The Internal Revenue Service has issued final regulations on truncated taxpayer identification numbers, or TTINs, to safeguard against identity theft.

Where not prohibited by the Tax Code or other regulations or guidance, the final regulations allow use of a TTIN in lieu of a taxpayer’s Social Security Number (SSN), individual taxpayer identification number (ITIN), IRS adoption taxpayer identification number (ATIN), or employer identification number (EIN) on payee statements and certain other documents.

The TTIN displays only the last four digits of a taxpayer identifying number. Either asterisks or Xs replace the first five digits of the identifying number. The regulations affect persons that furnish or receive payee statements and other documents that the Tax 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.

The IRS issued proposed regulations in January of last year in an effort to control the growing problem identity theft-related tax fraud (see IRS Proposes Truncated Taxpayer Identification Numbers to Curb Identity Theft).

The goal is to reduce the risk of identity theft that may stem from the inclusion of a taxpayer’s entire identifying number on a payee statement or other document. Concerned about the risks of identity theft, including its effect on tax administration, the IRS established a pilot program allowing filers of information returns who met certain requirements to truncate an individual payee’s identifying number on paper payee statements (Forms 1098,1099, and 5498) for calendar years 2009 and 2010. The IRS subsequently extended the pilot program for payee statements for calendar years 2011 and 2012, and modified the program by removing the Form 1098-C from the list of eligible documents on which a TTIN can be used because it is an acknowledgement under Section 170(f)(12) rather than a payee statement.

Certain other forms were also excluded such as Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipts of Certain Foreign Gifts, and Form 3520A, Annual Information Return of Foreign Trust With a U.S. Owner (Under Section 6048(b)) despite the request of a commenter on the proposed regulations. 

The IRS explained that taxpayer identifying numbers on returns and statements filed with the IRS are necessary for the IRS to determine compliance with the tax laws and to validate the information provided. Therefore, the final regulations retain the rule in the proposed regulations that TTINs may not be used on a return filed with the IRS.

However, the regulations were revised to list the circumstances where use of a TTIN is not permitted. 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. For 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.