Obtaining, Handling and Processing Return Information from Taxpayers
An Electronic Return Originator (ERO) originates the electronic submission of returns it either prepares or collects from taxpayers who want to e-file their returns. An ERO originates the electronic submission of a return after the taxpayer authorizes the filing of the return via IRS e-file. The ERO must have either prepared the return or collected it from a taxpayer. An ERO originates the electronic submission by:
- Electronically sending the return to a Transmitter that transmits the return to the IRS;
- Directly transmitting the return to the IRS; or
- Providing a return to an Intermediate Service Provider for processing prior to transmission to the IRS.
The ERO must always identify the paid preparer (if any) in the appropriate field of the electronic record of returns it originates. The ERO must enter the paid preparer’s identifying information (name, address, Employer Identification Number (EIN), when applicable and Preparer’s Tax Identification Number (PTIN)). EROs may either transmit returns directly to the IRS or arrange with another Authorized IRS e‑file Provider (Provider) to transmit the electronic return to the IRS.
A Provider, including an ERO, may disclose tax return information to other Providers in connection with e-filing a tax return under Treas. Reg. §301.7216-2(d)(1). For example, an ERO may pass on return information to an Intermediate Service Provider or a Transmitter for the purpose of having an electronic return formatted or transmitted to the IRS.
An ERO that chooses to originate returns that it has not prepared, but only collected, becomes an income tax return preparer of the returns when, as a result of entering the data, it discovers errors that require substantive changes and then makes the changes. A non-substantive change is a correction limited to a transposition error, misplaced entry, spelling error or arithmetic correction. The IRS considers all other changes substantive, and the ERO becomes a tax return preparer. As such, the ERO may be required to sign the tax return as the tax return preparer.
Safeguarding IRS e-file From Fraud and Abuse
While all Providers must be on the lookout for fraud and abuse in IRS e-file, EROs must be particularly diligent while acting in their capacity as the first contact with taxpayers filing a return. An ERO must be diligent in recognizing fraud and abuse, reporting it to the IRS and preventing it when possible. Providers must cooperate with the IRS’ investigations by making available to the IRS upon request, information and documents related to returns with potential fraud or abuse. EROs can find additional information in the article Reporting Fraud and Abuse Within the IRS e-file Program.
Indicators of abusive or fraudulent returns may be unsatisfactory responses to filing status questions, multiple returns with the same address, and missing or incomplete Schedules A and C income and expense documentation. A "fraudulent return" is a return in which the individual is attempting to file using someone else’s name or SSN on the return or the taxpayer is presenting documents or information that have no basis in fact. A potentially abusive return is a return that the taxpayer is required to file but contains inaccurate information that may lead to an understatement of a liability or the overstatement of a credit resulting in a refund to which the taxpayer may not be entitled
An ERO that is also the paid preparer should exercise due diligence in the preparation of returns involving the Earned Income Tax Credit (EITC), as it is a popular target for fraud and abuse. Section 6695(g) of the Internal Revenue Code requires paid preparers to exercise due diligence in the preparation of returns involving EITC. Paid preparers must complete all required worksheets and meet all record keeping requirements.
Verifying Taxpayer Identification Numbers (TINs) (updated 7/28/2011)
To safeguard IRS e-file from fraud and abuse, an ERO should confirm identities and TINs of taxpayers, spouses and dependents listed on returns prepared by its firm. TINs include SSNs, EINs, Adopted Taxpayer Identification Numbers (ATINs) and Individual Taxpayer Identification Numbers (ITINs). To prevent filing returns with stolen identities, an ERO should ask taxpayers not known to them to provide two forms of identification (picture IDs are preferable) that include the taxpayer’s name and current address. Also, seeing Social Security cards, ITIN letters and other documents avoids including incorrect TINs for taxpayers, spouses and dependents on returns. Providers should take care to ensure that they transcribe all TINs correctly.
The TIN entered in the Form W-2, Wage and Tax Statement, in the electronic return record must be identical to the TIN on the version provided by the taxpayer. The TIN on the Form W‑2 should be identical to the TIN on the electronic return unless otherwise allowed by the IRS. The IRS requires taxpayers filing tax returns using an Individual Taxpayer Identification Number (ITIN) to include the TIN, usually a Social Security Number (SSN), shown on Form W-2 from the employer in the electronic record of the Form W-2. This may create an identification number (ITIN/SSN) mismatch as taxpayers must use their correct ITIN as their identifying number in the individual income tax return. The IRS' e-file system can accept returns with this identification number mismatch. EROs should enter the TIN/SSN in the electronic record of the Form W-2 provided to them by taxpayers. Software must require the manual key entry of the TIN as it appears on Form W-2 reporting wages for taxpayers with ITINs. EROs should ascertain that the software they use does not auto-populate the ITIN in the Form-W-2 and if necessary, replace the ITIN with the SSN on the Form W-2 the taxpayer provided.
Incorrect TINs, using the same TIN on more than one return or associating the wrong name with a TIN are some of the most common causes of rejected returns (see "Acknowledgements of Transmitted Return Data" in "ERO Duties After Submitting the Return to the IRS").
Additionally, Name Control and TINs identify taxpayers, spouses and dependents. A Name Control is the first four significant letters of an individual taxpayer’s last name as recorded by the Social Security Administration (SSA) or the first four letters/numbers of a business name. Having the wrong Name Control associated with a taxpayer’s TIN contributes to a large portion of TIN related rejects. The most common example for a return rejecting due to a mismatch between a taxpayer’s TIN and Name Control involves newly married taxpayers. Typically, the taxpayer may file using a correct SSN along with the name used in the marriage, but the taxpayer has failed to update the records with the SSA to reflect a name change. To minimize TIN related rejects, it is important to verify taxpayer TINs and Name Control information prior to submitting electronic return data to the IRS.
Be Aware of Non-Standard Information Documents
The IRS has identified questionable Forms W-2 as a key indicator of potentially abusive and fraudulent returns (see Safeguarding IRS e-file from Fraud and Abuse above). Be on the lookout for suspicious or altered Forms W-2, W-2G, 1099-R and forged or fabricated documents. EROs must always enter the non-standard form code in the electronic record of individual income tax returns for Forms W-2, W-2G or 1099-R that are altered, handwritten or typed. An alteration includes any pen-and-ink change. Providers must never alter the information after the taxpayer has given the forms to them.
Providers should report questionable Forms W-2 if they observe or become aware of them. See "Reporting Fraud and Abuse Within the IRS e-file Program".
Be Careful with Addresses
Addresses on Forms W-2, W-2G or 1099-R; Schedule C or C-EZ; or on other tax forms supplied by the taxpayer that differ from the taxpayer’s current address must be input into the electronic record of the return. Providers must input addresses that differ from the taxpayer’s current address even if the addresses are old or if the taxpayer has moved. EROs should inform taxpayers that when the return is processed, the IRS uses the address on the first page of the return to update the taxpayer’s address of record. The IRS uses a taxpayer’s address of record for various notices that it is required to send to a taxpayer’s "last known address" under the Internal Revenue Code and for refunds of overpayments of tax (unless otherwise specifically directed by taxpayers, such as by Direct Deposit).
Providers must never put their address in fields reserved for taxpayers’ addresses in the electronic return record or on Form 8453, U.S. Individual Income Tax Transmittal for an IRS e-file Return. The only exceptions are if the Provider is the taxpayer or the power of attorney for the taxpayer for the tax return.
Avoiding Refund Delays
EROs should advise taxpayers that they can avoid refund delays by having all of their taxes and obligations paid, providing current and correct information to the ERO, ensuring that all bank account information is up-to-date, ensuring that their Social Security Administration records are current and carefully checking their tax return information before signing the return.
EROs can do a number of things for clients and customers to avoid rejects and refund delays. Here are some suggestions:
- Insist on identification and documentation of social security and other identification numbers for all taxpayers and dependents;
- Exercise care in the entry of tax return data into tax return preparation software and carefully check the tax return information before signing the tax return;
- Don't submit returns claiming dubious items on tax returns or present altered or suspicious documents;
- Ask taxpayers if there were problems with last year’s refund; if so, see if the conditions that caused the problems have been corrected or can be avoided this year;
- Keep track of client issues that result in refund delays and analyze for common problems; counsel taxpayers on ways to address these problems.