IRS May Let Taxpayers ‘Lock’ Their Accounts

The Taxpayer Advocacy Panel, a federal advisory committee of 101 citizen volunteers across the country, has released its annual report, with recommendations that include calling for the IRS to protect against identity theft by allowing taxpayers to “lock” their accounts when no tax returns are required.

The IRS endorsed the idea of letting taxpayers lock their accounts when no tax returns are required. The panel also proposed adding a section to Form 9452, “Filing Assistance Program,” to allow individuals to notify the IRS of their desire to block the use of their Social Security numbers.

This revision would include current address information, a perjury statement and two check-a-box options to allow individuals to block or unblock the use of their SSNs on tax returns. Once the form has been processed, the IRS would notify the individual the action has been taken to block their SSN and provide instructions on how to unblock their SSN before a return can be filed, but the IRS’s response was somewhat cautious.

“This recommendation does represent a complex undertaking which would involve multiple operational divisions and functions,” wrote Joseph D. O’Leska, deputy director of the IRS’s Identity Protection Office of Privacy and Information Protection. “As a proactive approach to implementation of this recommendation we have already requested the creation of a new identity theft indicator which would specifically indicate the taxpayer has no filing requirements and has requested their account be locked. Additional associated programming would utilize the presence of this indicator to reject any returns received using the Social Security number of an individual who had ‘locked’ their account. The returns would be rejected prior to acceptance of electronically filed returns, thereby maintaining the integrity of taxpayer account information. Paper returns will require a different treatment stream, though will be similar in functionality. We will continue to work with other operational divisions to determine the best methods for complete implementation.”

He added that the IRS would also pursue revisions to Form 9452 and instructions to provide a means to notify the agency that taxpayers have no filing requirements and wish to have their accounts locked.

Other recommendations by the panel included the use of e-services to provide taxpayers with ready access to their estimated tax payments and other credits; clarification of instructions to include representation by grandparents and grandchildren for tax matters; additional user-friendly services for senior citizens at www.irs.gov; and improved instructions allowing domestic partners to more accurately report joint state tax income tax refunds.

In response to the last question, the IRS commented on a recent IRS private letter ruling and memorandums affecting same-sex couples in California (see IRS Backs California Domestic Partner Property Law and Tax Guide Released for California Same-Sex Couples).

“We think the answer to the above question depends on whether the same-sex couple resides in a community property state that extends its community property laws to same-sex couples (e.g., California),” wrote an unnamed representative of the IRS Chief Counsel and Tax Forms & Publications offices. “If the same-sex couple resides in California, a state that extends its community property laws to registered domestic partners (same-sex couples who register with the state), one-half of the refund should be allocated to each registered domestic partner. In California, as of Jan. 1, 2007, the earned income of a registered domestic partner must be treated as community property for state income tax purposes (unless the couple executes an agreement to opt out of the community property system). Thus, for state income tax purposes, each partner is generally considered to have earned one half of the income that generates the state income tax liability and should get credit for one half of the state tax withholdings or other payments. Consequently, each should be treated as receiving one half of any state tax refund for purposes of determining whether the refund should be included in gross income on a partner’s separately filed federal income tax return.

"In contrast, if the couple is receiving a state income tax refund from a non-community property state, the refund should be allocated to each person in proportion to the amount of state income tax that he or she paid,” the IRS added, giving examples of how the allocation might be done.