Access to Customer Funds

[Golden Rocket]

Most of us avoid signature authority for our customers. None of us want to be assessed for penalties because our customers didn't pay their taxes, as having signature authority makes us liable for the timing and obligation.

However, many of us file taxes for our customers (Yo, that's what we do for a living), and much of it is done electronically nowadays. States and taxing authorities are increasingly mandating that all taxes be filed and paid electronically. In fact some of the filing websites will not allow you to complete filing unless paid information is entered. For these states, it is no longer good enough to prepare a voucher and give to the customer to enclose a check.

I have all manner of problems with this posture by these taxing authorities. To begin with, I am happy with any money coming to me regardless of the method, especially money I haven't done anything to deserve like what the states are getting. And I have seen states duplicate their drafts (as banks will not protect accounts against this). But I won't belabor my personal issues, and return to the situation of the tax preparer as state websites try to force us to disgorge customer money into their coffers.

Most companies require prior approval of cash disbursements, period. And the customer is being asked to have $$$ sucked out of his bank account that he hasn't seen or approved. In addition, many of our tax software programs create "piggyback" electronic filing with states, where the preparer never even sees the state website.

Comments? Solutions?

[David1980]

I think it would be piss poor software that does not indicate direct debit information is being sent to the state, so I don't understand "And the customer is being asked to have $$$ sucked out of his bank account that he hasn't seen or approved." - is the return being filed prior to the taxpayer reviewing it or something? You shouldn't have to visit a state website to know a direct debit is being initiated. I could see a state making an error and double deducting an amount, but assuming the state takes out the correct amount I don't understand the problem. Taxpayer agrees to pay $x dollars on Y date from Z bank account. State takes $x dollars on Y date from Z bank account. What am I missing?

[DaveO]

In Nebraska the Tax Commissioner was given unilateral power to force businesses to efile and epay taxes at whatever level he chose. In our practice this has led to businesses who don't even own a computer having to efile and epay. I have Spanish speaking clients who can't navigate an English website. The state doesn't care they just assess a $100 penalty per form per month.

[Golden Rocket]

Dave

Dave, pardon me but I think you are missing the entire thrust. The states are requiring that the taxes be filed AND PAID via the state website, so if you are using piggyback software, this won't satisfy them. And you are authorizing payment "hands on" such that you can be associated with having authority to pay. And filing payroll taxes via state websites often encounters calculations with which you may not agree.

My state, for example, is enamoured with slap-happy penalties when they haven't really been incurred. For example, imagine filing a SUTA on their website and having a disputed penalty hard-coded on the website field. Dave-Os experience in Nebraska is another example.

A more sinister portent can be this creeping ability of banks and large institutions to control your own money, but that is a different subject and not limited to taxes.

[David1980]

"mandating that all taxes be filed and paid electronically" - so it's more about mandating the taxes be filed electronically through the state website which prevents you from using your tax software to e-file the return. That makes more sense.

I think what I'd ideally want to do is prepare the return in my tax software for the taxpayer's review and if the state has a debit consent signature line (basically an 8453/8879 that spells out consent for debit) have them sign that, then go to state website and key in same info (hopefully state website permits me to just enter totals instead of trying to guide me through a wizard) and file. Of course, I'd be less optimistic on that being the case. A more likely scenario is being able to prepare the return and save it on the state website so you can print it out and have taxpayer review prior to e-filing so they know what the debit amount will be. If a state doesn't let you save the return but instead you have to prepare and e-file all in a single session that is pretty terrible and I don't know what I'd do.

[Zee]

Which states are requiring efiling thru only their websites?

[Gary2]

I gather that this is about employment and/or entity taxes, and not personal income taxes. I think I'd have heard if there were states requiring personal income taxes to be filed only through their web sites (since that would be a major impact on software vendors).

There are only four states that don't get their personal income tax returns from the IRS. Even those four use MeF (or, for MA, a close approximation to MeF). While those four may be getting their transmissions via a web server (I don't know for sure), it's not the same as manually going into their web site to enter a return, or even payment information.

MeF includes a mechanism for specifying direct debit. Not every state has a place on their standard form for displaying it, so it's up to the software vendors to find some other way to print out that information.

Edit: See below for my followup on NH and TN.

[Snaggletooth]

Typical Example

Here is a typical example for personal taxes (and a majority of these problems occur for payroll and other taxes):

My state (TN) has no general personal tax, but there is a special personal tax on interest and dividends. I have about 25 customers who must pay this tax every year. I piggy-back this return from the federal. Drake software co-ordinates with all states every year, and in 2013 Tennessee began requiring filing and paying electronically.

If the customer prepares his own return, he may file and pay on the state website. Taxpayers with this kind of income overwhelmingly use tax preparers like myself. Since it is now unlawful for a taxpayer to pay via any other method, Drake has removed the -V voucher from its menu, rendering a cash taxpayer with no guidance as to send TN the money and assure credit. Alternatively, Drake has provided bank information which allows the state to draft their account.

Most of my customers do not want anyone to invade their bank account and suck money out of it. I even have a couple who will telephone their state legislator before they will let the state do this. If I were to tell them this refusal is breaking the law, there would be civil disobedience. And I can't really blame them.

[Zee]

I gather that this is about employment and/or entity taxes, and not personal income taxes. I think I'd have heard if there were states requiring personal income taxes to be filed only through their web sites (since that would be a major impact on software vendors).

There are only four states that don't get their personal income tax returns from the IRS. Even those four use MeF (or, for MA, a close approximation to MeF). While those four may be getting their transmissions via a web server (I don't know for sure), it's not the same as manually going into their web site to enter a return, or even payment information.

MeF includes a mechanism for specifying direct debit. Not every state has a place on their standard form for displaying it, so it's up to the software vendors to find some other way to print out that information.

Thanks for the clarification.

[David1980]

Here is a typical example for personal taxes (and a majority of these problems occur for payroll and other taxes):

My state (TN) has no general personal tax, but there is a special personal tax on interest and dividends. I have about 25 customers who must pay this tax every year. I piggy-back this return from the federal. Drake software co-ordinates with all states every year, and in 2013 Tennessee began requiring filing and paying electronically.

If the customer prepares his own return, he may file and pay on the state website. Taxpayers with this kind of income overwhelmingly use tax preparers like myself. Since it is now unlawful for a taxpayer to pay via any other method, Drake has removed the -V voucher from its menu, rendering a cash taxpayer with no guidance as to send TN the money and assure credit. Alternatively, Drake has provided bank information which allows the state to draft their account.

Most of my customers do not want anyone to invade their bank account and suck money out of it. I even have a couple who will telephone their state legislator before they will let the state do this. If I were to tell them this refusal is breaking the law, there would be civil disobedience. And I can't really blame them.

With the TN personal taxes at least, it looks like they'll let the taxpayer make the payment on the website for an e-filed tax return.

Effective January 1, 2014, all individual income tax returns prepared using a software vendor certified
by the Department of Revenue must be filed and
paid electronically. The Department also accepts
payments from individuals through its website (

https://apps.tn.gov/etax/

).

I'm surprised Drake doesn't print out an informational letter for the taxpayer indicating how to make payment if they choose not to do a direct debit with the tax return? Same kind of guidance for the taxpayer as they would have had with a -V voucher. Just a "go to this website to make payment" instead of "Mail payment with this voucher" kind of thing.

As far as people not wanting to make payments electronically, yeah I expect that. Like 1120 filers still complaining about the electronic payments requirement ("Where's my voucher?") I wonder if people had the same complaints when forced to use checks instead of cash to make payment.

[Gary2]

I'm afraid I forgot the two outliers, TN and NH, both of which have interest and dividends taxes. I'm only used to NH (almost always to rule it out because the income is too low), and I'm not sure if NH even has e-file, but I see that on the IRS web site, TN participates in the IRS/state program, so direct debit should be available in the software. If it's not on the official form, then as I said before, it's up to the vendor to make sure you can print some sort of confirmation or instructions for using their web site. When using direct debit, I routinely target April 1, or at least a few days before Apr. 15 whenever possible, so that the astute clients can confirm it was paid before the deadline.