The IRS expanded a couple programs to protect taxpayers from identity theft.
Masking identifying information on business tax transcripts
The IRS now masks sensitive data on both business and individual tax transcripts. In an effort to protect taxpayers from identity theft, the IRS began masking sensitive data on individual tax transcripts two years ago, and in December, began masking identifying information on business tax transcripts as well.
A tax transcript is a summary of a tax return and is used in a variety of ways, including by tax professionals to prepare prior tax returns or to represent their clients in the event of an audit. Lenders and others use tax transcripts for income verification purposes as well.
The following is what is visible on the new tax transcript:
- Last four digits of any Employer Identification Number listed on the transcript: XX-XXX1234
- Last four digits of any Social Security number or Individual Tax Identification Number listed on the transcript: XXX-XX-1234
- Last four digits of any account or telephone number
- First four characters of the first, and last name for any individual (first three characters if the name has only four letters)
- First four characters of any name on the business name line
- First six characters of the street address, including spaces
- All money amounts, including wage and income, balance due, interest and penalties
For both the individual and business tax transcript, there is space for a Customer File Number. The Customer File Number is an optional 10-digit number that can be created usually by third parties that allow them to match a transcript to a taxpayer. The Customer File Number field will appear on the transcript when that number is entered on Line 5 of Form 4506-T, Request for Transcript of Tax Return, and Form 4506T-EZ.
This is how it works for a taxpayer seeking to verify income for a lender:
- The lender will assign a 10-digit number, for example, a loan number, to the Form 4506-T. The Form 4506-T may be signed and submitted by the taxpayer or signed by the taxpayer and submitted by the lender.
- The Customer File Number assigned by the requestor on the Form 4506-T will populate on the transcript. The requestor may assign any number except the taxpayer’s Social Security number or Employer Identification Number.
- Once received by the requester, the transcript’s Customer File Number serves as the tracking number to match it to the taxpayer.
More information about masking tax transcripts can be found at IRS.gov’s e-Services page and at News Release Number IR-2020-254.
Expanded Identity Protection PIN Program
The IRS has also expanded its Identity Protection PIN Opt-In program. The IP PIN is a six-digit code known only to the taxpayer and the IRS that helps prevent identity thieves from filing fraudulent tax returns using taxpayers’ personally identifiable information.
The IP PIN program has been available almost 10 years in various states, but the IRS has now expanded it nationwide. Here are a few key things about the program:
- This is a voluntary program.
- You must pass a rigorous identity verification process.
- Spouses and dependents are eligible for an IP PIN if they can verify their identities.
- An IP PIN is valid for a calendar year.
- You must obtain a new IP PIN each filing season.
- The online IP PIN tool is offline between November and mid-January each year.
- Correct IP PINs must be entered on electronic and paper tax returns to avoid rejections and delays.
- Never share your IP PIN with anyone but your trusted tax provider. The IRS will never call, text or email requesting your IP PIN. Beware of scams to steal your IP PIN.
- There currently is no opt-out option but the IRS is working on one for 2022.
If you are interested in securing an IP PIN for 2021, use the Get an IP PIN tool at IRS.gov/IPPIN . You should immediately receive your 2021 IP PIN once you have authenticated your identity. This PIN must be used when prompted by electronic tax returns or entered by hand near the signature line on paper tax returns.
Taxpayers who verify their identities through this process will have an IP PIN mailed to them each following tax year for security reasons.
You can visit IRS.gov/IPPIN for additional details.
Pat Herrera, EA, is a Specialist on our Business & Tax Advisory Group. She can be reached at firstname.lastname@example.org.