Questions to Ponder About New IRS E-file Requirements

UPDATE 5/22/14: The IRS has clarified the rules. Click here for more info.

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I have questions for the IRS regarding the ridiculous new e-file requirements that make me get a photo ID and run a credit report on my clients. Here they are, in no particular order:

Question One: How does this work for business and not-for-profit clients?

My largest client is a not-for-profit that is headquartered in another state. They’d like to e-file their 990, which is currently on extension. They’ll be signing the e-file authorization in their office, which is a long ways away from my office.

How does the photo ID and credit report part work for clients like this?

Am I supposed to do a credit check on the person who signs the form on behalf of the organization?

For corporate clients, am I supposed to do a credit check on the officer who signs?

What if this officer is also a individual income tax client? Do I have to run a credit check a second time when I do the personal return? Or can I just do it once and use the same credit report both times?

Question Two: If a client returns the following year, do I have to run a credit check again?

Say these stupid rules hold up. So Client A comes to me in 2015 to prepare their 2014 tax return and I pull a credit report to verify that they are who they say they are.

Client A returns to me in 2016 to prepare their 2015 tax return. All of their information is the same. The client looks the same. Do I need to pull another credit report? I’m guessing the answer is yes, but some clarification would be nice.

Question Three: Why have you said nothing about these new requirements?

The IRS e-file handbook was quietly updated a few weeks ago. Apparently the changes take place immediately. Meaning, for 2013 tax returns that are on extension.

Why has the IRS said nothing about these new requirements? The silence is bizarre.

Question Four: Does the IRS understand that people’s credit might get dinged from pulling credit reports?

My attorney pointed out that typically, a person’s credit score gets dinged every time a credit report is pulled. Has the IRS contemplated this potentially negative consequence?

Question Five: Speaking of my attorney, he said it’s probably not legal to pull credit reports anyway. Did the IRS consider this?

In many states, a person’s credit report can only be pulled to evaluate the person’s creditworthiness for a loan. My attorney is looking into what Iowa’s laws say. Is the IRS aware that the IRS may be asking accountants in many states to violate state law in order to be compliant with the new requirements?

(PS, my attorney’s exact words when I told him about these new rules were: “That’s just stupid.”)

Question Six: On a related note, is it good for tax pros to see a client’s credit score?

How does one look at a credit report while not letting one’s eye wander to the credit score? The credit score is none of my business but it seems impossible to avoid knowing what a client’s credit score is, no matter how hard I might try not to look at that part of the report.

Question Seven: How would a credit check foil an ID thief?

The photo ID part I kinda sorta get. But if a thief has a person’s name, SSN, date of birth, etc. — as a sophisticated ID thief probably does, then what would the credit report tell me that would alert me to an identity thief?

Question Eight: How many ID thieves use a tax pro?

I’m sure some ID thieves do go to tax pros. But I’m guessing most ID thieves use TurboTax or some other means to file the fraudulent return(s) without going to a tax pro. So how is are these new requirements you’re placing on me going to stop identity theft?

“This blog post, along with comments that may follow, should not be considered tax advice. Before you make final tax or financial decisions, please secure a professional tax advisor to give you advice about your unique situation. To secure Jason as your accountant, please click on the ‘Services’ link at the top of the page.”

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