IRS Approves Temporary Use of Digital Signatures for Certain Forms

September 10, 2020

The US Internal Revenue Service (IRS) issued news release IR-2020-194 on August 28, approving the temporary use of digital signatures for certain IRS forms that must be filed with the IRS manually. Of note, this list of forms includes Form 8832, Entity Classification Election, which allows an eligible entity to elect how it will be classified for US federal tax purposes. The news release does not, however, cover Internal Revenue Code Section 83(b) election statements, which allows a taxpayer to elect to report income from the transfer of property for the performance of services in the year of such property transfer.

The news release provides a list of certain IRS forms (full list included below) that can be submitted with a digital signature if mailed to the relevant IRS service center address by or on December 31, 2020. The IRS further updated this list of forms on September 10, 2020 (these forms are also included below). In a June 12, 2020 IRS memorandum, IRS services and enforcement employees were notified that they can accept images of signatures (scanned or photographed) and digital signatures (those using encryption techniques) on certain documents including but not limited to “extensions of statute of limitations on assessment or collection . . . and any other statement or form needing the signature of a taxpayer or representative traditionally collected by IRS personnel outside of standard filing procedures.”

The news release expands the number of IRS forms that will be accepted with a digital signature to include specific tax forms filed through “standard filing procedures.” The news release only addresses digital signatures; thus, based on the distinctions drawn between images of signatures and digital signatures in the June 12 memorandum, the news release does not appear to cover scanned or photographed signatures.

The news release explains that the IRS has introduced this temporary change to reduce in-person contact, thereby lessening the risk of taxpayers and tax professionals falling ill during the coronavirus (COVID-19) pandemic. Thus, although these forms will still have to be mailed to the IRS, one layer of in-person contact is potentially removed by allowing digital signatures.

Digital signatures may also ease the administrative burden in having the relevant IRS forms executed. Form 8832, for example, often presents administrative difficulties when the form is for a non-US entity and the responsible party required to sign the form also is not located within the United States; in particular, there may be delays caused by the need to mail executed forms internationally, and even delays due to limited printer access. The news release also appears to confirm that the IRS has previously expected original “wet” signatures on Form 8832, as opposed to a scanned or photographed copy of the executed form.

Of note, the IRS does not specify which digital signature product tax professionals must use. As a result, it is not clear what security and anti–identity theft protocols should be used, if any, to verify the digital signature is true and accurate. However, the guidance provided by the IRS states that “[n]o specific technology is required for this purpose during this temporary deviation.”

Electronic Signing Requirements

In IRS announcement 2013-8, 2013-4 IRB 440, while also seeking public recommendations on “electronic signatures,” the IRS proposed five core electronic signing requirements:

  • A person (i.e., the signer) must use an acceptable electronic form of signature.
  • The electronic form of signature must be executed or adopted by a person with the intent to sign the electronic record (e.g., to indicate a person’s approval of the information contained in the electronic record).
  • The electronic form of signature must be attached to or associated with the electronic record being signed.
  • There must be a means to identify and authenticate a particular person as the signer.
  • There must be a means to preserve the integrity of the signed record.

Electronic signatures are permitted on Forms W-8. Under applicable Treasury Regulations, electronic signatures may be accepted by a withholding agent if (1) the act of the electronic signature is effected by the person whose name is on the electronic Form W-8, and (2) the signature must also authenticate and verify the submission. For this purpose, the terms “authenticate” and “verify” have the same meanings as they do when applied to a written signature on a paper Form W-8.

In light of the above guidance, for purposes of the news release (and the forms listed therein), taxpayers should consider using digital signature products that (1) must be effected by the required signatory; and (2) attach the digital signature to the form in the appropriate signature box.

To ensure the IRS accepts the signature, it might be helpful if the digital signature provides (1) the signatory’s name and title (if applicable); (2) the signatory’s email address; and (3) the date and time of the digital signature.

It would also be a helpful practice to ensure a record of the electronic transmission of the digitally signed form is securely saved, should further authentication be required at a later date.

IRS Commissioner Chuck Rettig has stated the IRS understands the importance of digital signatures to the tax community, and while balancing security and protection against identity theft and fraud, the IRS will review processes to determine where long-term actions can be made. While no guidance making digital signature options permanently allowable for the forms addressed in the news release has been released as of the date hereof, it is feasible based on Commissioner Rettig’s statements that more permanent guidance may be forthcoming. Morgan Lewis will continue to review this issue and publish updates as relevant.

Applicable Forms

While the news release does offer some relief to taxpayers, it is limited to the forms listed below and does not provide relief for other filings that taxpayers must sign and mail to the IRS, e.g., an Internal Revenue Code Section 83(b) election statement, which allows a taxpayer to elect to report income from the transfer of property for the performance of services in the year of such property transfer.

The following forms are listed in the news release:

  • Form 3115, Application for Change in Accounting Method[1]
  • Form 8832, Entity Classification Election
  • Form 8802, Application for U.S. Residency Certification
  • Form 1066, US Income Tax Return for Real Estate Mortgage Investment Conduit
  • Form 1120-RIC, US Income Tax Return For Regulated Investment Companies
  • Form 1120-C, US Income Tax Return for Cooperative Associations
  • Form 1120-REIT, US Income Tax Return for Real Estate Investment Trusts
  • Form 1120-L, US Life Insurance Company Income Tax Return
  • Form 1120-PC, US Property and Casualty Insurance Company Income Tax Return
  • Form 8453 series, Form 8878 series, and Form 8879 series regarding IRS e-file Signature Authorization Forms
  • Form 706, US Estate (and Generation-Skipping Transfer) Tax Return
  • Form 706-NA, US Estate (and Generation-Skipping Transfer) Tax Return
  • Form 709, US Gift (and Generation-Skipping Transfer) Tax Return
  • Form 1120-ND, Return for Nuclear Decommissioning Funds and Certain Related Persons
  • Form 3520, Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts
  • Form 3520-A, Annual Information Return of Foreign Trust with a US Owner

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Gregory Hartker
Sarah-Jane Morin

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Barton W.S. Bassett
Nicola Y. Liu

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Jennifer Breen
Eric Albers-Fiedler

[1] As of July 31, 2020, the IRS will temporarily accept the duplicate copy of Form 3115 via fax for taxpayers requesting consent to make a change in accounting method under the automatic method change procedures.