e-Filing One Step at a Time
In filing season 2010, taxpayers e-filed more than 93 million federal individual tax returns—that’s 72 percent of all 1040 returns filed. The remaining 28 percent of returns—almost 36 million—were submitted the old-fashioned way: on paper.
Were you among the millions of paper-filers? Despite the growing prevalence of, and preference for, electronic filing nationwide, many tax preparers are still delivering paper returns—to be signed by hand, stuffed in an envelope, and stamped and mailed before midnight on April 15. Many preparers—and taxpayers—remain hesitant to e-file. Some wonder if e-filing is dependable or safe. Others have reservations about how e-filing will affect their business. And many of us simply do not like change.
Change is here, however. In late 2009, Congress approved a mandate that will have many traditional paper-filers using the IRS e-file system for the first time. This mandate, which applies to tax preparers who preparer federal individual and trust returns, will be phased in over two years, as follows:
- Starting January 1, 2011, those who anticipate preparing 100 or more federal individual and trust returns in a calendar year must e-file.
- Starting January 1, 2012, those who anticipate preparing more than 10 federal individual and trust returns in a calendar year must e-file.
If your firm hasn’t yet begun e-filing and you’re among the firms that will prepare 100 or more returns next year, it’s time to think about the 2011 filing season and to take the steps necessary to equip your office for e-filing. To start this process, you’ll need to apply for your Electronic Filing Identification Number (EFIN).
How Do I Apply for an EFIN?
Your firm must be an Electronic Return Originator (ERO) in order to get an EFIN and begin e-filing. An ERO is a type of authorized e-file provider (a business or organization authorized to e-file tax returns) that originates the electronic submission of tax returns to the IRS. Most tax preparers fall into the category of ERO. The application to participate in the IRS e-file program includes a box to indicate an ERO status for your firm.
To apply, complete and submit the following materials to the IRS:
- Form 8633, Application to Participate in the IRS e-file Program
- Fingerprint cards for each principal and responsible official of the company. These may be obtained by emailing our Education Department: Education@DrakeSoftware.com.
Fingerprints must be taken by a trained specialist using IRS–authorized cards. To obtain fingerprint cards, contact the IRS at (866) 255-0654. Fingerprints are not required for those who can provide evidence of professional status as an attorney, CPA, EA, officer of a publicly held corporation, or banking official who has been bonded and fingerprinted within the last two years.
While fingerprint cards must be mailed to the IRS, you can submit Form 8633 by mail or online.
Applying by Mail. Mail your completed Form 8633 and IRS–authorized fingerprint cards (if applicable) to the IRS’s Andover Campus:
Regular Mail Overnight Mail
Internal Revenue Service Internal Revenue Service
Andover Campus Andover Campus
Attn: EFU Acceptance Attn: EFU Acceptance
Testing Stop 983 Testing Stop 983
P.O. Box 4099 310 Lowell Street
Woburn, MA 01888-4099 Andover, MA 05501-0001
Applying Online. With the IRS’s e-Services site, available in the “Tax Professionals” section of the IRS website (www.irs.gov), tax preparers have an easy way to complete and submit Form 8633 online. (Remember, you’ll still need to obtain and submit fingerprint cards separately.)
Create an e-Services Account. In order to use e-Services, you must register and set up an account. If other individuals will be listed on Form 8633 as the company’s principals or responsible official, they must also register to use e-Services.
The IRS requires the following information of all e-Services applicants:
- Legal name, Social Security Number, date of birth, phone number, e-mail address, and home mailing address
- Adjusted gross income for the current or prior tax year
- Username, password, and personal identification number (PIN), along with the answer to a reminder question for the username
Within several days, each applicant receives a confirmation code, sent by U.S. Mail to the home address provided. Once you receive your code, you must return to the e-Services site within 28 days to confirm your registration.
Submit Provider Application. Once all principals and the responsible official have been approved for e-Services, your firm should complete and submit Form 8633 via the e-Services site.
So, I’ve Applied. Now What?
After the IRS receives your application and related documents, it runs a suitability check on your firm, and on each principal and responsible official. A suitability check might encompass checks on credit, tax compliance, criminal background, and prior noncompliance with e-filing requirements. If the results indicate that the firm, or any of those listed as principals or responsible officials, does not meet the IRS e-file requirements, the IRS may refuse to grant an EFIN to the firm. In most cases, the denied applicant can appeal the decision through an Administrative Review; see IRS Pub. 3112 for more information on appeals.
If your firm passes the suitability check, the IRS sends an acceptance letter that includes your firm’s new EFIN. The firm is now an authorized e-file provider and can electronically submit tax returns to the IRS.
Here are some tips from the IRS for passing a suitability check:
- If you are aware of potential suitability issues, correct them before they become problems.
- Update any addresses and phone numbers on Form 8633 as changes occur.
- Respond promptly and in writing with thorough explanations and documentation to any suitability-related letters you receive.
How Long Does It Take to Get an EFIN?
The application process can take up to 45 days. Once you’ve received your EFIN, however, you should allow more time to become acquainted with e-filing processes, rules, and regulations. (See “It’s Time to Get Started,” below, for a list of resources.) In addition, if you do not already have a reliable Internet connection or use a tax-preparation software product with e-filing capabilities, you will need to begin researching your options for both of these items.
What if I Can’t—or Don’t Want to—e-file?
Unable to e-file? There are legitimate reasons that some preparers cannot e-file tax returns—for example, if e-filing would cause undue hardship for a firm, or if a client, even after being told of the benefits of e-filing (see “Hesitant to e-file?” below), elect not to e-file. While the IRS has established procedures for opting out of e-filing for business returns, it has yet to issue guidance regarding e-filing of 1040 returns under the new mandate. Be aware that waivers for preparers will likely be granted on a case-by-case basis and could be very hard to get. Individual taxpayers, on the other hand, will probably have an easier time opting out.
Hesitant to e-file? If you’re still hesitant to e-file—despite the mandate—keep in mind that e-filing offers many benefits, to both your firm and your clients:
- Returns are processed faster and with fewer errors
- Less contact with the IRS is needed
- Refunds can be directly deposited into your client’s account more quickly
- Clients with a balance due can schedule an electronic funds transfer (EFT) from their account for a date they determine
- Clients can use a credit card to pay a balance due
- As a preparer, you save money on costs of printing and mailing.
- The federal government saves money, too. According to a recent U.S. Treasury study, it costs the federal government $2.87 to process a paper-filed return (totaling $190.6 million annually), while it’s only $0.35 to process an e-filed return.
- E-filing is secure. Since the IRS e-file system was developed in 1986, more than 400 million returns have been e-filed—without a single security incident. With its multiple firewalls, built-in security features, and state-of-the-art virus and worm detection, the IRS e-file system meets or exceeds all government security standards. In addition, most e-filed returns are transmitted via secured phone lines, with the information converted into digital format that cannot be easily read if intercepted.
It’s Time to Get Started
Don’t wait until the last minute; start the application process now, and allow yourself plenty of time to become acquainted with the e-filing process, and with the rules and regulations that apply. You can begin by using the following resources:
- IRS Pub 3112, IRS e-file Application and Participation
- IRS Pub 1345, Handbook for Authorized e-file Providers of Individual Income Tax Returns
- IRS e-Services tutorials and help resources at www.irs.gov
- IRS e-Help desk at (866) 255-0654
See IRS Pub. 3112 for more information