Here's the thing most tax professionals get wrong: ERO and EFIN aren't competing options. They're two parts of the same system you need to electronically file tax returns.
This misconception costs tax preparers time and confusion when building their practice. Let's clear it up.
What ERO and EFIN Actually Are
Electronic Return Originator (ERO) = Your role as an authorized tax professional who can submit returns electronically to the IRS.
Electronic Filing Identification Number (EFIN) = Your six-digit ID number that proves you're authorized to e-file.
Think of it this way: ERO is your job title. EFIN is your employee ID badge. You can't do the job without the badge.
Why You Need Both (Not One or the Other)
Every ERO must have an EFIN to function. No exceptions.
Without an EFIN, you cannot:
- Submit returns electronically
- Access IRS e-file systems
- Offer modern tax preparation services
- Compete with other tax professionals
The IRS requires this identification system to track who's filing what. It protects taxpayers and maintains system security.
How to Become an ERO and Get Your EFIN
The application process combines both elements into one submission.
Step 1: Meet Basic Requirements
- Hold appropriate tax preparation credentials
- Pass IRS suitability check
- Maintain physical office location
- Carry adequate insurance coverage
Step 2: Submit Form 8633
Complete the e-file Application for Electronic Return Originators. This single form covers both ERO status and EFIN assignment.
Step 3: Background Check
The IRS reviews your:
- Criminal history
- Tax compliance record
- Financial responsibility
- Professional conduct
Step 4: Testing Requirements
Pass the required knowledge tests covering:
- Tax law basics
- E-file procedures
- Security protocols
- Record-keeping rules
Your Responsibilities as an ERO with EFIN
Once approved, you're accountable for specific duties.
Client Verification
Confirm taxpayer identity before filing. Check ID documents and verify information accuracy.
Return Security
Protect client data through encryption and secure storage. Follow IRS data protection standards.
Timely Filing
Submit returns by deadlines. Monitor transmission status and resolve any rejections.
Record Maintenance
Keep detailed records for three years minimum. Make them available for IRS review when requested.
Annual Renewal
Update your e-file application each year through IRS e-Services. Maintain current business information.
What Happens If You Lose Your EFIN
EFIN suspension or revocation shuts down electronic filing operations immediately.
Common reasons for EFIN problems:
- Compliance violations
- Security breaches
- Fraudulent activity
- Failure to respond to IRS notices
Recovery process can take months. During that time, you cannot e-file returns, which severely limits your business.
Alternative Options for Tax Professionals
Option 1: Work Under Another ERO
Partner with an established tax office that has ERO status. You prepare returns under their EFIN.
Benefits:
- No application process
- Lower startup costs
- Shared compliance burden
Drawbacks:
- Revenue sharing required
- Less business control
- Dependency on partner
Option 2: Use Third-Party ERO Services
Some companies offer ERO services to independent preparers.
Benefits:
- Quick setup
- Professional support
- Compliance assistance
Drawbacks:
- Per-return fees
- Limited customization
- Ongoing costs
Option 3: Paper Filing Only
Prepare returns for paper submission to IRS.
Benefits:
- No ERO requirements
- Lower overhead
- Simple operations
Drawbacks:
- Slower processing
- Limited client appeal
- Reduced efficiency
Cost Analysis: Direct ERO vs Alternatives
Direct ERO/EFIN Costs:
- Initial application: $0
- Annual renewal: $0
- Software licensing: $200-2,000
- Insurance requirements: $500-1,500
- Office setup: $1,000-5,000
Third-Party ERO Costs:
- Per-return fees: $2-15
- Setup charges: $50-500
- Monthly minimums: $25-100
Break-even point typically occurs around 50-100 returns annually.
Making the Right Choice for Your Practice
Choose Direct ERO/EFIN If:
- Planning 100+ returns annually
- Want full business control
- Have compliance experience
- Can meet office requirements
- Comfortable with IRS oversight
Choose Alternatives If:
- Starting with fewer returns
- Prefer simpler setup
- Want shared compliance support
- Testing tax preparation market
- Limited startup capital
Application Timeline and Planning
Month 1-2: Preparation
Gather required documents and complete application forms. Arrange office space and insurance coverage.
Month 2-3: Submission
Submit Form 8633 and supporting materials. Begin background check process.
Month 3-4: Review
IRS processes application and conducts suitability review. Respond promptly to any requests.
Month 4-5: Testing
Complete required knowledge tests. Schedule and pass all examinations.
Month 5-6: Approval
Receive EFIN assignment and ERO authorization. Set up e-file software and systems.
Plan for 4-6 months from application to operation. Start early in the year for next tax season readiness.
Common Mistakes to Avoid
Incomplete Applications
Missing documents delay approval. Submit complete packages initially.
Address Changes
Notify IRS immediately of business location changes. Address mismatches cause problems.
Software Integration
Test e-file connections before busy season. Resolve technical issues early.
Record Keeping
Establish organized filing systems from day one. Poor records create compliance risks.
Next Steps for Your Tax Practice
If You Want ERO Status:
- Review IRS requirements on Form 8633 instructions
- Prepare necessary documentation
- Submit application 4-6 months before needed
- Plan for testing and approval timeline
If You Prefer Alternatives:
- Research local ERO partnerships
- Compare third-party service costs
- Evaluate per-return fee structures
- Choose option matching your volume
For Current EROs:
- Verify annual renewal completion
- Update business information changes
- Review compliance procedures
- Plan for next season requirements
The choice between direct ERO status and alternatives depends on your practice size, growth plans, and operational preferences. Both ERO authorization and EFIN assignment work together to enable electronic filing. Understanding this relationship helps you make informed decisions for your tax preparation business.
Start your planning now. Tax season preparation requires time, and IRS applications take months to process.