Best practices: E-filing

The current standards and requirements of e-filing tax returns do not permit a preparer to simply click “e-file” when a client’s return is ready for transmission to the tax authorities. Of course, there are several critical steps before and after that e-file moment that a preparer must address to mitigate risk of noncompliance or error. This article identifies some possible best practices for e-filing in an accounting firm.

Delivery and receipt of Form 8879: Say no to e-mail

Before a preparer can e-file a client’s tax return, the client must provide to the preparer an executed Form 8879, IRS e-file Signature Authorization. In many cases, e-mail is the most convenient method to deliver the Form 8879 to the client and for the client to return it to the accountant. The most convenient method, however, does not necessarily mean the best method.

E-mail communications are susceptible to having their contents disclosed to unintended recipients. E-mail encryption is one method employed to combat against such disclosures. Although an accounting firm may take steps to ensure its outgoing e-mails are encrypted, the same cannot be said for incoming e-mails. A client’s promise that the e-mails are encrypted is an insufficient standard for a firm to rely on to prevent a client’s highly sensitive and personal information from unintended disclosure.

A more conservative and secure approach to deliver and receive Form 8879 would be to physically mail the form along with the tax return to the client for review. In the same package, the accounting firm may include a return envelope or fax cover sheet. That way, the client has the option to either mail or fax the executed Form 8879 back to the accounting firm for e-filing approval.

E-mail is undoubtedly a tempting method to handle Form 8879 requirements in order to efficiently run operations during an accounting firm’s busy season. Efficiency can come at a significant expense, though. Potential exposure to the firm is possible if sensitive client information is revealed to unintended recipients as a result of non-encrypted e-mail communication.

Monitoring system

Inevitably, some client’s e-filed tax returns will be rejected by the agency. An efficient system for addressing such rejections during the peak of tax season is critical for any accounting firm.

The IRS and state tax agency have detailed “perfection periods” to rectify rejected electronic returns. These rules must be taught to the appropriate staff to ensure the perfection periods are utilized as appropriate.

Depending on the firm size, at least one person per office should be dedicated to monitoring the status of e-filed returns. A second person should be ready to fill in if the person responsible becomes unavailable. During busy season, daily to weekly reports should be generated for each partner with an update on the status of each e-filed return.

Written manual

The above discussion demonstrates the need for an accounting firm to at least consider developing a written manual on a firm’s procedures for all steps involved related to e-filing. A manual can take many forms and, of course, is tailored to the firm’s existing practices. A combination of the following components would likely be effective:

  • Goals of procedures
  • Flowcharts of procedures
  • Detailed explanations of procedures
  • Separate individual, business and fiduciary procedures
  • Templates and checklists
  • List of resources, including employees, websites, agencies, accounting software assistance, research tools, etc.

A written manual comes in handy not only for training staff, but also to show tax authorities the competency of a firm’s practices. The latter purpose could be especially important in the event of an error that results in asserted penalties or heightened scrutiny from the authorities.

Conclusion

An accounting firm cannot take lightly its approach to e-filing clients’ tax returns. A firm should implement measures to prevent unintended disclosures of sensitive client information to unintended recipients and to timely e-file all returns within its control. The failure to deliver on these professional practices could expose the firm to unnecessary risk.

For more information on this topic, or to learn how Baker Tilly tax specialists can help, contact our team.


The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely.  The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax structure of any transaction or matter that is the subject of this communication and any attachments.