Kostelanetz & Fink, LLP
Over 70% percent of federal tax filings in 2019—including almost 90% of individual income tax returns—were filed electronically. Yet, as tax practitioners know, many federal tax forms continue to require “wet” signatures. Even before the COVID-19 pandemic, there were calls for the Internal Revenue Service (IRS) to modernize its approach to electronic signatures. Such appeals recognized the tension in a system where many avail themselves of opportunities to electronically file documents but cannot always electronically sign documents. COVID-19 dramatically exacerbated this tension by transforming an inconvenience in the best of times—obtaining wet signatures when required—into an impossibility, given the safety implications of interpersonal interactions.
Against this backdrop, in late January 2021, the IRS unveiled a new system for submitting Forms 2848 and 8821 online and will now permit electronic signatures on those forms. These changes follow an array of temporary measures taken last year by the IRS permitting electronic signatures on certain forms.
The ability to electronically sign Forms 2848 and 8821 is a welcome development. It will facilitate contactless signing and submission of the forms, which will be convenient going forward and especially important while the COVID-19 pandemic continues. The change is also overdue: before the pandemic began, the IRS had already missed a January 1, 2020 deadline (pursuant to the Taxpayer First Act) to publish guidance on electronic signature protocols for Forms 2848 and 8821.
The January 2021 revisions of instructions for Forms 2848 and 8821 permit the use of electronic signatures when the forms are to be submitted online. The instructions to both forms describe acceptable electronic signatures as one of the following: (1) a “typed name that is typed into the signature block;” (2) a “scanned or digitized image of a handwritten signature that is attached to an electronic record;” (3) a “handwritten signature input onto an electronic signature pad;” or (4) a “handwritten signature…input on a display screen with a stylus device.” Additional guidance available online (in the FAQ section under “What is an electronic signature?”) adds that electronic signatures “created by a third-party software” are also acceptable. While this guidance does not entirely eliminate grey areas in terms of what forms an electronic signature may take, it does clearly cover two commonly used electronic signatures: (1) inputting a typed name into a signature block (e.g., /s/ Tiffany Taxpayer); or (2) using a scanned image of a handwritten signature.
If Forms 2848 or 8821 include an electronic signature—whether a taxpayer’s or a tax professional’s—they must be submitted online and cannot be submitted via fax or mail. Note, however, that the IRS will process these forms in the order in which they are received, regardless of the manner of submission. In other words, submitting Forms 2848 or 8821 electronically will not increase the speed at which they are processed. Thus, if a tax professional submits electronically signed Forms 2848 or 8821 and seeks to speak with an IRS representative before those forms are processed, the forms probably cannot be faxed to the representative, as the IRS will not accept electronically signed Forms 2848 or 8821 via fax.
The IRS created a webpage for submitting Forms 2848 and 8821 online. Tax professionals who do not already possess an IRS e-Services account will need to create one before filing the forms (a link to create such an account can be found on the same webpage).
Historically, concerns about authenticating taxpayers’ identities have animated conversations around the acceptability of electronic signatures on federal tax forms. Unsurprisingly, the new instructions to Forms 2848 and 8821 contain requirements for verifying the identity of a taxpayer who will electronically sign. These requirements come into play when the taxpayer electronically signing the form is not physically present with the third party who will submit the form. In such circumstances—called “remote transactions” by the IRS—the third-party submitter must attest that the taxpayer’s identity was authenticated.
There are three steps to verifying the identity of an individual taxpayer. First, the third-party submitter must compare the taxpayer’s photo from a valid, government-issued identification to the taxpayer’s appearance in a video conference or self-taken picture. Second, the third-party submitter must record the taxpayer’s name, address, date of birth, and social security number (SSN) or individual taxpayer identification number (ITIN). Third, the third-party submitter must verify the taxpayer’s name, address, and SSN or ITIN through “secondary documentation, such as a federal or state tax return, IRS notice or letter, social security card, or credit card or utility statement.” The IRS gives an example of verifying the identity of a taxpayer who changed addresses in 2020 by: (1) inspecting the taxpayer’s 2019 tax return to verify their name and ITIN; and (2) viewing a utility statement to verify their address.
Identity verification is also required when submitting the forms on behalf of a business entity. The steps that third-party submitters must take in these situations largely mirror the authentication requirements for individual taxpayers (except, naturally, disregarding a date of birth and using the business entity’s employer identification number (EIN) instead of a SSN or ITIN). Third-party submitters must also “verify through documentation” the identity of an individual with an “authorized covered relationship with the business” entity. Examples of such relationships are listed in the instructions to the forms. There is an exception to the authentication requirements when the third-party submitter possesses “personal knowledge allowing the third party to authenticate the taxpayer’s identity,” for example from a “previous business relationship.”
While the move to electronically signed and submitted Forms 2848 and 8821 will undoubtedly raise issues that need ironing out, overall, the news is welcome. In the short term, these changes are essential safety measures; going forward, they should give taxpayers and tax professionals additional flexibility.
Dan Davidson is an associate at Kostelanetz & Fink, LLP. Destiny Reese is a paralegal intern at Kostelanetz & Fink, LLP and a graduating senior at Spelman College.
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