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In this video, I will discuss four reasons a paid tax preparer maybe penalized by the IRS

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Today the IRS announced a new format for individual tax transcripts that will redact personally identifiable information from the Form 1040 series. This new transcript replaces the previous format and will be the default format available via Get Transcript Online, Get Transcript by Mail or the Transcript Delivery System for tax professionals as of September 23.

Financial entries will remain visible, which will give taxpayers and third-parties the data they need for tax preparation or income verification. Below you will find some of the highlights:

  1. The IRS also has created a new Customer File Number that lenders, colleges and other third parties that order transcripts for non-tax purposes can use as an identifying number instead of the taxpayer’s SSN.

  2. The IRS also will post an updated Form 4506-T and Form 4506T-EZ, Request for Transcript of Tax Return, that will have a new Line 5b for a 10-digit Customer File Number. Legitimate third parties with a need for income verification or tax data often request taxpayers complete a Form 4506-T.

  3. Third parties or taxpayers can create any 10-digit number, except for the taxpayer’s SSN, for use as an identifier. The Customer File Number listed on the 4506-T automatically will be posted and visible on the requested tax transcript, allowing the third party to match the document to the taxpayer.

  4. There is no change in the process for students seeking income verification through Free Application for Federal Student Aid (FAFSA) or disaster victims seeking FEMA assistance. Nor will business tax transcripts change

  5. The following information will be provided on the new transcript:

  • Last 4 digits of any SSN listed on the transcript: XXX-XX-1234

  • Last 4 digits of any EIN listed on the transcript:  XX-XXX-1234

  • Last 4 digits of any account or telephone number

  • First 4 characters of the last name for any individual

  • First 4 characters of a business name

  • First 6 characters of the street address, including spaces

  • All money amounts, including balance due, interest and penalties

Additional information you need to know:

  • Currently, the new transcript is only for individual transcript products.

  • For tax professionals, lenders and others with authorization to access the taxpayers’ transcripts, the IRS devised a Customer File Number that the requestor can assign to the taxpayer/transcript request and more easily match individuals and documents.

  • Students using the IRS Data Retrieval Tool through the Free Application for Federal Student Aid (FAFSA) process are not affected. You should follow the normal steps for student aid.

  • The new transcript has been socialized with all our stakeholders, including the banking industry, that require income verification for non-tax related purposes.  Your bank should accept the new transcript to verify your income.

  • Anyone with a need to know will be able to identify the person associated with the transcript. The SSN on a transcript will show last four digits, an individual name will show the first four letters.

For more information, click here to visit the IRS website.

This information has been brought to you by the #IRS

Are you ready to get the training that you need in order to gain the knowledge to prepare a quality tax return? Are you tired of taking classes and still walking away confused? Are you ready to take a class that will teach you how to prepare taxes, law tax laws and other information in a way that is easily understood? If you said, yes to any of these questions, then click here to learn how you can enroll in our upcoming class.

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Updated: Aug 14, 2018

Apply for your EFIN now

EFIN or EFIN number also known as Electronic Filing Number is required by any tax preparer who anticipates preparing and filing 11 or more Forms 1040 during a calendar year unless the preparer or a particular return is administratively exempt from the e-file requirement or the return is filed by a preparer with an approved hardship waiver according to the IRS.

Here are the seven tips to keep in mind when applying for your EFIN.

  1. Apply early. If you are planning or thinking about opening a tax office, you should consider applying for your efin early. Although the IRS list on their website that it can take up to 45 days for approval, it has taken longer for some. The IRS is known for having glitches and experiencing issues, therefore, to avoid the havoc, apply early.

  2. An EFIN is not the same as EIN. There has been confusion for new tax business owners whether an EIN and an EFIN are the same thing. The answer is NO. EINs are attached to your business. It is similar to your business social security number. An EFIN is a business social security number in the tax industry. It is the authority that you need to operate a tax business. It also tracks the number of tax returns you file, who files under your EFIN, it provides the IRS with the information about the tax returns that are filed under that number.

  3. One EFIN is issued per office. One only EFIN can be used at a location. Therefore, if you plan on having more than one location, you need more than one EFIN.

  4. You are responsible for tax returns filed under your EFIN. As an EFIN owner, you are liable for the tax returns filed under your office, therefore, make sure you have an audit process in place and your tax team is getting the adequate training in order to comply with Circular 230.

  5. Determine your legal structure before applying for an EFIN. You must decide if you are going to apply for an EFIN with your social security or as a sole proprietorship or a legally registered business. If you apply as a legal business, you will need your EIN and the business name exactly as registered with the IRS.

  6. You can not apply for a Bank product with an EFIN. A bank product is used if your tax client is not paying their tax preparation fee out of pocket. When you apply for a bank product, the taxpayer's refund goes directly to a third party bank. That bank will then distribute the tax business their tax preparation fees and other fees that belong to them, additional fees from the bank, transmittal company, software company, and any other fees that may apply, then the client will receive the additional refund. Some taxpayers may desire to pay their tax prep out of pocket in order to avoid any other fees.

  7. You can not use a professional tax software with an EFIN. Once you receive your EFIN then you will be able to electronically file the tax return through the professional tax software. However, can you not official use the professional tax software until you receive your EFIN.

  8. They IRS will check your background. According to the IRS, after your submit your application and related documents, the IRS will conduct a suitability check on the firm and each person listed on your application as either a principle or responsible official. This may include: a credit check, a tax compliance check, a criminal background check, and a check for prior non-compliance with IRS E-file requirements.

Are you ready to apply for your EFIN number? If you are, click here to get started.

If you are looking for professional software, you can request a free demo by sending an email. Click here To start your EFIN application, watch this quick 5 minute video by clicking here.

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