Financial Regulations Regarding Use of Truncated Taxpayer Identification Numbers Published
BACKGROUND
In its continuing effort to deter identity theft on payee statements and certain other documents, the IRS will now allow the use of TTINs in lieu of taxpayer identification numbers (“TIN”). TINs include the following types of identification numbers:
- Taxpayer’s individual taxpayer social security numbers (“SSN”),
- IRS individual taxpayer identification numbers (“ITIN”),
- IRS adoption taxpayer identification numbers (“ATIN”), and
- Employer identification numbers (“EIN”).
TTINs will assist in making taxpayer data more secure, as TTINs display only the last four digits of a taxpayer identification number, replacing the first five digits with either an asterisk (*) or the letter X. As noted in the final regulations, “These regulations affect persons that furnish or receive payee statements and other documents that the Internal Revenue Code, regulations, or other published guidance requires to be furnished to another person to the extent that a TTIN may appear in lieu of the SSN, ITIN, ATIN, or EIN of the payee or document recipient.”
In Notice 2009-93, the IRS, concerned about identity theft, introduced a voluntary pilot program whereby filers of information returns were permitted to truncate TINs on certain paper payee statements (Forms 1098, 1099, and 5498) for calendar years 2009 and 2010. In Notice 2011-38, the pilot program was subsequently extended to include calendar years 2011 and 2012 and the pilot program was modified to remove Form 1098-C from the list of documents in which a TTIN may be utilized.
On January 7, 2013 proposed regulations with respect to the use of TTINs were published in the Federal Register. The proposed regulations included particular guidelines for using TTINs as outlined above. One significant departure from the pilot program, in response to comments received, the proposed regulations allow for the use of TTINs on electronic payee statements in addition to paper payee statements.
FINAL REGULATIONS
The final regulations make the use of TTINs a permanent part of payee reporting. These regulations mirror the proposed regulations in most respects. One notable change from the proposed regulations, in response to comments received, allows for the use of TTINs in lieu of EINs. Several commenters suggested that, due to technical constraints or incomplete data records, a number of filers were not able to segregate payees with EINs from payees with other TINs that were allowed to be truncated. Accordingly, these filers were unable to take advantage of the ability to use TTINs. It was noted in the final regulations that small businesses and closely-held entities have the same privacy concerns that individuals have and therefore should be afforded the same opportunities.
In addition, a number of commenters also recommended making the use of TTINs available on more than just payee statements. As stated in the final regulations, the use of a TTIN is permitted on any federal tax-related payee statement or other document required to be furnished to another person unless prohibited by the Internal Revenue Code, regulations, other guidance published in the Internal Revenue Bulletin, forms or instructions. Previously, under the proposed regulations the use of a TTIN was only permitted if affirmatively authorized by the IRS. This restriction limited the number of documents which could effectively utilize the use of TTINs, thereby limiting the use of TTINs to assist in battling identity theft.
In keeping consistent with the proposed regulations, the final regulations include a list of circumstances where the use of a TTIN is prohibited. Under §301.6109-4(b)(2) of the final regulations, “a TTIN may not be used (1) where prohibited by statute, regulation, other guidance published in the Internal Revenue Bulletin, form, or instructions; (2) where a statute, regulation, other guidance published in the Internal Revenue Bulletin, form, or instructions, specifically requires use of an SSN, ITIN, ATIN, or EIN; or (3) on any return or statement required to be filed with, or furnished to, the IRS. Further, a person may not truncate its own taxpayer identification number on any tax form, statement, or other document that person furnishes to another person.”
The requirement that valid TINs be obtained is not eliminated by the use of TTINs. Additionally, as noted above, an individual may not truncate their own TIN on any tax form, statement, or other document that person provides to another person. The final regulations include the following example, an employer cannot use a TTIN in place of its EIN on a Form W-2, Wage and Tax Statement that the employer furnishes to an employee; and a person may not use a TTIN in place of its TIN on a Form W-9, Request for Taxpayer Identification Number and Certification.
Using a TTIN as permitted in the final regulations will not result in any penalty. As noted in the final regulations, “To eliminate any potential confusion, §301.6109-4(b) of the final regulations is amended to state that use of a TTIN as permitted in these regulations will not result in application of any penalty (e.g., a penalty under section 6722 for failure to timely furnish a correct statement) for failure to include a taxpayer identifying number on any payee statement or other document.”
CONCLUSION
With the publication of the final regulations and the inclusion of the additional items in the program, it is the intent that the use of TTINs will increase significantly in order to continue to combat identity theft. Although, the use of TTINs by filers of information returns and other documents is voluntary it allows filers to provide additional security regarding sensitive data.
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