For the more than 40 forms that cannot be e-filed, the IRS permits paper filing of those forms with an electronic or digital signature through a temporary policy through October 31, 2023. While the IRS makes no distinction between electronic and digital signatures, taxpayers who choose to paper file should carefully consider the differences in these types of signatures when relying on an authorized representative or paid preparer to file those forms on their behalf. Paid preparers are required by law to sign in the paid preparer’s area of the return and give the taxpayer a copy of the return.
A digital signature is a certificate-based digital ID that allows the signer to encrypt a signed document, validating the authenticity of the signature and prohibiting further changes after the document is signed. Digital signatures safeguard taxpayers against changes being made after they have approved a form.
Digital signatures use a digital certificate that is embedded in the document and locks the document from further edits. This creates a reliable document history for verification of authenticity and provides a safeguard against preparer manipulation or tampering after a taxpayer has signed a form. Digital signatures can also be applied without having to print and rescan the document.
Creating a digital signature requires dedicated software, however there are many types that are available at no cost. Obtaining a unique digital certificate to sign documents requires verifying the identity of the signer. That process can vary based on the issuer of the digital certificate, and may require a one-time validation of a government-issued photo ID. The software may also require creating a PIN that the user must enter each time a digital signature is applied to a document.
An electronic signature, on the other hand, is an image of a typed or scanned signature. With electronic, or ink signatures, an unscrupulous tax preparer could alter the form to adjust the entries or direct a tax refund to a bank account controlled by the unscrupulous preparer.
An electronic signature can take many forms. According to the U.S. Electronic Signatures in Global and National Commerce Act, an e-signature is broadly defined as an “electronic sound, symbol, or process attached to or associated with a contract or other record and executed or adopted by a person with the intent to sign a record.” In simple terms, an electronic signature indicates intent to ratify a document. The IRS accepts a wide variety of e-signatures in various formats including:
In addition, the IRS accepts images of scanned or photographed signatures which can be submitted in various file formats supported by Microsoft 365. Electronic signatures can be typed, scanned, and even stamped digitally onto electronic forms by computers or even mobile devices. However, electronic signatures can also easily be forged, as these signatures can be scanned and photographed. Further, documents signed with an electronic image can also be tampered with after a taxpayer approves the form with an electronic signature. This is where a digital signature adds additional security for taxpayers.
Various document processing platforms, like Microsoft Word, Adobe, and DocuSign, offer digital signature technology for its users. Tax forms may be opened on these platforms to input a digital signature. While from the signer’s perspective the implementation of this technology may look different across the platforms, what remains constant is that the digital signature provides an additional layer of security to a document and creates a digital audit trail. Digital signatures can also facilitate more secure document exchanges between taxpayers and those submitting their forms to the IRS.
TAS continues to advocate for the expansion of e-signatures to all documents that require a signature and cannot be e-filed, providing taxpayers with the freedom to interact with their tax preparers remotely if that is their preferred method. The IRS continues to explore various options for extending electronic signature options but remains committed to balancing security and protection against identity theft and fraud. In my Annual Report to Congress, I advocated for the IRS to develop and implement enhanced electronic signature tools to not only meet industry security standards, but also provide taxpayers with more accessible and secure service. With this recommendation, we hope that the IRS expands opportunities for taxpayers to use more secure digital signature services.
The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.