Operational compliance is mandatory for all Electronic Return Originators (EROs). Failure to adhere to IRS standards results in penalties, EFIN suspension, or business closure. This guide identifies seven common operational mistakes and provides technical solutions for correction.
1. Mishandling EFIN Security and Access
The Electronic Filing Identification Number (EFIN) is non-transferable. Many EROs allow unauthorized staff or third-party preparers to use their EFIN without updating the IRS e-file application. This is a direct violation of IRS Publication 1345.
The Fix:
Update your IRS e-file application to include all responsible officials and delegated users. Perform an annual EFIN tracking report through your IRS e-services account to verify the number of returns filed under your EFIN matches your internal records. If you are scaling your business, review the TIG Tax Pros services for structured ERO support.
2. Absence of a Written Information Security Plan (WISP)
IRS regulations require all tax professionals to implement a Written Information Security Plan. Operating without a documented WISP subjects the firm to Federal Trade Commission (FTC) Safeguards Rule violations.
The Fix:
Draft and implement a WISP that outlines how your firm protects taxpayer data. Refer to IRS Publication 5708 for the Information Security Plan template. This document must be reviewed annually and updated as technology or staffing changes occur.
3. Improper Execution of Form 8879
Transmitting a return before obtaining a signed Form 8879, IRS e-file Signature Authorization, is a common compliance error. EROs often accept verbal authorization or digital signatures that do not meet identity authentication standards.
The Fix:
Ensure a physical or legally compliant digital signature is obtained before any data transmission. The ERO must sign the form and provide a copy of the completed return to the taxpayer. Store these forms for a minimum of three years from the return due date or the date filed.
4. Failure to Perform Due Diligence (Form 8867)
For returns claiming the Earned Income Tax Credit (EITC), Child Tax Credit (CTC), or Head of Household status, due diligence is a statutory requirement. Relying solely on client statements without asking follow-up questions or requesting supporting documents leads to significant preparer penalties.
The Fix:
Complete Form 8867 for every applicable return. Maintain copies of all worksheets and documents used to determine eligibility. Standardize your intake process to ensure all preparers follow identical verification steps. Professional development resources are available through the TIG Tax Pros portal to train staff on these requirements.
5. Inadequate Record Retention Protocols
EROs must maintain copies of all signed forms and supporting documentation. Digital storage is acceptable, but it must be secure and easily accessible for IRS inspections. Inconsistent filing systems lead to lost data and audit failures.
The Fix:
Implement a centralized digital document management system. Organize files by tax year and taxpayer name. Ensure the system includes daily off-site backups and follows the encryption standards outlined in your WISP. Retain records for at least three years, though some state laws may require longer periods.
6. Neglecting E-file Reject Management
Failing to monitor and correct rejected returns promptly results in missed deadlines and client dissatisfaction. Many EROs do not have a dedicated workflow for handling acknowledgment codes.
The Fix:
Assign a specific staff member to review acknowledgment reports daily. When a return is rejected, notify the taxpayer within 24 hours. Correct the error and retransmit immediately. If the rejection cannot be resolved electronically, follow the paper-filing procedures outlined by the IRS. Proper service bureau support can streamline this process for high-volume offices.
7. Improper Handling of Refund Deposits
Routing client refunds into a preparer’s personal or business account is prohibited. Even with client consent, this practice triggers immediate EFIN suspension.
The Fix:
Refunds must be deposited into an account in the taxpayer's name. If your business offers bank products, ensure you use a vetted third-party financial institution. Transparently disclose all fees associated with refund transfers or bank products. For professionals looking to formalize their operations, becoming a TIG Tax Pros partner provides access to compliant banking and software solutions.
SEO Title: 7 Mistakes You're Making with ERO Operations (and How to Fix Them)
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Excerpt: Learn the top 7 operational mistakes Electronic Return Originators make and how to implement professional fixes to ensure IRS compliance and business growth.
Tags: ERO Operations, Tax Business Management, IRS Compliance, Tax Professional Training