IRS Announces a New Tax Transcript and Transcript Delivery Changes

As we prepare for the coming tax season, we would like to ensure that tax professionals are aware of the new transcript format that took effect in September and the transcript distribution changes planned for sometime around January 2019. Please see the below fact sheet from the IRS for details.

On Aug. 22, 2018, the IRS announced a change in the format of tax transcripts and provided a preview of proposed changes in the methods of distributing tax transcripts to taxpayers and their authorized third parties, such as tax practitioners. These changes were outlined in IRS News Release 2018-171.

The IRS is making these changes to better protect taxpayer data from cybercriminals. As the IRS and its Security Summit partners continue to make inroads against tax-related identity theft, thieves have sought real data – such as transcripts – to better impersonate taxpayers as well as tax preparers.

The New Transcript
On Sept. 23, 2018, a new transcript format will become the default transcript and will display the following data:

• Last four digits of any SSN listed on the transcript: XXX-XX-1234
• Last four digits of any EIN listed on the transcript: XX-XXX1234
• Last four digits of any account or telephone number
• First four characters of the last name for any individual (first three characters if the last name has only four letters)
• 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

This is the new default transcript issued by the IRS through all available platforms, including online, toll-free and the Transcript Delivery System used by tax professionals. The new transcript format is for individual transcripts only, not business transcripts.

The tax transcript is used for many non-tax purposes, such as income verification for loans or college financial aid. The new format will still have enough financial information available to meet the needs of anyone who requests a transcript. For example, the amount of wages earned, withholding tax withheld, etc., is available to verify the amount of income earned for a loan application or to help complete a prior-year tax return.

Assisting Clients Coming Into Compliance
Financial entries on all redacted transcripts continue to be fully visible. Tax practitioners preparing prior-year tax returns for clients have several additional options to obtain the wages, income and taxes paid for non-filing individuals. The tax practitioner may:

• Obtain Form W-2 and income documents from the client;
• Ask the client to access Get Transcript Online to immediately download and print a redacted wage and income transcript;
• Ask the client to request a mailed transcript via Get Transcript by Mail or call toll-free assistance to have a transcript mailed to the address of record. Mailed transcripts are delivered within five to 10 business days;
• Access e-Services Transcript Delivery Service for tax professionals for immediate access to a redacted transcript if there is proper authorization;
• Ask toll-free assistance to mail a redacted transcript to the client’s address of record.

If necessary for return preparation, a client may also order a complete (not redacted) wage and income transcript through the IRS. A client must first authenticate their identity with the IRS and a complete (not redacted) wage and income transcript will be mailed to the address of record within five to 10 days. If a practitioner cannot obtain Forms W-2 from the client, or if the client is unable to receive a complete (not redacted) transcript at the address of record, then the practitioner may have to file a paper return.

The Customer File Number: Form 4506-T/T-EZ
Starting Sept. 23, 2018, the IRS also will introduce a revised Form 4506-T and Form 4506T-EZ, Request for Transcript, to include a new field — line 5b — for a Customer File Number. The Customer File Number is created by the requester, not the IRS. This is an optional field for the requester to use as an identifier because the SSN will no longer be fully visible. Requesters have the option of creating and entering an identifying number that is displayed on the transcript. The field is unique to the requester and will not be searchable by the IRS.

The requester will assign a 10-digit number, for example, a loan account number, enter it on line 5b of the Form 4506T or Form 4506T/EZ. The Customer File Number assigned by the requester will populate on the transcript, enabling the requester to match the transcript to the taxpayer. Requesters may use any 10-digit number except the taxpayer’s Social Security number

The Customer File Number: e-Services Transcript Delivery System
Starting Sept. 23, 2018, tax professionals requesting transcripts through TDS may assign a Customer File Number to the transcript. This is an optional field for the requester to use as an identifier because the SSN will no longer be fully visible. TDS users will have the option of creating and entering an identifying number that is displayed on the transcript. The field is unique to the requester and will not be searchable by the IRS.

The requester will enter a 10-digit number in the Customer File Number field on TDS. The Customer File Number assigned by the requester will populate on the transcript, enabling the requester to match the transcript to the taxpayer. Requesters may use any 10-digit number except the taxpayer’s Social Security number.

The Customer File Number: Get Transcript
Starting in mid-January 2019, taxpayers also may assign a 10-digit number to their transcript that they obtain through Get Transcript Online or Get Transcript by Mail.

The Customer File Number field for Get Transcript Online or by mail will assist those taxpayers who require a transcript for income verification purposes, such as a loan application or college financial aid. For example, the taxpayer can create and enter a Customer File Number selected by a third party onto the Get Transcript Online or by mail order and the Customer File Number will appear on the transcript prior to printing or viewing/saving. The Customer File Number can then serve as an identifying number on the transcript.

Tax Transcript Distribution Changes – Faxing and Third-Party Mailing
Distribution of transcripts to fax numbers or third-party addresses poses a threat to taxpayer data and poses a risk that sensitive information will result in fraudulent tax refunds. To continue the progress against tax-related identity theft, the IRS is reviewing how it distributes tax transcripts and has proposed changes to that process.

Sometime around January 2019, the IRS plans to stop faxing transcripts to both taxpayers and to third parties. This change applies to both individual and business taxpayers. At that time, when taxpayers or third parties call the IRS with an individual or business transcript request, the transcript will be mailed to the taxpayer’s address of record. Reminder: Individual taxpayers may obtain transcripts immediately online via Get Transcripts Online and tax professionals with proper authorization may obtain transcripts via the e-Services Transcript Delivery Systems.

The IRS is currently working the faxing issue, including suggestions from tax professionals. The IRS is considering this step because identity thieves can impersonate both taxpayers and tax preparers, and it cannot independently verify the fax numbers provided by callers.

Starting around May 2019, the IRS will stop mailing transcripts to third parties listed on Line 5a of the Form 4506-T and T-EZ. This field will be eliminated from the form. Transcript requests made on the Form 4506-T and T-EZ will be mailed to the taxpayer’s address of record, not to third parties. Generally, transcripts are delivered within five to 10 business days.

As timeframes are finalized, the IRS will keep the tax preparation community aware of the proposed changes.

Alternatives for Obtaining Tax Transcript by Tax Professionals and Third Parties
Tax professionals have alternatives to obtain a tax transcript. Attorneys, Certified Public Accountants (CPAs) or enrolled agents (EAs) may register for IRS e-Services tools to obtain access to Transcript Delivery System without being an Electronic Return Originator. Learn more at Circular 230 Practitioner e-Services Transcript Delivery System Access. These Circular 230 practitioners, with proper authorization on file, can have access to the Transcript Delivery System and obtain a transcript immediately. This also is a benefit for those who perform representation work but do not prepare tax returns.

E-Services users must create an account to verify their identities. These accounts are protected by a two-factor authentication process called Secure Access that helps prevent theft. Tax preparers who are neither an attorney, CPA nor EA must either be part of an Electronic Return Originator’s file or become an Authorized IRS e-File Provider and file tax returns to access the Transcript Delivery Service. Learn more at Become an Authorized e-file Provider.

Third parties who routinely use the Form 4506-T or T-EZ to obtain tax transcripts for income verification purposes should consider contracting with a participant in the Income Verification Express Service (IVES) or become an IVES participant.

IRS Data Retrieval Tool Not Affected
Students and others using the IRS Data Retrieval Tool through the Free Application for Federal Student Aid (FAFSA) process are not affected. Users should follow the normal steps for student aid.