Voluntary truncation hardly sounds like an enjoyable pastime. But cutting off part of taxpayer identification numbers may be a way to reduce identity theft.
Back in 1936, when the Social Security Board created the nine-digit social security number to identify and determine social security benefit entitlement levels for workers, the number was not intended to be the identifier it evolved into. However, the approximately 496 million social security numbers that had been issued by September 2016 are widely used by state and federal governments to link an individual’s identity across the public and private sectors (July 2017 GAO report 7-553).
One of the uses for social security numbers is Form W-2, the annual wage report that employers provide to employees. Under regulations proposed on September 20, employers can voluntarily truncate employees’ social security numbers on copies of Forms W-2 that are furnished to employees.
Note that these regulations are voluntary, not mandatory, and only apply to Forms W-2 given to employees.
You may remember that, beginning in 2015, social security numbers could be truncated on certain Forms 1099 and similar statements. Do you know why those regulations were not applied to Form W-2?
Do you know what law paved the way for the new proposed regulations?
Several state tax administrators requested time to develop systems to process the copies of forms filed with state income tax returns that may contain truncated social security numbers. In light of this request, when do you think the newly proposed regulations will apply?
Internal revenue code section 301.6109-4 generally provides that a truncated taxpayer identification number may be used to identify any person on any statement or other document that the internal revenue laws require to be furnished to another person.
A truncated taxpayer identification number is an individual’s social security number, IRS individual taxpayer identification number, IRS adoption taxpayer identification number, or IRS employer identification number in which the first five digits of the nine-digit number are replaced with Xs or asterisks.
The truncated taxpayer identification number takes the same format of the identifying number it replaces, for example XXX-XX-1234 when replacing a social security number, or XX-XXX1234 when replacing an employer identification number.
Under the proposed regulations, a truncated taxpayer identification number may not be used on a statement or document if a statute, regulation, other guidance published in the internal revenue bulletin, form, or instructions, specifically requires use of a social security number, individual taxpayer identification number, adoption taxpayer identification number, or employer identification number and does not specifically state that the taxpayer identifying number may be truncated.
For example, a truncated taxpayer identification number may not be used on a Form W-8ECI or Form W-8IMY because the forms and/or form instructions specifically prescribe use of a social security number, employer identification number, or individual taxpayer identification number for the US taxpayer identification number.
In addition, a truncated taxpayer identification number may not be used on any return, statement, or other document that is required to be filed with or furnished to the IRS or the social security administration in the case of forms required to be filed with the social security administration under the internal revenue laws.
Based on the above information from internal revenue code section 301.6109, do you think an employer could truncate its own employer identification number on copies of Form W-2 furnished to an employee?
What do you think about the proposed regulations for truncating identification numbers on Forms W-2? You have until December 18, 2017, to send comments to the IRS.
Note: Taxing Lessons provides a summarized version of sometimes lengthy court decisions. The full case may include facts and issues not presented here. Please use the link provided in the post to read the entire case.
This information should not be considered legal, investment, or tax advice. Taxing Lessons and Top Drawer Ink Corp. do not provide legal, investment, or tax advice. Always consult your legal, investment, and/or tax advisor regarding your personal situation.
Because internal revenue code section 6051(a)(2) required that Form W-2, when furnished to employees, had to show the name of the employee “and his Social Security account number.”
The Protecting Americans from Tax Hikes (PATH) Act of 2015.
Section 409 of the PATH Act amended section 6051(a)(2) by striking “his social security account number” from the list of information required on Form W-2 and inserting “an identifying number for the employee” instead.
This statutory amendment is effective for statements issued after December 18, 2015, the date the PATH Act was signed into law.
Because a social security number is no longer required by section 6051, the Treasury Department and the IRS propose amending the regulations to permit employers to truncate employees’ social security numbers on copies of Forms W-2 that are furnished to employees.
If the proposed regulations are finalized without change, the IRS intends to incorporate the revised regulations into forms and instructions, permitting employers to use truncated taxpayer identification numbers on the employee copy of the Form W-2.
The proposed regulations will not apply to Forms W-2 required to be furnished before January 1, 2019. Accordingly, the proposed regulations provide that the regulations, as amended, will be applicable for statements required to be filed and furnished under sections 6051 and 6052 after December 31, 2018.
A person may not truncate its own taxpayer identifying number on any statement or other document that it furnishes to another person.
For example, an employer may not truncate its employer identification number on a Form W-2, Wage and Tax Statement, that the employer furnishes to an employee; and a person may not truncate its taxpayer identification number on a Form W-9, Request for Taxpayer Identification Number and Certification.