When you file your taxes as an individual, you usually use your social security number. But when you’re preparing taxes for others or businesses, you require a distinct identifier as a tax preparer, not a taxpayer. This special identifier, known as an Electronic Filing Identification Number (EFIN), is employed by the IRS to protect clients, monitor the returns you handle, and ensure adherence to tax laws.
Understanding EFIN
An EFIN is for tax preparers who work on clients’ tax returns. It shows that you’ve finished the IRS e-file application to become an authorized IRS e-file provider. It’s different from an Employer Identification Number (EIN), which many businesses have. An EFIN assures your clients that you’ve passed suitability checks and meets IRS filing rules.
Difference Between EFIN and EIN, and Why You Need Both
The EIN and EFIN usually belong to the business or its owner. The EIN identifies the company, and if there are employees, the EIN is used. EFINs are only needed by businesses that prepare and e-file tax returns.
The business owns the EFIN, not the employee. All tax preparers working for the business must meet suitability requirements to keep the EFIN and use IRS-recommended tax software.
EFIN Users
Only authorized individuals who have passed the suitability test should access the EFIN. If the number is compromised, meaning someone unauthorized has used it, report it immediately.
You can verify the number of filed returns listed by the IRS with your records to ensure they match.
If the IRS detects a discrepancy first, they’ll reach out to the EFIN owner. They’ll deactivate the compromised EFIN and provide a new one.
If an employee leaves or the business dissolves, reapplication is necessary for continued use of the EFIN.
E-file Application
The e-file application requires listing the responsible official, principals, and preparers involved in the tax preparation process. This ensures transparency and accountability within the tax preparation operation.
● The Responsible Official: This individual oversees the e-file operation, communicates with the IRS, and is authorized to make changes and updates to the application. They bear ultimate responsibility for all tax returns filed from that location, including managing personnel changes.
● The Principals: Principals are individuals empowered to act on behalf of the business entity in legal matters. This includes sole proprietor owners, business partners holding 5% or more interest in the company, or corporate officers.
● The Preparer: This individual seeks authorization to submit tax returns through the IRS e-file system, undertaking the responsibility of preparing tax documents.
Application for an EFIN
Applying for an EFIN involves two stages: creating an e-services account with the IRS and completing the EFIN application process. It’s essential to start the process well in advance of the tax season, as approval can take time.
EFIN Suitability Screening
The IRS conducts suitability screening to ensure tax preparers handle sensitive financial information responsibly. This includes credit checks, criminal background checks, and verification of compliance with tax regulations.
Obtaining an EFIN is a critical step for tax preparers, providing legitimacy and assurance to clients while ensuring compliance with IRS regulations. By understanding the purpose and process of acquiring an EFIN, tax preparers can navigate the complexities of tax filing with confidence and integrity.
source: https://ultimatetax.com/blog/7-frequently-asked-questions-about-efins/
Comments
Download this infographic.