Tax season 2018: IRS rules that make e-signatures legally binding

Like it or not, tax season is upon us: a time of year when the only thing more painful than paying your dues is filing endless paperwork.

The Internal Revenue Service (IRS) predicts that nearly 155 million individual returns will be processed in 2018. That’s a lot of taxpayers. The good news is that you can use e-signatures to simplify the back-and-forth required by tax return paperwork. In fact, the IRS strongly encourages people to file their tax returns electronically to receive a faster refund.

E-signatures make the process so seamless and convenient that the number of e-filed returns skyrocketed from just 25,000 in 2014 to nearly 100 million in 2017.

The Complete Guide to Electronic Signature Laws around the World

But before you head out and sign up for an e-signature service, there is one critical consideration to keep in mind: choose a solution that will keep your confidential data secure, especially given the fact that over 2.7 million taxpayers reported identity theft in 2014.

The best way to go about ensuring your security is to choose an e-signature solution that meets the IRS mandates for e-signatures. Here are 3 rules that the IRS has laid out detailing what e-signature solutions must do in order to promote security:

1) Identify the taxpayer who signed the document

The e-signature solution must record each signer’s personal information, such as date of birth, name, social security number, and address.  It also verifies the taxpayer’s identity by checking if the information provided by the taxpayer is consistent with that provided via record checks with credit bureaus or similar databases.

In the case of a remote signer, the e-signature solution must use knowledge-based authentication (KBA) to verify the identity of the taxpayer. This process typically involves asking the signer a series of detailed questions that are generated from information found in public databases. This information is typically not known by anyone other than the signer.

In keeping with the requirements put forward by the National Institute of Standards and Technology, the e-signature solution must keep a record of the signer successfully passing this form of authentication test. However, if a signer doesn’t clear it in 3 tries, he or she must authorize the documents with a handwritten signature.

2) Ensure e-signature validity while keeping the document tamper-proof

In order to maintain the integrity of these electronic records, the e-signature solution must ensure that the e-signature provided by the taxpayer is a valid one. This is accomplished by linking the e-signature to the respective electronic record.

Also, one should not be able to remove, copy, or transfer the e-signature to falsify a digital record. In other words, the e-signature solution must leverage techniques to prevent the document from being modified in any manner.

3) Offer a digital paper trail

In order to comply with IRS mandates, the e-signature solution must record a digital image of the signed form. It must also include other details such as the date and time at which the signature was made, the taxpayer’s IP address, his or her username (login details), and the KBA results showing the completed identity verification process.  

It is also critical to ensure that the esignature solution that you choose offers a digital audit trail that reflects the completion of the entire process by the signer. This way, the Electronic Return Originator (ERO) will be able to hand over the digital trail to the IRS if needed.  

While the adoption of e-signature solutions for tax documents is still in its early stages, one cannot ignore the fact that this technology holds great promise in terms of making the entire process far more convenient.

If you are looking for an e-signature solution that can make this tax season a lot more bearable, check out SignEasy today!

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