Q: With most tax returns being e-filed, has CAMICO noticed any trends in e-filings not going through? If so, what advice do you have for policyholders to prevent or address these situations?
A: CAMICO has observed a rise in issues with e-filed tax returns, including processing failures and fraudulent filings. To address these challenges, firms should employ a combination of preventive measures, effective handling of rejected filings, fraud mitigation strategies, and client involvement.
Firms can enhance their internal processes by implementing standardized procedures for all e-filings. Assigning specific personnel to oversee e-filings helps maintain accountability, while requiring a final review of critical details—such as Social Security Numbers (SSNs), Taxpayer Identification Numbers (TINs), and banking information—minimizes errors. Additionally, tracking and logging all e-filings, including submission dates, acceptance statuses, and error messages, is essential to ensuring successful e-filing and helps identify patterns or recurring issues.
When e-filings are rejected, firms should act quickly and systematically. The IRS or state tax authority typically provides a rejection code that explains the reason for the rejection. Staff should be trained to interpret these codes and know how to address the identified errors. Common rejection reasons include incorrect SSNs, mismatched TINs, or discrepancies in prior-year Adjusted Gross Income (AGI). Once the issue is identified, firms should promptly correct the error and resubmit the return. Monitoring resubmissions ensures that the corrected returns are accepted and processed without delay. If rejections occur frequently, firms should assess their internal processes to identify and resolve systemic issues.
If the rejection is due to incorrect information provided by the client, firms should promptly notify the client, request accurate information, make the necessary corrections, and thoroughly document all communications.
If the rejection is due to a fraudulent return, the resolution process is more complex and requires immediate action. Firms should assist clients in contacting the IRS Identity Theft Protection Unit to report the fraudulent filing and may need to guide clients through submitting IRS Form 14039, Identity Theft Affidavit, to formally document the issue. Clients should also be advised to obtain an Identity Protection PIN (IP PIN) to secure future filings. Firms should work with the IRS to ensure the legitimate return is submitted and accepted, providing all necessary documentation to resolve the fraudulent activity. Throughout this process, firms should work with clients and offer guidance on additional measures, such as monitoring their credit, reporting identity theft to the Federal Trade Commission (FTC), and strengthening their data protection practices.
In addition to firms checking the IRS e-Services account for number of returns filed with the firm’s EFIN, clients can also play a vital role in ensuring successful e-filing outcomes. Firms should encourage clients to use the IRS “Where’s My Refund?” tool shortly after filing—typically within a couple of weeks—to confirm that their returns have been accepted and processed.
To help combat fraudulent filings, firms should advise clients to safeguard personal information and beware of phishing scams. Firms can also share resources such as IRS Publication 4524: Security Awareness for Taxpayers and Publication 5423: Identity Theft Information to promote data security. In addition, firms can advise clients that filing early can help reduce the opportunity for fraudsters to exploit their information.
Firms should bolster cybersecurity by training staff to recognize phishing scams and implementing strong passwords, multi-factor authentication, and encryption. Refer to IRS Publication 5293: Protect Your Clients; Protect Yourself for additional guidance. This Data Security Resource Guide for Tax Professionals is intended to provide a basic understanding of minimal steps to protect client data. Strengthening cybersecurity measures is critical to protecting client data and firm systems.
By implementing these strategies, firms can greatly reduce the risks associated with e-filing errors and fraud while effectively managing rejected filings.
