Tax return preparers are discovering that some state income tax returns for 2016 require information from a taxpayer’s driver’s license or state-issued identification card information before the returns can be e-filed.
Federal returns do not require this form of identification, but the national Security Summit sponsored by the IRS, state taxing authorities, the tax software industry, and other stakeholders recommended last year using driver’s licenses and state IDs as an additional factor in authenticating taxpayers’ identity to deter fraudulent electronically filed returns. Several states request this information. At least a few states, including New York, Ohio, and Alabama, have now made it a requirement.
Taxpayers filing New York state personal income tax returns, for example, who have been issued a driver’s license or state-issued identification card from any U.S. state are now required to include with an e-filed New York state return the license or card’s ID number, issuing state, issuance date, and expiration date, according to a webpage of the N.Y. State Department of Taxation and Finance. Previously, supplying the information was optional.
For a New York-issued license or card, the return must also include the license or card’s “document number.” Taxpayers who do not have a driver’s license or state-issued identification card may indicate that fact by checking a box. For married taxpayers filing jointly, the information can be that of either the primary taxpayer or spouse.
A spokesman for the New York department confirmed practitioners’ reports that there was no authorized option for taxpayers who have a license or state ID to fail or decline to provide its details on an e-filed return. Authorized tax preparation software is supposed to require either entries in the information fields or an entry in the checkbox indicating the lack of a driver’s license or state ID for the return to be transmitted. The information does not appear on a copy of the return and is not required on a paper-filed return.
The Ohio Department of Taxation also says on its website that it is requiring driver’s license or state ID information for the primary taxpayer and spouse (if married filing jointly) beginning in tax year 2016, also with an option to indicate a taxpayer has neither.
The Alabama Department of Revenue website says that state is requiring driver’s license information for 2016 e-filed Alabama income tax returns. Amanda Collier, a spokesperson for the Alabama Department of Revenue, indicated that the department then attempts to match those numbers “with information on record with the Alabama Law Enforcement Agency.” If the department finds a match, the return is “scored higher for ID confidence.” If the department finds no match, the department uses other methods “to try to determine if the real taxpayer filed the return.”
Some states assign e-filing taxpayers a personal identification number (PIN) that requires a driver’s license or state ID number for returns filed through a state-maintained filing portal, commercial tax preparation software, or both. Illinois, for example, requires an Illinois-issued driver’s license or state ID to obtain a PIN, or taxpayers may (and first-time filers must) e-file using their driver’s license or state ID information.
A number of states request rather than require the information for 2016 and advise that providing it may reduce return processing time.
Although, as mentioned above, federal returns do not require driver’s license or state ID information, IRS Publication 1345, Handbook for Authorized IRS e-file Providers of Individual Income Tax Returns, states that electronic return originators (EROs) must inspect a valid government picture identification and compare the picture to the applicant when verifying taxpayers’ identities for the purpose of conducting an in-person signing of an electronic return.
But preparers conducting remote dealings with taxpayers, especially clients known personally to them, may not have this information on file and may have to request it from clients, adding to the time required to file the return. They may also have to answer clients’ questions about it.
“It’s a major problem,” said Howard Arem, a CPA with Klein & Arem Associates LLC in Jericho, N.Y. Some clients have been skeptical that recording driver’s license information with other tax return information might actually increase the likelihood or consequences of identity theft, he said.
“I try to get it upfront, but it’s not in the organizers,” Arem said. Calling a client to obtain the information is also less than optimal, since the licenses are “hard to read,” and communications, often over a cellphone, less than certain, he said, citing one recent instance in his practice.
“I’m writing it down, entering it on the return, and hopefully, it went through,” he said.
—Paul Bonner (Paul.Bonner@aicpa-cima.com) is a Tax Adviser senior editor.