Electronic Return Originator (ERO): Your Gateway to E-Filing

Why This Matters for the Exam

The role of the ERO is central to the e-filing ecosystem. On the exam, you'll see questions about ERO duties, timelines (especially the 3-day rule), and what constitutes prohibited "stockpiling." Understanding the distinction between an ERO and a preparer (PTIN holder) is also critical.

The IRS holds EROs to strict standards because they act as the gatekeeper between taxpayers and the IRS systems. Violating ERO rules can result in suspension or prohibition from e-filing.

What Is an ERO?

Electronic Return Originator (ERO) - An IRS-authorized e-file provider who originates the electronic submission of tax returns. The ERO is typically a tax preparation firm or individual practitioner who has applied for and received an EFIN (Electronic Filing Identification Number).

ERO vs. Preparer: Key Distinction

• Preparer (PTIN holder): The individual who prepares the tax return. Must have a Preparer Tax Identification Number (PTIN).
• ERO (EFIN holder): The entity/individual authorized to transmit returns electronically. Must have an Electronic Filing Identification Number (EFIN).

One person can be both (solo practitioner with PTIN and EFIN), or they can be separate (preparer works for an ERO firm).

The Five Core Duties of an ERO

Duty #1: Verify Taxpayer Identity

The ERO must take reasonable steps to ensure the person signing the return is the actual taxpayer. This typically involves:

• Photo ID Inspection: Examining a government-issued ID (driver's license, passport).
• Comparing Signatures: Matching the signature on Form 8879 to the ID.
• Knowledge-Based Authentication: For remote filing, using security questions or two-factor authentication.

Why It Matters: Identity theft is a major concern in tax preparation. The IRS holds EROs accountable for failing to verify identity, especially in cases of fraud.

Duty #2: Provide a Complete Copy of the Return

The ERO must provide the taxpayer with a complete copy of the return before it is filed. This includes:

• All forms and schedules.
• The signature authorization (Form 8879).
• Any supporting documents that were e-filed (e.g., PDF attachments).

Common Mistake: Some EROs only provide a "summary" or "1040 only" without schedules. This violates IRS rules.

Duty #3: Obtain Signed Authorization (Form 8879)

The ERO cannot transmit a return until they have a signed Form 8879 from the taxpayer. The form serves as the electronic equivalent of the taxpayer's signature on a paper return.

Key Rules:

• The form can be signed physically (wet signature) or electronically (e-signature with appropriate safeguards).
• The signature date must be on or before the transmission date.
• If the return changes materially (> $50 refund/tax due, or > $14 withholding), a new Form 8879 must be signed.

Duty #4: Transmit Within 3 Calendar Days

Once the ERO receives a signed Form 8879, they must transmit the return to the IRS within 3 calendar days. This rule prevents "stockpiling."

Example:

• Monday, April 10: Taxpayer signs Form 8879.
• Deadline: Thursday, April 13 (3 calendar days later).

Weekends and holidays count as calendar days. If the ERO receives the form on Friday, the 3-day clock includes Saturday and Sunday.

Exception: If the IRS e-file system hasn't opened for the season yet (typically late January), EROs can hold returns until the system opens. This is the only exception to the 3-day rule.

Duty #5: Maintain Records

The ERO must retain Form 8879 and other authorization documents for 3 years from the return due date or filing date, whichever is later.

What Is "Stockpiling"?

Stockpiling - The prohibited practice of accumulating signed returns and transmitting them in a large batch, rather than within 3 calendar days of receipt.

Why It's Prohibited:

• Delays refunds for taxpayers.
• Creates a backlog if the ERO's systems fail.
• Increases the risk of returns being filed after the deadline if there are technical issues.

Exam Trap: Students often think "stockpiling" refers to keeping paper records. It doesn't—it specifically means delaying electronic transmission.

ERO Responsibilities Table

On the Exam

Expect 2-3 questions on ERO duties, typically:

1. Timeline Questions: "An ERO receives a signed Form 8879 on Monday. When must they transmit?"
2. Stockpiling Questions: "What is the prohibited practice of accumulating returns called?"
3. Identity Verification: "What must an ERO do before filing a return?"

The key is to remember: 3 calendar days to transmit after receiving the signed authorization.