The IRS gives VITA volunteers a special manual helpfully telling them not to use apostrophes when entering names in tax prep software. (Pub 4012, Tab 1, page 3)
The IRS also tells its own employees to leave apostrophes out when transcribing paper returns.
As far as I can tell, it still doesn't tell the general public not to use apostrophes when preparing their tax returns.
And, apparently, this CPA didn't get the message either.
And Redwood City CPA Michael O'Connor said that when he e-filed his own 2003 tax statement, the IRS website bounced it several times. Apparently, the system would not accept the apostrophe in his name. He noted that he always had included the apostrophe on paper returns in previous years.
IRS employees never enter apostrophes in names when transcribing paper returns, according to Ted Meyer, compliance program manager for the IRS Small Business, Self-Employed Division.
It's possible that your tax-filing software will automatically reject or strip the apostrophes out for you, but it's probably safer not to enter the apostrophe in the first place.
It seems like a small matter, but a rejected e-file could delay your refund (or create even bigger head-aches like the one my husband and I experienced with our return some years ago, in which leaving the apostrophe in my name apparently convinced the IRS that my husband was claiming a non-existent spouse.)
The IRS apparently wants the letters in the name on a 1040 to match up character by character with the letters in the corresponding Social Security record, but even if your name according to Social Security records has an apostrophe, the IRS computers may have trouble processing it correctly.
The IRS apparently has no difficulty dealing with processing W-2s and 1099's containing apostrophes, but apostrophes on Form 1040 can create problems.
Of course, it goes without saying that the IRS has no problem depositing checks with apostrophes printed on them! But the refund checks it issues to us have a space where the apostrophe should be! Fortunately, my bank isn't picky.