New tax transcript practice

The IRS and its Security Summit partners have achieved much success in combating identity theft (see “Tax Matters: IRS Touts Progress Against Taxpayer Identity Theft,” JofA, Jan. 2018). However, an area identified by this group as still needing more safeguards is the dissemination of tax transcripts.

Accordingly, effective Sept. 23, 2018, the IRS began redacting personally identifiable information from transcripts (see IRS News Release IR-2018-171, issued in August 2018, and Fact Sheet FS-2018-16, issued in September 2018). Specifically, taxpayer identifying numbers, including Social Security numbers (SSNs), employer identification numbers, account numbers, and telephone numbers now display only the last four digits. The last name and business name display only the first four characters. The street address is six characters, including spaces. All money amounts are fully disclosed. Also effective Sept. 23, 2018, a revised Form 4506-T, Request for Transcript of Tax Return, and Form 4506T-EZ, the short-form request, include a new line 5b, where a 10-digit customer file number created by the requester is shown. This is also available as an option on the e-Services Transcript Delivery Service (TDS). The customer number populates onto the transcript so requesters can match the transcript to the taxpayer. These changes apply to individual taxpayers only and not business transcripts.

At the same time, the IRS announced it would stop faxing transcripts to both taxpayers and third parties sometime in January 2019.

Tax practitioners asked the IRS to reconsider these changes (see, e.g., the Nov. 20, 2018, letter from Annette Nellen, Esq., CPA, CGMA, chair, AICPA Tax Executive Committee, to IRS Commissioner Charles P. Rettig, available at aicpa.org. In response, the IRS on Dec. 19, 2018, announced revised procedures (see News Release IR-2018-256 and Fact Sheet FS-2018-20).

First, the IRS delayed its planned end to faxing transcripts. Second, it provided a method for authorized tax practitioners to obtain an unredacted wage and income transcript immediately upon request electronically, described below.

The end to faxing transcripts applies to individuals and business taxpayers. When taxpayers or third parties call the IRS with an individual or business transcript request, the transcript will be delivered by postal mail to the taxpayer’s address of record within five to 10 business days and not to the practitioner address on Form 2848, Power of Attorney and Declaration of Representative. One of the reasons for this change is that many fax service providers are not on a secure line, and the IRS cannot independently confirm whether the line is secure or the identity associated with the fax number, both of which could allow identity theft.

Furthermore, around May 2019, the IRS will stop mailing transcripts to third parties listed on line 5a of Form 4506-T and Form 4506T-EZ. This field will be eliminated from the form. The transcripts will be mailed to the taxpayer’s address of record within five to 10 business days. Third parties who routinely use Form 4506-T or Form 4506T-EZ to obtain tax transcripts for income verification purposes should consider contracting with a participant in the Income Verification Express Service.

The IRS Data Retrieval Tool through the Free Application for Federal Student Aid is not affected by any of the above.

The IRS suggests tax professionals first try to obtain client information such as Form W-2, Wage and Tax Statement, and other income documents directly from clients. Also, representatives can ask clients to access the IRS’s Get Transcript online service to immediately obtain a redacted wage and income transcript by download, or the IRS will print and mail it to the taxpayer’s address of record.

Tax practitioners, including CPAs, attorneys, and enrolled agents also can register for the IRS e-Services tools to obtain access to the TDS for tax professionals. With appropriate authorization on file, practitioners subject to Circular 230, Regulations Governing Practice Before the Internal Revenue Service (31 C.F.R. Part 10), can have instant access to tax transcripts. E-services users must create an account to verify their identity. These accounts are protected by Secure Access, a two-factor authentication process.

The IRS also suggests using the TDS to obtain a redacted, or “masked,” wage and income transcript. In reality, however, to prepare a tax return, preparers often will need to retrieve unmasked wage and income transcript information to obtain the full employer tax identification numbers and other critical information. Since Jan. 7, 2019, tax professionals who meet the requirements have been able to request an unmasked wage and income transcript. The unmasked transcript will be sent only to the practitioner’s e-Services Secure Object Repository (SOR).

The practitioner must:

• Have a Centralized Authorization File (CAF) number in good standing; and
• Have an e-Services account and access to the SOR, which is the e-Services secure mailbox.

Tax practitioners who meet those requirements should:

• Call the Practitioner Priority Service line (866-860-4259);
• Authenticate their identity with CAF number, SSN, and date of birth;
• Fax a completed authorization form (if needed);
• Request an unmasked wage and income transcript; and
• Access the e-Services secure mailbox to receive the unmasked wage and income transcript.

There are alternatives, including, if the preparer does not have an e-Services account or SOR access, to request that the unmasked wage and income transcript be mailed to the client’s address of record.

Sebastian B. Murolo, CPA, MBA, CMB, is an assistant professor at Queensborough Community College CUNY in Bayside, N.Y.

To comment on this article or to suggest an idea for another article, contact Paul Bonner, a JofA senior editor, at Paul.Bonner@aicpa-cima.com or 919-402-4434.