We routinely assist clients who come to us without a drop of information.  Yes, that means that their ability to adjust their gross income is limited- unless of course, they actually have a financial system. 

Wait, Roy- you just said these potential clients lacked a drop of information- what is on their financial system, then?  Usually just their net payroll received- but we need the employer name, employer ID, and the taxes withheld.  And, these taxpayers have the deposits from their stock portfolios- but no idea if the dividend was qualified or not, or whether that deposit was a capital gain.

For those folks, we need a power of attorney signed- Form 2848.   And, with that permission, we can request the IRS provide us with the wage and income data.  The IRS faxes (or mails) us all the 1099, 1098, and W-2 data they have. (That means non-employee compensation, dividends, interest, stock sales [but maybe not the stock purchases- that’s a problem], mortgage interest, and wages.)  All the information needed with one big exception- the IRS could care less about the state taxes withheld from wages or pensions.  (Plus, the stock purchase date and amount when the stocks weren’t bought from the same folks who sold it, as mentioned in a previous sentence.)

So, you guessed it- we often have to guess what those missing numbers are.  And, to be on the safe side, we pick a value that will cause a higher tax to be paid- hoping the state will be honest as to how much money they have in the taxpayer’s account.  (Some states will provide information about withheld taxes- but too many don’t).  Because if we choose a higher value, the state will certainly impose a penalty as they correct our awkward guess.

I’ve attached a redacted tax and wage form that the IRS provides tax advisors so you can see what it looks like.  Please note that the social security number, name, and federal ID’s for employers, brokers, bankers, and pension agencies ARE listed on the submission- so we can submit a proper 1040 for our client.

But, what happens when a client comes in to us with a CP2000 form (a complaint from the IRS that the tax form submitted doesn’t match what they consider reality), or received additional forms (like a VERY late K-1 or a revised 1099 from a broker), or needs to submit information for a bank loan or income verification.  And, you guessed it- they never saved a copy of their tax form. 

We do have data for those clients for which we processed taxes- these guys and gals either did it themselves or had another practitioner submit their taxes.

Or, as was true for more than a few of these sort of clients, they come to us with a copy of their taxes and the CP2000.  And, we can’t figure out why the IRS has different data than the client’s copy.  In more than 10 cases (that’s actually 19 client years, not one year and one client), the data the client was provided by their previous tax practitioner is not what was submitted to the IRS. 

We obviously need a copy of what was submitted, so we resort to filing a tax transcript request for them.  (I will not bother to go into how we correct the data, how we work with the IRS to prosecute the practitioner who played fast and loose with our new clients, etc.  I actually posted one such case a few years ago.)

Which brings up the real purpose of this blog transmission.  Effective late this September, long after Rosh Hashana and Yom Kipur have come and gone, the IRS will have changed how such data is provided to the taxpayer, to us (and other practitioners), and to bankers or employers looking for income verification.

Up to now, the data looked like the wage and income data form listed above. With the client’s name, social security number, employer ID’s, and addresses- as well as the data from each line from each form of the taxes submitted.

That all ends on 23 September.  As of that date, the IRS will be redacting information that has let crooks and hackers (the IRS now calls them ‘cybercriminals’) obtain vital personal information.  (You won’t believe how many people don’t shred these forms from the IRS when they no longer need them, either.)

With all this information redacted, folks like me are also being given permission to add a new piece of data to be included on the form the IRS provides us. (Many of our clients have the same last four digits on their social security number- so that doesn’t work as an identifier.)  It’s called a Customer File Number- a ten digit number [banks will use a loan number] we can add so we can easily identify whose data we are examining.  (You do realize we have thousands of these forms- and we need to know which one is Tom’s, Dick’s, or Sabrina’s.)

The redacted form will include only the last four digits of the social security or employer ID number, the last four digits of any bank account, the first four characters of the taxpayer’s last name or business name, only the first six characters of the address (including spaces). While personal information will be redacted, all income and tax data will still be present, so we can discern what was filed and what may need corrections or amendations. 

Progress.  Maybe even some protection.  For which we should thank the IRS.