The most recent tax season is just one example of how technology has transformed a common business transaction that millions of Americans partake in annually, as 91 percent of taxpayers filed their returns electronically in 2016, and that percentage is expected to increase for 2017.
This includes forms 8878 and 8879, which authorize an electronic return originator (ERO) to e-file tax returns to the IRS. Until 2015, those forms could only be accepted with handwritten signatures or signatures captured on signature pads.
But even these forms can now be submitted digitally – and remotely – as long as the signature technology meets the IRS’s strict security and authentication qualifications.
We expect to see the uptick in digital signature usage to continue well beyond tax season. Here are three driving forces behind the rise in the use of digital signature technology and why it’s quickly replacing the traditional, wet ink signature required on sensitive documents in years past:
1. Speed. Today’s society values speed more than any generation before. We read breaking news updates as they unfold online, text our friends and family, and send emails rather than mailed letters. With speed as such a priority in our daily lives, it’s no wonder that we’re finding new ways to eliminate cumbersome paper processes.
E-signatures are the answer for a quick, smooth, paper-free tax-filing process. With e-signatures, you can digitally send all of the necessary documents to your clients in a fraction of the time it would take to be distributed manually (it can now take seconds instead of days). Paper pushing is dramatically reduced, and the entire workflow process speeds up.
2. Convenience. Just as society’s methods of communication have advanced, so have the legally binding signatures we use. Although the IRS introduced electronic filing in 1986, it wasn’t until the addition of electronic signatures in 2014 that the number of e-filed returns skyrocketed (from just 25,000 during that inaugural year to nearly 100 million in 2017), as both tax preparers and consumers saw how e-signatures made the process much more convenient.
Filing taxes is not a task most consumers look forward to, but making the process as glitch-free and convenient as possible can greatly improve customer satisfaction. With e-signatures, tax preparers can bypass printing, mailing, or faxing forms because customers can electronically view, sign, and submit their returns and other forms, including an 8879, remotely – saving time and money. As a result, clients can complete their returns quickly, and tax preparers can efficiently serve more customers.
3. Security. As digital threats rise, it’s likely that customers have concerns about the security of the e-filing process. The IRS has gone to great lengths to ensure the security of e-signed tax returns and has a number of compliance requirements that must be met.
In addition, certain types of online signatures – specifically digital signatures – provide greater levels of security than a basic e-signature, so it’s important to be aware of what type of e-signature you use to execute tax returns.
For example, traditional email communication is not secure enough to send and receive tax documents that contain sensitive information, such as Social Security numbers and financial records. Independent E-Signatures™, however, allow tax preparers to securely access tax documents with complete confidence that the forms are protected from security threats.
The IRS’s first e-filing compliance requirement states that the identity of the signer must be verified. There are several ways to do this, and many firms require their customers to complete both of the following authentication methods (known as multifactor authentication):
- Email authentication: The signer proves his identity by opening a link found in his email, proving he has access to that email account.
- Knowledge-based authentication (KBA): Before accessing the document, the signer is prompted to enter his date of birth and Social Security number. Once the correct information is input, he is then prompted to answer a set of four questions based on a database of 30 years of public records. The IRS requires this type of identity authentication when remotely e-signing forms 8878 and 8879.
After proving his identity, the signer is required to consent to receive and sign documents electronically. To ensure further security, the IRS requires that the signed tax documents be tamper-evident to protect their integrity. With tamper-evident technology found in digital signatures, there is always proof if an unauthorized user has altered a document.
The IRS also calls for signed documents to be accompanied by a complete audit trail that logs detailed information throughout the entire signing process, such as the date and time of a document’s execution, the IP address of the signer, and more.
Finally, the IRS requires that the audit trail and any associated documents be kept on file for at least two years. Because e-signatures are used to facilitate these transactions, the documents no longer have to be stored in filing cabinets. They can be saved digitally – reducing paper usage and saving storage space for both you and your clients.
Thanks to the IRS’s acceptance of digital signatures and its dedication to security, clients can quickly and easily sign in confidence knowing their information is safe. And that combination of speed, convenience, and security has resulted in more digital signatures being used in tax season and beyond.
About Pem Guerry
Pem Guerry is the executive vice president at SIGNiX, an Independent E-Signature™ solutions provider that makes signing documents online safe, secure, and legal for any business. SIGNiX offers an independently verifiable cloud-based digital signature solution, which combines workflow convenience with superior security.