Internal Revenue Service Guidelines for Electronic Signatures
The Internal Revenue Service (IRS) is organized to carry out the
responsibilities of the secretary of the Treasury under section 7801 of
the Internal Revenue Code. The secretary has full authority to
administer and enforce the internal revenue laws and has the power to
create an agency to enforce these laws. The IRS was created based on
this legislative grant. Compliance to the Department of Treasury
regulations is available here.
The IRS uses electronic signatures during the e-filling of online tax forms (more IRS information
on e-file). The IRS uses a Personal Identification Number (PIN) to
identify and electronically sign the submitted forms. Treasury Reg.
301.6061-1. The IRS also allows for the use of electronic records and
signatures in the course of doing business. PrivaSign is compliant with
the IRS guidelines as well as other State and Federal E-Sign laws.
26 CFR Part 1
Section 1.1441-1(e) (available online)
(4)(iv) Electronic transmission of information —(A) In general. A withholding agent may establish a system for a beneficial owner or payee to electronically furnish
a Form W–8, an acceptable substitute Form W–8, or such other form as
the Internal Revenue Service may prescribe. The system must meet the
requirements described in paragraph (e)(4)(iv)(B) of this section. A
withholding agent may accept Forms W–8 that are furnished
electronically on or after January 1, 2000, provided the requirements
of paragraph (e)(4)(iv)(B) of this section are met.
A good electronic signature system allows individuals to
electronically transfer and sign virtually any file type. A business
could use esign to deliver and sign an "acceptable substitute Form W–8" as described in these regulations.
(B) Requirements—(1) In general. The electronic system must ensure that the information received is the information sent,
and must document all occasions of user access that result in the
submission renewal, or modification of a Form W–8. In addition, the
design and operation of the electronic system, including access
procedures, must make it reasonably certain that the person accessing
the system and furnishing Form W–8 is the person named in the Form.
These are also definitions of authentication and identification in
direct connection to latter repudiation of the signatory. These two
concepts go hand in hand. The stronger your authentication methods are,
the less risk you have regarding non-repudiation. It is best to
the user yourself. After all it is your client or business partner you
are signing the file with and you know if Steve is Steve, or if he is
really someone else.
Misrepresentation is not exclusive to the electronic world, as a
person could walk into your office and sign a document, claiming to be
someone they are not. This requires businesses to establish
authentication based on things they know. A business is really seeking
a way to make the signature capturing process an extension of their
current business process.
By issuing the appropriate licenses directly to your client, as
opposed to using third party vendor verification, a good electronic
signature system helps you to strengthening your case against
repudiation. One assumes you know your client or business partner and
therefore your authentication of their identity through a recognized email address, phone number and IP address
is inherently more compelling than a third party vendor verification
that you have never seen. A compliant electronic signature system uses secure usernames, passwords and email based ID to controll access to the files and signature to only authorized users.
(4)(v) Withholding statement—(A) In general -
...The withholding statement may be provided in any manner the
nonqualified intermediary and the withholding agent mutually agree, including electronically.
If the withholding statement is provided electronically, there must be
sufficient safeguards to ensure that the information received by the
withholding agent is the information sent by the nonqualified
intermediary and all occasions of user access that result in the
submission or modification of the withholding statement information
must be recorded. In addition, an electronic system must be capable of providing a hard copy of all withholding statements provided by the nonqualified intermediary.
The perfect electronic signature service is compliant with (4)(v)'s
capablility of "providing a hard copy" because the service is available
to anyone with internet access and an email address. It works on
virtually every operating system and web browser. This allows esign
files to truly be available to all. The system stores all files for a
minimum of amount of time, the sender may have to pay for additional
storage. During that time both sender and recipient may download the
file so that they may be in compliance with any applicable laws. This
downloaded file can be saved to their computer, saved to a portable
medium (CD, DVD or others) AND even printed to paper
as required in this regulation. PrivaSign captures file integrity
hashes so that all parties can verify the integrity of saved files.
§ 31.3402(f)(5)-1 Form and contents of withholding exemption certificates.
(c)(2)(iii)(B) Electronic signature. The electronic signature must identify the employee
filing the electronic Form W–4 and authenticate and verify the filing.
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–4. An electronic signature can be in any form that satisfies the foregoing requirements. The electronic signature must be the final entry in the employee's Form W–4 submission.
A perfect system is compliant as it both identifies and
authenticates the signatory and it is in a form that satisfies the laws
and regulations of State and Federal agencies.
§ 31.6053-1 Report of tips by employee to employer.
(3) Signature. The electronic tip statement must be signed by
the employee. The electronic signature must identify the employee
transmitting the electronic tip statement and must authenticate and
verify the transmission. For this purpose, the terms authenticate and
verify have the same meanings as they do when applied to a written
signature on a paper tip statement. Any form of electronic signature that satisfies the foregoing requirements is permissible.
Electronic Transmission of Form W-8 - The IRS provides guidance to withholding agents and payors who wish to establish an electronic system
(as regulated in the above cited 26 CFR) for use by beneficial owners
or payees in furnishing Form W-8. A proposal of these guidelines is available online at the IRS website.
1. Type and Design of System Determined by Withholding Agent or Payor Subject to Specific Requirements.
The withholding agent or payor may determine the type of system
(such as telephone or computer) available for that purpose. The system
must, however, (1) reliably identify the user, (2) ensure that the
information received is the information sent, and (3) document
occasions of user access that result in a submission, renewal, or
modification of the withholding certificate.
A good electronic signature system uses File Integrity Hashes
that can be used by all parties to the electronic record to verify that
no changes or errors have occurred and therefore is compliant with (2).
The system should capture all relevant information regarding the
electronic transaction and displays this to all participants, making it
compliant with (3). This means capturing when the message was sent and
actually viewed. The exact time of when the file was downloaded should
also be captured. Once the users have signed the file, a Receipt Confirmation Page should be produced for all participants summarizing these details.
2. Relationship Between Paper and Electronic Withholding Certificate.
The electronic transmission must contain exactly the same
information as the paper Form W-8 (or such other form as the IRS may
prescribe). Any guidance, such as regulations or instructions, that
applies to the paper Form W-8 also applies to electronically
Using File Integrity Hashes that can be used by all parties to the electronic record helps to verify that no changes or errors have occurred.