Busy season is here.
If you’re a tax practitioner, you’re no doubt gearing up for what lies ahead. A big part of busy season prep is making sense of the recent changes to IRS transcripts and the resulting steep transcript learning curve. You may be wondering if you can still get the information you need to serve your clients.
While complex, cumbersome and somewhat confusing, transcripts are incredibly helpful. Authorized tax practitioners can assess a taxpayer’s overall standing with the IRS by reviewing one or a combination of four types of transcripts: tax return, tax account, record of account, and wage and income.
Here’s the lowdown on what the IRS changed and what you need to do to make sure you’re ready to go.
Identity thieves love tax transcripts because, until recently, they contained enough information to file a fake return or steal an identity from an unwitting victim. To better protect taxpayer data from cybercriminals, the IRS announced changes to both the format and distribution of tax transcripts. These changes are sweeping. Luckily for us, they’re being implemented in phases.
Phase one started on Sept. 23, 2018, when the IRS began redacting identifying information (Social Security numbers (SSNs), Employer Identification Numbers (EINs), addresses, etc.) on individual and business tax transcripts.
Here’s what is visible on the new tax transcript:
Last four digits of any SSNs listed on the transcript
Last four digits of any EINs listed on the transcript
Last four digits of any account or telephone numbers
First four characters of the last name for any individual
First four characters of a business’ name
First six characters of the street address, including spaces
All money amounts, including wage and income, balance due, interest and penalties
Phase two was set to begin on Feb. 4, when the IRS planned to stop faxing transcripts to either taxpayers or third parties (including a taxpayer’s CPA). However, on Jan. 30, the IRS announced it will extend its transcript faxing service beyond the planned Feb. 4 end date and is reviewing options for a new timeframe.
The third and final phase is expected to begin in May when the IRS will stop mailing transcripts to third parties listed on Line 5a of the Form 4506-T and 4506-T-EZ. This field will be eliminated from the form, and the tax transcript will be mailed to the taxpayer's address of record only. Should the IRS also decide to stop faxing transcripts, this could represent yet another hurdle for tax practitioners seeking access to their clients’ information.
What these changes mean for you
You may have been caught off guard when you first heard about these changes. You weren’t alone. Many tax practitioners voiced concerns over the news. The AICPA shared those concerns and sent a comment letter to the IRS Commissioner. We also offered a compromise aimed at reconciling the demand for security and a practitioner’s need for quickly accessing taxpayer information to resolve client issues.
The good news is that the IRS responded to the feedback and made some changes to its plans. If you need an unmasked wage and income transcript, you can call the Practitioner Priority Service (PPS) line and with proper authorization, have the unmasked transcript deposited in your e-Services secure mailbox. This is incredibly valuable if you have a client who hasn’t filed a tax return for many years and is missing some information statements (like 1099s). You’ll have access to names of past employers and will be able to verify dollar amounts reflected in IRS records.
Fact Sheet 2018-20 outlines the steps for requesting the unredacted transcript in more detail. (Note that this fact sheet was published before the plan to extend the faxing service for transcripts was made.)
Your top takeaway for tax season
For now, it’s business as usual for practitioners who would like to receive client transcripts via fax. In light of the proposed changes, what’s the one thing you should do in the wake of all the other changes and in anticipation of the day when you can’t get a transcript faxed to you?
Set up an e-Services account. Immediately. Otherwise, it could take longer to resolve client issues, becoming costly for your clients. Money in the form of interest and penalties could add up as you wait for these important transcripts to get to you. The AICPA's Tax Section Tax Technology Resource Center has guidance and tools that can help you set up an account and navigate other IRS online services.
There’s a lot of change happening this busy season, but you don’t have to navigate it alone. The AICPA Tax Section is here for you. Visit our busy season hub for information, resources, tools and news that can help you along the way.