did not do the return received a notice proposing a preparer penalty, and he asserted that he did not prepare the return, and in fact had no contact with the client for the tax year in question, and that he has no relationship with the ERO, I think the IRS would take this kind of claim very seriously, and open a full-blown criminal investigation.

Bees, I'm not saying it could never happen, but I do think it's a little far-fetched. An ERO pulling that kind of stunt wouldn't stay in business very long.

BMK

[Bees Knees]

I think it could be argued that by transmitting the return with the PTIN in the proper field, together with other information identifying the preparer, the preparer is electronically signing the tax return.

Paper returns are still allowed under various circumstances. If I put my name, address, and PTIN on a paper filed return, but fail to sign my name, I am subject to a $50 penalty under Section 6695(b). If I put that same info on an e-filed return, I’m not subject to a $50 penalty. The current instructions telling us to sign a return only apply to paper returns. You can’t say putting your PTIN on an e-filed return is the equivalent of your signature, because it is not your signature on a paper return.

The whole authority of IRS and their regulations concerning who should sign the return as the paid preparer and who does not have to sign the return as a paid preparer are kind of meaningless if there is no way to sign an e-filed return.

TD 9501, which are the final IRS regulations on the subject says in part:

tax return preparers must obtain
and exclusively use the identifying
number prescribed by the IRS in forms,
instructions, or other guidance, rather
than a social security number (SSN), as
the identifying number to be included
with the tax return preparer’s signature
on a tax return or claim for refund.

Note the distinction in the regs between the PTIN and the tax return preparer’s signature. The regs go on to say that someone who assists in the preparation of a tax return but is not the signing tax return preparer must also obtain a PTIN. OK, now we are really confused. If putting the PTIN on an e-filed return is the equivalent of our signature, then what is the PTIN of the non-signing preparer for?

Nothing in the instructions or the regs seems to address these questions. They tell us to all get PTINs and sign the return, but don’t tell us how to sign an e-filed return. Obviously putting our PTIN on the return identifies us as the signing preparer. But if putting our PTIN on the return IS our signature, then that opens a new can of worms.

For example, one of our clients decides to go to Guaranteed Refund Tax Preparation Services next year. The guy does questionable stuff on the return that guarantees the client gets a refund. Guaranteed Refund Tax Prep uses our name and our PTIN on the e-filed return exactly as it appears on the return we prepared the previous year. Two years later the client gets audited and hit with substantial underpayment penalties. Since our PTIN is on the return, and that PTIN is the equivalent of our signature, we get hit with the $5,000 penalty for understatement of tax under IRC §6694(b). We object and claim we did not prepare the return. Guaranteed Refund Tax Prep claims they were only the ERO and not the paid preparer.

How do we prove we did not sign the return as the paid preparer, assuming the client is clueless as to who did what in what year?

[Koss]

Preparer Signature

I think it could be argued that by transmitting the return with the PTIN in the proper field, together with other information identifying the preparer, the preparer is electronically signing the tax return.

Whether it is a signature, under some technical definition, may not be relevant anymore.

If you prepare the return and charge a fee, and the return is filed electronically, the IRS requires that the electronic return contain the PTIN of the preparer. This is what indicates that the return was professionally prepared, and not self-prepared, and of course it also identifies the professional preparer.

I don't think it is an exaggeration to say that as we move further into the digital age, and more and more transactions become paperless, the very definition of the term signature is no longer stable. It's not clear what it means to sign something when the original document is not a piece of paper.

The law itself, and the legal definition of a signature, is evolving.

Right now, in our profession, I think the expectations of the IRS are fairly clear. When I say "it's not clear," I'm speaking in very general terms about the concept of a signature as a form of authentication or as an act that binds a person legally.

BMK

[Bees Knees]

Interesting....does that mean I should now just ignore the information shown on Part III of Form 8879 (including the entry shown there as "ERO's Signature") ??? :confused

Part III of Form 8879 is for the signature of the ERO. As Koss has already pointed out, the ERO is not necessarily the same as the tax return preparer. The two can be two different people. The ERO is the one transmitting the return to the IRS, which could be someone who is not the paid preparer.

There is a preparer PIN on the efile, as well as the taxpayer PIN.
Oh, and also Pt III on the 8879.

The 8879 has a PIN number for the taxpayer, and a PIN for the ERO. There is no PIN on the 8879 for the tax return preparer.

So again, show me where the tax return preparer is supposed to sign an e-filed return.

[joanmcq]

There is a preparer PIN on the efile, as well as the taxpayer PIN.

Oh, and also Pt III on the 8879.

[FEDUKE404]

Huh ?

....The point is, IRS instructions on signing as paid preparer apply to paper filed returns. In reality, paid preparers are no longer required to sign when they e-file a return. All they have to do is make sure their preparer info including the PTIN appear on the return. Form 8879 is for the electronic signature of the taxpayer, not the preparer.

Interesting....does that mean I should now just ignore the information shown on Part III of Form 8879 (including the entry shown there as "ERO's Signature") ???

FE

[Bees Knees]

Signing as the ERO and signing as the preparer are not the same thing. The ERO and the preparer may be two different people. The ERO may be an individual or a firm, but the preparer can only be an individual. A person, or a firm, can be an ERO without having a PTIN. One who functions solely as an ERO could never be held liable for a preparer penalty.

I agree. So my question still stands. How does a paid preparer sign an e-filed return?

If your answer is by having the preparer's name printed on the 1040 along with the PTIN, then why in the old days if that information was on a paper return but the preparer forgot to sign the return, the preparer was subject to the $50 penalty?

The point is, IRS instructions on signing as paid preparer apply to paper filed returns. In reality, paid preparers are no longer required to sign when they e-file a return. All they have to do is make sure their preparer info including the PTIN appear on the return. Form 8879 is for the electronic signature of the taxpayer, not the preparer.

[Koss]

Unsigned, but filed electronically

Bees--

I don't think anyone is really claiming that one cannot sign a return that is done at no charge. But the IRS guidelines are pretty clear. A signature is not required on such returns. The IRS guidelines also explicitly state that a signature is not required when one prepares a return through one of the IRS volunteer programs, such as VITA, TCE, or an LITC. In fact, the regs state that one who prepares this type of return is not a tax preparer, and is not held to the same requirements as one who actually collects a fee.

It makes a difference, in very technical ways, which hopefully don't come up very often. For example, one who signs the return as the preparer, but is not an EA, a CPA, or an attorney, can represent the taxpayer in an examination. I'm not sure that one who does not sign the return can do that, even if they prepared the return at no charge for a family member or a close friend. (But there are some other IRS regs that allow a person to be represented at an audit by certain members of their immediate family, regardless of whether that family member prepared the return.)

The point that was made earlier in this thread is that most professional tax software gives you an option to remove the preparer PTIN and other identifying data. When you do this, the preparer fields will be blank when you print the return. And even if the return is filed electronically, the preparer data is not transmitted in the return.

The program will still transmit the EFIN and the identifying information for the ERO. And Form 8879 is still required. But one can sign Form 8879 as an ERO without signing the tax return.

Signing as the ERO and signing as the preparer are not the same thing. The ERO and the preparer may be two different people. The ERO may be an individual or a firm, but the preparer can only be an individual. A person, or a firm, can be an ERO without having a PTIN. One who functions solely as an ERO could never be held liable for a preparer penalty.

When I worked at HRB, we were able to electronically file a return that the taxpayer had self-prepared, or a return that had been professionally prepared and signed by a "third-party" preparer who did not work for HRB. In recent years, HRB raised the price of this "e-file only" service pretty high--typically around $100--to discourage it. Their whole point is that you might as well pay them to do the return.

And most of us probably feel the same way. At my office, we don't electronically file any returns that we did not prepare. I'm not saying we would refuse to do so, but we've never had anyone ask us to do it.

But the option is there to do so. A return can be filed electronically with no data in the preparer fields. And that is exactly what many of us do when we file our own return or returns for family members that we do at no charge.

In fact, I'm fairly certain that this is exactly what happens when a return is filed through TurboTax, or any of the other DIY platforms. The software vendor is not signing the return as the preparer. But they are certainly functioning as the ERO.

BMK

[Bees Knees]

How do you sign an e-filed return as a paid preparer?

If your answer is by using Form 8879, then does that mean we can't use the practitioner PIN method for filing non-paid returns for friends, family, or even ourselves?

Seems rather silly to say you can’t sign as paid preparer for a return you do for free for a friend, when we are all signing as paid preparers for our own e-filed returns.