Taxable Talk

This afternoon, I needed to upload an IRS Power of Attorney form to the IRS’s CAF Unit.  The IRS advised me (on the login screen) that I should obtain an account on ID.me.

The IRS rightly wants to make sure that tax professionals are who they say they are.  So the IRS has partnered with ID.me to verify identity for tax professionals.  In theory, the process will be mandatory sometime during the Summer of 2022.  If you’re a tax professional tempted to start now with ID.me, I strongly advise waiting.

The ID.me process is both biometric and checking your credit record (to make sure you’re you).  You upload a picture of your driver’s license (or similar ID), a video capture, and enter your social security number.  In theory, it’s straightforward.  I recently used the Clear application to do a similar check for Covid vaccination without any issues.

Unfortunately, ID.me isn’t Clear.  I couldn’t use my phone’s camera for my driver’s license (but a scan worked just fine).  I couldn’t use my computer’s webcam for a video (but my phone worked fine for that).  And each time it failed, I had to shutdown the browser window and start over.

Once I had my ID.me setup, the program says it will take you back to the IRS.  Instead, I saw the following:

Yes, this is a new product and bugs are always going to happen.  But I think the IRS needs to do some additional extensive testing before this goes fully live.  As I noted, that date is sometime next summer so there’s plenty of time.  Until then, tax professionals should use the option to login using their IRS ID and skip ID.me.

Yesterday I went on e-Services and downloaded a Wage & Income Transcript for a client. I was surprised to see that the payor information was no longer redacted. There was the payor’s name in full (along with the address and EIN).

Congratulations to the IRS on reversing their short-sighted policy of redacting this information. In order to access e-Services, I have to already have:

– Registered with the IRS;
– Setup two-party authentication with the IRS; and
– Used two-party authentication to access e-Services.

Yes, it’s theoretically possible for someone to break into somebody’s office and get into e-Services. But they’d also have to obtain the two-party authentication device. The odds of both occurring are very, very low.

The previous policy had deleterious impacts on both the IRS and tax professionals. It added workload to the IRS (tax professionals had to call the IRS to obtain unredacted transcripts); it caused delays and extra work for tax professionals. Kudos to the IRS on using some common sense in returning to the status quo ante.

The IRS released a Fact Sheet today on the new transcript redaction policy that begins on Monday. There’s one very slight piece of good news for tax professionals in the Fact Sheet:

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.

This is slightly better than it was, but is still unacceptable. First, if I have a Power of Attorney for my client for a particular tax year, I am authorized to act for the client (on the client’s behalf). That means that there’s no reason why the IRS shouldn’t send a tax professional with proper authorization an unredacted Wage & Income transcript. The IRS’s reasoning on this is flawed. Assume an individual hires a tax professional to come into compliance (or deal with an issue). Who do you think will be using the Wage & Income transcript: the client or the tax professional? All this will do is lengthen the process for no particularly good reason. Additionally, all the issues with mailed transcripts remain (security, expatriates, etc.)

Indeed, I strongly believe that tax professionals should be able to pull unredacted transcripts through IRS e-Services (with proper authorization, of course). The goal of obtaining transcripts is for some aspect of compliance; I’m unaware of any tax professionals who pull transcripts “just to have them.” The only thing I (and other tax professionals) have to sell is our time. We simply don’t have the time to waste to pull transcripts that are not needed. Overall, the IRS’s new policy remains poor (though there was that tiptoe forward).

If you are a tax professional who does any representation work, do I have news for you…and it’s not good. Yesterday, the IRS made an announcement about redacting information on transcripts. Here’s an excerpt of the announcement:

Moving to better protect taxpayer data, the Internal Revenue Service today announced a new format for individual tax transcripts that will redact personally identifiable information from the Form 1040 series…The following information will be provided on the new 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

But there’s more information—information not included in this announcement that’s very important if you do any tax representation work. If a tax professional with authorization (either an IRS Power of Attorney or Tax Information Authorization) calls the IRS up and requests a transcript, we can have it faxed to us (if we have a secure fax machine). Effective January 1, 2019, the IRS will no longer fax transcripts; they will only be mailed, and then, apparently only to the taxpayer’s address of record (not to tax professionals with the appropriate authorization). This is a huge problem.

Consider nonfilers–people not in the system. There is no address in the system to mail anything to. This will slow down work and hinder compliance with tax law.

Next, consider taxpayers who are overseas. Mail to locations outside the United States takes much longer and, in many countries, is of dubious security.

Now those of us with access to IRS E-Services will still be able to download transcripts once the CAF Unit processes the authorization (but see below on two additional issues). But when there’s an immediate issue, and the authorization hasn’t been processed, we will have to tell all involved, “We have to wait for the POA to be processed. Please add two weeks additional to your timeline.” I’m sure IRS Revenue Officers, Tax Compliance Officers, and Revenue Agents will appreciate this.

Unfortunately, there are two other major issues with this policy. First, the redaction of Employer Identification Numbers (EINs) will impact efiling and state tax issues. Let’s assume I request a Wage & Income Transcript for John Smith. Today, that transcript will show the full EIN for any issuers of tax documents. That allows tax professionals to prepare returns that can be electronically filed (EINs are required for efiling). In the future, the transcript will just show “xx-xxx9999” as the EIN. If we happen to have a W-2 on file for that employer we’ll be able to use the EIN; otherwise, that tax return will have to be paper filed. This impacts state tax returns, too. Many states mandate efiling, and also mandate that we provide EINs on the tax return. We will be unable to comply with this in the future for impacted clients.

Additionally, business names will be redacted; only the first four characters will be shown. Imagine seeing “ACME xxxxxxxxxxxx xxxxxxxxxxxxx” as the business name. The business address will be redacted (just the first six characters will be shown); our address would be shown as “1919 S”; maybe with the first four characters of our name (CLAY) and those characters you could figure out who we are but I doubt it in a city one-tenth the size of Las Vegas. Basically, when I’m entering W-2s based off a transcript I’ll enter four characters and hope it matches correctly (good luck with that!). As to trying to call someone, how? Clients’ memories of prior years are, much of the time, hazy; the transcripts will be of little use. And many payors listed on information returns are parent companies rather than the payor itself; matching will be near impossible.

(This is also going to make responding to IRS Automated Underreporting Unit (AUR) notices quite interesting. Imagine your client receives such a notice, and all it says is “ACME” and the client says he never worked for ACME. How is a tax professional or the client going to find out the truth? There won’t be near enough information on the notice. You can expect a surge in Tax Court filings in about a year.)

“But Russ,” you ask, “Shouldn’t clients keep good records and all their W-2s (and other tax documents)?” Absolutely, but we have to deal with the world as it is, not how we want it to be. I’ve had two representation clients in the last month who have been victims of casualty losses: One lost all his records because of a fire; the other lost his records due to a flood. And many representation clients simply don’t have the records.

I understand why the IRS is doing this (the security issue) but this is going to make representation clients wait even longer to get their cases resolved, and will make overall compliance worse. It will cause paper filing to increase (not by a huge percentage, but it will still be noticeable) and will impact states, too. Overall, the unintended consequences were not thought out by the IRS.

For tax practitioners, the IRS’s e-Services suite of applications is extraordinarily useful. When a client give us the appropriate authorization we’re able to pull transcripts from the IRS’s computer system. This helps us file appropriate tax returns and it helps the IRS because we can file the returns.

Early last week I attempted to run a transcript for a deceased individual. I was authorized by the Executor of the estate and filed all appropriate paperwork with the IRS. When I attempted to obtain a transcript I was directed to call the IRS’s Practitioner Priority Service rather than just being able to print the transcript. It turns out the IRS has ‘locked’ about 64 million tax returns of deceased individuals as a security measure.

Neither PPS nor the IRS’s e-Services help desk was aware of this change. The news came from a fellow Enrolled Agent who was told about this from his IRS Liaison. And while I understand why the IRS has done this their implementation leaves something to be desired.

Consider John Smith, a widower. Mr. Smith has given a CPA authority (via a Tax Information Authorization) for tax years 2014-2016. Mr. Smith passes away on August 1, 2017. His authority passes away with him, and it makes sense that the IRS doesn’t allow that CPA to run transcripts. However, Mr. Smith’s Executor gives me authority. (This is done by having the Executor sign a new Tax Information Authorization and the Executor must give the IRS proof of his authority through completing Form 56.) So why must I call PPS to obtain the transcripts? It’s not as if PPS is going to do anything different than the automated checking that is already done through e-Services.

But that’s the good case. Now consider Mary Doe. Her husband John Doe passed away in 2006 (that’s 11 years ago). Ms. Doe has been filing as single for a decade. Ms. Doe signed a Power of Attorney in 2016 as she’s dealing with an IRS automated underreporting notice issue. I needed to run a 2015 transcript to make sure the IRS has appropriately applied a payment. I was unable to do that through e-Services because her account has now been linked to her late husband. (I was able to run these transcripts in the past through e-Services.) This is a true story (other than the names).

PPS duly ordered the transcript for me but I was in for a surprise when it came: It was for her late husband’s tax account. Unless there’s something about the great beyond that I don’t know about he is no longer too concerned with the IRS. I called PPS up and there is now no way for me to obtain an account transcript for Ms. Doe! According to PPS, once an account has been linked it cannot be unlinked! (PPS told me that the payment has been correctly applied. However, given that it was misapplied twice in the past I wish I could run that transcript.)

Come on, man! IRS, this is completely ridiculous. After the year of Mr. Doe’s passing there’s no reason for the two accounts to be linked. Additionally, there’s no reason tax professionals should have to call to obtain transcripts we’re authorized for. It would seem to me to be a simple programming fix: If the authorization is dated after the date of death (and it’s valid), allow the practitioner to just print the transcripts from e-Services.

Unfortunately, tax professionals now have to waste more time on the phone for no particularly good reason.

The IRS announced today that they will be conducting their normal Labor Day maintenance this coming weekend. Most IRS e-Services applications will be down beginning Saturday, September 2nd at 8pm EDT, with normal operations scheduled to resume Tuesday, September 5th at 5am EDT.

Additionally, the IRS announced new dates for the transition to their new e-Services platform. e-Services registration, ACA, e-file, TIN Matching will be taken offline Thursday, September 7th at 6am EDT. The transcript delivery system will be taken offline Friday, September 8th at 10pm EDT. The transcript delivery system is schedule to come back online on Monday, September 11th at 6am EDT; all other systems are scheduled to come back online on Tuesday, September 12th at 6am EDT.

(TIN Matching may come back online on September 11th. In the email announcing the outages the IRS listed two different days for when TIN matching will be taken offline and come back online. It’s unclear which is correct.)

More information is available here.

Back in June the IRS was going to do a major update of their E-Services (what tax professionals, software developers, and return transmitters use to access IRS computer systems). That update was postponed. Last month the IRS announced that the update would happen beginning tomorrow (August 17th). This morning, the IRS postponed it again; no new date was announced. The notice is reproduced below.

The IRS today announced that a planned outage of all e-Services tools and applications has been postponed. The extended delay will allow for some additional improvements to take place in the final product.

When a new date is set, we will issue a follow up Quick Alert. Until further notice, all e-Services tools and applications are available to registered users, except for AIR users. The Affordable Care Act Information Return (AIR) participants will be unable to submit new or change existing Transmitter Control Code applications until this platform upgrade takes place.

The planned outage, when it occurs, will allow for the e-Services suite of tools to be transferred to a new digital platform. The new platform will conclude a years-long effort to upgrade the technology for e-Services tools.

The IRS had planned on moving e-Services to a new platform on Thursday, June 15th. However, today I received an email stating it has been postponed until later this summer:

The planned move of IRS e-Services to a different platform has been pushed to later this summer. This delay changes previous announcements to e-Services users.

1. The planned e-Services outage for June 15-19 has been cancelled.
2. State users will be able to submit new or update existing state e-file coordinator applications and TDS applications until the upgrade begins later this summer.

IRS will communicate the schedule for the e-Services platform upgrade and provide updates on user impact well in advance of any changes.

The IRS is trying to become a bit more security conscious. As part of their efforts, the IRS is having all e-Services account users who use the IRS’s “Transcript Delivery Service” re-validate their identities. Letters are being sent to impacted tax professionals. I received such a letter last week so I had the joy of re-validating my identity.

The IRS wants tax professionals to do this online using the “Get Transcript” online registration. I started to do this, entering my name, address, date of birth, social security number, and tax filing status. The IRS system said the information I entered wasn’t correct. I tried again, making sure I didn’t make any typographical errors. It was correct. I hit “Enter” and, of course, the IRS said it was wrong. Further, because it was wrong they locked me out of the system for 24 hours.

So I called the IRS e-Services help desk to re-validate my identity. After being on hold for 30 minutes, a gentleman picked up, but told me his computer was down so he transferred me to someone else. The new hold time was going to be an hour, and I had an appointment, so this got pushed back a day.

The next day I tried again online. The IRS application accepted that I knew my name, address, and other information. It accepted that I knew my credit card number. It then sends you a text message on your phone. Just one step was left: Entering that number on the screen and I would be re-validated! I got the text just moments later, entered it in, and…the system crashed.

Well, if it worked once it would work again, right? Wrong. When I entered my name and other personal information the system told me I had mis-entered the information and it was locking me out. I called IRS e-Services. After being on hold for 21 minutes a woman picked up and was able to ask me the same questions that the IRS computer did (I also had to read a code off the letter I had received). I’m now validated as me!

Seriously, I’m underwhelmed by this process. This is a prototypical example of a kluge (“A Workaround or quick and dirty solution that is clumsy, inelegant, inefficient, difficult to extend and hard to maintain.”). There’s no reason the IRS system accepted my personal information only one of four tries (it was entered correctly all four times). There’s no reason it should crash as frequently as it does. If you’re an IRS e-Services user, maybe you’ll get lucky and be able to re-validate your identity online…but don’t count on it.