It’s not enough that you’ve done business with me forever. I need some ID. The invaluable Russ Fox yesterday threw light on new requirements for electronic filing from the IRS. These requirements, found in their new Publication 1345, were issued with no public comment period or consultation with practitioners, as far as I can tell, and they sure look that way.
Let’s start with clients who come into our office — a minority of my clients, by the way, as most of my clients either mail in tax information or send it electronically. Words are from Publication 1345, but emphasis is mine:
The ERO must inspect a valid government picture identification; compare picture to applicant; and record the name, social security number, address and date of birth. Verify that the name, social security number, address, date of birth and other personal information on record are consistent with the information provided through record checks with the applicable agency or institution or through credit bureaus or similar databases.
So I have clients I have been working with since 1985. When retired gentleman comes in, a little slower than last year, with his cane, but still as charming as ever, I have to say “hold it right there, partner. You may look like the client I’ve been working with for 28 years, but you might be a clever shape-shifting alien scum looking to defraud our government. I need to see some picture ID. Then excuse me while I call the credit bureau.”
Oh, but it isn’t that bad:
For in-person transactions, the record checks with the applicable agency or institution or through credit bureaus or similar databases are optional.
Oh, I only have to run credit checks on my long-time clients who don’t come into the office. Gee, that’s mighty kind of you, IRS.
Examples of government picture identification (ID) include a driver’s license, employer ID, school ID, state ID, military ID, national ID, voter ID, visa or passport.
“National ID?” I guess that must be next in the IRS off-plan business plan.
You’re thinking, “calm down, Joe. Surely you are overreacting. The IRS doesn’t really want you to card your longtime clients, right?” Well, wrong:
If there is a multi-year business relationship, you should identify and authenticate the taxpayer.
You may think they are longtime clients, but you don’t know if you’ve been fooled by imposters all along!
Of course, this is all a reaction to the identity theft epidemic that the IRS has allowed to spread virtually unchecked for years. The IRS, an agency too clueless to notice that 655 refunds are going to the same apartment in Lithuania, is now responding to the riot it incited by firing at the bystanders. It is creating an enormous new and uncompensated burden on preparers and their clients that will do nothing to eliminate ID theft.
Why won’t this work? Most ID thieves work like Rashia Wilson, the self-proclaimed “Queen of IRS Tax Fraud.” She used store-bought software to claim millions in tax refunds belonging to other people whose identities she had stolen. ID thieves don’t walk into legitimate tax shops and pay to have fraudulent refunds claimed.
Oddly, none of this applies to paper filings. If the IRS is really serious about these rules, they can expect preparers to sabotage the e-file process in self-defense by charging for the non-trivial new time and hassle of e-filing. While preparers are required to e-file unless otherwise directed, taxpayers are allowed to choose paper. Nothing says we can’t inform them of that right. If even 10% of taxpayers respond by choosing to revert to paper, it will badly strain IRS facilities. If 20% revert to paper, it will be a debacle for the agency. And they’ll richly deserve it.
Russ Fox follows up with A Better Idea on Identity Theft. “The IRS should check each tax return’s address to verify it matches the address on file for the taxpayer.” What a radical thought.
Robert D. Flach notes the Russ Fox post in today’s Buzz and adds, “Thankfully I am not an ERO – and after reading this I never will be!”
Kay Bell, 5 tax tips for Cinco de Mayo
TaxGrrrl, She’s Just Not That Into You: 11 Reasons Your Tax Pro Wants To Call It Off . ” You need to tell your tax professional the truth. No matter how ugly it is.”
Keith Fogg, When One Spouse Files Bankruptcy How Should the Court Split the Refund Resulting from a Joint Return between the Estate of the Debtor Spouse and the non-Debtor Spouse (Procedurally Taxing)
Jason Dinesen, Tax Refunds and “Not Owing Tax”, Part 2 . “So if you get a refund, it’s possible that you “didn’t owe taxes,” but only if your “total tax” before refundable credits equaled zero.”
Margaret Van Houten, Anti Money Laundering Initiatives and Lawyers: What We Need to Know (Davis Brown Tax Law Blog). “Unfortunately, however, not all well-intended actions are effective.”
TaxProf, The IRS Scandal, Day 362. What the IRS was busy with while the ID-theft fraud epidemic was getting rolling.
Howard Gleckman, Special Tax Penalties on Donald Sterling are a Personal Foul (TaxVox). Not every foul has to be a tax issue.
Mindy Herzfeld, International Tax Trending (Tax Analysts Blog)
I reject this false choice. Investment, GDP Slow in First Quarter: Bad Weather or Bad Tax Policy? (Stephen J. Entin, Tax Policy Blog)
News from the Profession. BREAKING: CPA Exam Candidate Passes AUD (Going Concern)
Tags: e-filing, tax administration, Kay Bell, Russ Fox, Robert D Flach, TaxGrrrl, Going Concern, Anthony Nitti, Margaret Van Houten, Stephen Entin, Rashia Wilson, News from the Profession, Keith Fogg., Mindy Herzfeld