IRS plans new tax transcript format with better security

The Internal Revenue Service said Wednesday it will provide a new format for transcripts of individual tax returns that will safeguard taxpayer data by redacting personally identifiable information from Form 1040 series returns.

IRS headquarters in Washington, D.C.
A red stoplight stands in front of the Internal Revenue Service (IRS) headquarters in Washington, D.C., U.S., on Wednesday, May 15, 2013. The widening inquiries into the IRS are focusing less on why employees singled out small-government groups for scrutiny and more on agency executives who didn't inform Congress earlier. Photographer: Andrew Harrer/Bloomberg

The new transcript format will replace the old format and will be the default format available through the IRS’s Get Transcript Online, Get Transcript by Mail and Transcript Delivery System services for tax professionals starting Sept. 23, 2018. The financial entries on the transcript will still be visible, giving taxpayers, tax professionals and third parties the information they need for tax preparation or income verification.

The IRS experienced a data breach with its Get Transcript online application in 2015 in which cybercriminals gained personal information about hundreds of thousands of taxpayers. The agency was forced to take down the service temporarily, but eventually restored it with improved authentication procedures.

“Since the IRS joined in partnership with the states and tax industry in 2015, we’ve made great progress in our effort to combat stolen identity refund fraud,” said Acting IRS Commissioner David Kautter in a statement. “Our numbers are going in the right direction. To maintain our progress, we continue to evaluate our policies and procedures on an ongoing basis. One area that we identified as in need of change was the individual tax transcript area. We believe the change we are announcing today will better protect taxpayer data from unauthorized disclosure and theft.”

While the new format will affect transcripts of individual tax returns, business tax transcripts won’t change.

The information below will be on the new IRS transcript:

• 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

Based on feedback from its stakeholders, the IRS said Wednesday it also has created a new Customer File Number that lenders, colleges and other third parties that order transcripts for non-tax purposes can use as an identifying number instead of the taxpayer’s SSN.

Along with the new tax transcript, on Sept. 23, the IRS also will post on its website an updated Form 4506-T and Form 4506T-EZ, Request for Transcript of Tax Return, that will have a new Line 5b for a 10-digit Customer File Number. Legitimate third parties with a need for income verification or tax data often ask taxpayers to fill out a Form 4506-T.

As of September 23, third parties or taxpayers can create any 10-digit number, except for the taxpayer’s Social Security Number, for use as an identifier. The Customer File Number that’s listed on the Form 4506-T will be posted automatically and it will be visible on the requested tax transcript, enabling the third party to match the document with the right taxpayer. A Customer File Number might be, for instance, a loan account number.

Line 5b is an optional line, and it’s intended for those third parties that request high volumes of transcripts.

There is no change in the process for students seeking income verification through Free Application for Federal Student Aid, also known as FAFSA, or for disaster victims who need assistance from the Federal Emergency Management Agency.

For more information, see “About the New Tax Transcript: FAQs,” which includes a sample of the new transcript format.

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