Electronic Signatures (E-Signatures) became
effective in the United States on October 1, 2000 when Congress passed the
Electronic Signatures in Global and National Commerce Act ("ESIGN
Act"). ESIGN was enacted
specifically to ensure that any agreement signed electronically will not be
denied legal force, effect, validity, or enforceability solely because an E-Signature
was used in its formation. As a result,
online E-signatures, in both personal and commercial transactions, have been
granted the same legal status as a written signature – so they are now the legal
equivalent of hand written signatures.
Most accounting firms have clients that have
recently purchased a home using E-Signature technology. That’s because we are seeing a rapid
acceleration of E-Signature usage in the real estate, mortgage, healthcare, insurance,
communications, recruiting and other industries through broad based E-Signature
solutions such as Adobe EchoSign and DocuSign.
These solutions were designed for mass markets and do not meet the needs,
demands and workflow requirements of the tax & accounting industry. However, with the recent release of at least
one tax & accounting specific E-Signature solution, they can now be used
across a wide range of both client facing and internal firm documents.
Using E-Signatures in the Tax & Accounting Industry
For firms that are embracing E-Signatures, they typically
start by sending annual engagement letters or §7216 consent forms to clients, or
annual independence surveys to their staff.
These documents are ideal candidates for E-Signature technology because
they are often standardized forms, need annual signatures, can be batch
processed with mail merge functionality for a higher efficiency gain and the
signers can sign remotely from any PC, laptop, tablet or smart phone. Firms are reporting that they can process these
documents at a fraction of the cost of mailing hard copies. They are receiving
E-Signed documents back from their clients and staff in less than seven minutes
and the overall workflow process is significantly improved.
As for other client facing documents, firms are also
sending management representation letters, audit representation letters, A/R
and A/P confirmations, new client acceptance forms, payroll processing forms, and
Forms W-9 and 4506-T for E-Signature. They
are also sending credit card authorization forms to accelerate cash
collections. As for other internal
documents, firms are also sending IT policy forms, partnership agreements,
internal routing sheets, and a wide variety of human resource related documents
including offers of employment, Forms W-4 and I-9, employee handbooks, medical,
dental, insurance and 401k forms for E-Signature.
The IRS and Form 8879
The biggest demand
for using E-Signatures in the tax & accounting profession is on Form
8879. The IRS currently does not accept
E-Signatures on Form 8879, even though they are rarely, if ever, submitted to
the IRS. They are simply retained on
file by the taxpayer and the ERO for a period or three years. The instructions in Form 8879 do not specifically
address the use of E-Signatures, but there is a single sentence in Publication
1345 that states "This does not alter the
requirement that taxpayers must sign Form 8879 and Form 8878 by handwritten
signature.” This is actually quite ironic since the entire premise of
e-filing tax returns is to reduce paper based tax return filings. The only step to e-filing a tax return that
requires paper is the requirement for the taxpayer to print, sign and send back
On January 23, 2013, the IRS issued Internal Revenue Bulletin
2013-4, Announcement No. 2013-8 seeking recommendations for appropriate
E-Signature standards in the tax & accounting profession. They stated "E-signature standards will promote efficiency, reduce burden and
improve identity proofing methods to confirm the identity of the signer”. Unfortunately, we do not know when the
IRS will provide formal approval or the specific requirements for using
E-Signatures on Form 8879. Many industry thought leaders feel it will be at
least two more years before we get the final approval.
So are firms using E-Signatures on Form 8879 anyways? Yes, and with tremendous success. I’m not saying that you should do it, but for
the firms that are, they are basing their decision on the following points:
- The ESIGN Act of 2000 makes E-Signatures legal
- Effective January 2013, the IRS is allowing
E-Signatures on Form 4506-T and §7216 consent.
- At least one large tax vendor is currently in an
E-Signature pilot program with the IRS on Form 8879
- The purpose of e-filing tax returns is to reduce
paper based processes and create efficiency for the taxpayer, tax preparers and
the IRS. Requiring a handwritten
signature from the taxpayer on Form 8879 is the only part of the e-filing
process that requires anyone to print a piece of paper.
- Most tax & accounting firms spend countless
hours and thousands of dollars tracking and managing manually signed Form(s)
- Form 8879 is rarely, if ever, submitted to the
IRS. It is required to be maintained on
file by the taxpayer and ERO for 3 years.
- The benefits outweigh the risks.
- IRS solicited industry feedback with Announcement
Top Considerations When Choosing an E-Signature Solution
Every industry vertical has its own set of
document types and workflow requirements surrounding the E-Signature
process. Your firm should look for a solution
that is tax & accounting specific.
For example, your staff should be able to quickly send documents for
E-Signature while classifying each document with accounting specific workflow
and reporting data such as Document Type, Engagement Type, Tax Year and
Partner. Your solution should provide
firm wide reports that are accessible by all members of your firm and provide
for centralized management of the E-Signature process. For example, firm administrators and partners
should have complete visibility over every document sent for E-Signature within
their firm. They should be able to quickly
sort, filter and search to send reminders, view documents and download final
signed documents of other users.
Accounting firms often need to mail merge and batch process documents
requiring signatures. Examples include
annual engagement letters and §7216 consent for clients, and annual
independence surveys for staff. Your
solution should provide the tools necessary to mail merge and batch process hundreds
of documents for E-Signature with the click of a button. To effectively accomplish this, your solution
should provide for text tags in documents to automate the signature placement
process. Otherwise, your staff will need
to manually drag and drop the signature location into each document.
Finally, be careful of monthly subscription fees. Most providers have "reasonable use clauses”
which restrict the number of documents that can be sent monthly per licensed user. Accounting firms tend to have seasonal
demands and can quickly surpass the reasonable use clauses, resulting in higher
monthly fees. To obtain the full
benefits of your E-Signature solution, you should license all members of your
firm so they have access to the real time reporting, tracking and management
features. As a result, we recommend
solutions that allow free licenses to all members of your firm, and then bill
based on the actual number of documents sent for E-Signature.
Steve Dusablon is the President and CEO of
cPaperless, LLC, a software company that develops paperless solutions for tax
and accounting firms. cPaperless
partnered with Adobe EchoSign to develop CPA SafeSign, the first to market
E-Signature solution, designed specifically for the tax
and accounting industry. To learn how
CPA SafeSign can help your firm leverage E-Signature technology, please send
inquiries to firstname.lastname@example.org,
call (800) 716-2558 Ext. 100 or attend a Free CPE Webcast