To fight identity theft, IRS proposes rules for truncating identifying numbers

BY SALLY P. SCHREIBER, J.D.
January 3, 2013

On Thursday, the IRS issued proposed regulations (REG-148873-09) that permit filers of information returns to use truncated taxpayer identification numbers (TTINs) when issuing payee statements in the Form 1099, 1098, and 5498 series (with the exception of Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, because that form is an acknowledgment). The regulations make permanent a pilot program under Notice 2011-38, which will be obsolete when the final regulations are published.

A filer is a person required to report a transaction (i.e., payment, distribution, or transfer) with another person, the payee. For example, the payee may be a payment recipient (i.e., Copy B of Form 1099-MISC, Miscellaneous Income), a plan participant receiving distributions (i.e., Copy B of Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, Etc.), a transferor of real estate (i.e., Copy B of Form 1099-S, Proceeds From Real Estate Transactions), a payer of mortgage interest (i.e., Copy B of Form 1098, Mortgage Interest Statement), a debtor who has cancellation of debt income (i.e., Copy B of Form 1099-C, Cancellation of Debt), or a student receiving scholarships, grants, or qualified tuition (i.e., Copy B of Form 1098-T, Tuition Statement).

A TTIN is an individual’s Social Security number (SSN), individual taxpayer identification number (ITIN), or adoption taxpayer identification number (ATIN) that is truncated by replacing the first five digits of the nine-digit number with X’s or asterisks. It does not include employer identification numbers.

The TTIN program is voluntary for filers. While it permits filers to truncate numbers on payee statements, it does not permit them to truncate numbers on forms filed with the IRS. It also does not allow the use of a TTIN on Form W-2, Wage and Tax Statement, because Sec. 6051(a)(2) requires that form, when furnished to employees, to show the name of the employee “and his social security account number.” However, filers may now use TTINs on electronically furnished payee statements.

The AICPA has long advocated for the use of TTINs on all types of tax forms and returns to protect taxpayers. In a letter to the IRS, the AICPA called for making the pilot program permanent and allowing truncation on all types of tax forms and returns provided to a client, employee, or other recipient.

The regulations will be effective when published in the Federal Register as final regulations; however, affected filers may rely on the proposed regulations until the final regulations are published. The IRS has scheduled a public hearing on the proposed regulations in Washington on March 12 and is requesting comments by Feb. 20. 

Sally P. Schreiber ( sschreiber@aicpa.org ) is a JofA senior editor.

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