The National Association of Enrolled Agents (NAEA) has indicated concerns to the IRS regarding plans to redact sensitive taxpayer information on tax returns.
While the redacted information will be visible, the new procedure gives tax preparers working on prior returns more options to get wages, income and taxes paid for non-filing customers.
That includes getting W-2 forms and income information from clients, asking them to download and print a redacted wage and income transcript, asking clients to request a mailed transcript via Get Transcript by Mail or calling toll-free to have a transcript mailed. Mailed transcripts will be delivered within 5 to 10 business days, according to the IRS.
On Aug. 23, NAEA president Jean Nelsen wrote to the IRS that “enrolled agents represent taxpayers who are attempting to resolve their tax account problems and to come into filing compliance, sometimes after many years of non-filing. Many taxpayers are intimidated by the agency’s power, by its sometimes opaque communications, and are ill prepared to negotiate for themselves.”
With the proper authorization, tax preparers can get immediate access to a redacted transcript. They can also request a mailed version through the toll-free assistance function.
Tax clients also can request a complete, unredacted wage and income transcript from the IRS. They first must authenticate their identity with the IRS and through a complete, unredacted wage/income transcript, which will be mailed to the address on record within 5 to 10 days.
Tax preparers who can’t get W-2s from the client or who have one who isn’t able to get a complete, unredacted transcript at their address may have to file a paper return.
Why do this? The IRS knows “cybercrooks” need more and more taxpayer data to impersonate people. That makes tax transcripts highly desirable. “Criminals attempt to pose as taxpayers accessing their own account or as tax preparers or third parties requesting client information,” the IRS states.
Whether a taxpayer is responding to an IRS notice or attempting to come into filing compliance, transcripts are critical, Nelsen said.
“At the end of the day, the basis of the agency’s inquiry, whether a substitute for return, a correspondence audit, or a collection action, is the transcript. If a taxpayer’s representative cannot secure timely receipt of his or her transcript, the entire process, either of filing delinquent returns or responding to an IRS notice, is delayed, occasionally with catastrophic results for taxpayers. What should be a one-call issue becomes a drawn-out and needlessly expensive ordeal.”
The new transcript will include the following:
- Last 4 digits of any SSN listed on the transcript: XXX-XX-1234
- Last 4 digits of any EIN listed on the transcript: XX-XXX-1234
- Last 4 digits of any account or telephone number
- First 4 characters of the last name for any individual
- First 4 characters of a business name
- First 6 characters of the street address, including spaces
- All money amounts, including balance due, interest and penalties
The IRS also recently posted (on Sept. 23) an updated Form 4506-T and Form 4506T-EZ, Request for Transcript of Tax Return, that will include a new Line 5b for a 10-digit Customer File Number. Legitimate third parties with a need for income verification or tax data often request taxpayers complete Form 4506-T.
As of that date, third parties or taxpayers can create any 10-digit number, except for the taxpayer’s SSN, for use as an identifier. The Customer File Number listed on the 4506-T will automatically be posted and visible on the requested transcript, allowing the third party to match the document to the taxpayer. A Customer File Number can be, for example, a loan account number.
Line 5b is an optional line, intended for those third parties that request high volumes of transcripts.
The process is free for anyone seeking income verification through the Free Application for Federal Student Aid (FAFSA) or disaster victims seeking FEMA assistance.
The NAEA, however, has concerns about the IRS transcript format and all tax preparers who handle Circular 230 forms.
According to NAEA executive vice president Robert Kerr, the organization believes the IRS’ plan “reflects, at best, a lack of understanding of and at worst, a disregard for the critical role that enrolled agents and other Circular 230 practitioners play in tax administration and compliance.”
Kerr wrote that the IRS was asked to slow the transition and consult with the practitioner community before making the proposed changes. “While we await the agency's response, we have engaged with [legislators] on this very issue,” Kerr wrote. “I'm pleased to share with members [that] we are gaining traction.”
Further, the IRS expects to stop faxing and mailing tax transcripts to third parties early next year, including to tax preparers who have power of attorney. In May 2019, the IRS expects to stop mailing transcripts to third parties.
Kerr notes that taxpayers’ right to representation is at the heart of the matter.
Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.