States Require New Authentication Procedures for Electronic Filing

State and Local Tax|Tax

By Ryan Bianco

States have implemented new security measures to protect taxpayers who file their tax returns electronically.  The majority of states now require the signing officer of a partnership, S corporation, corporation, fiduciary or exempt organization return to provide his or her identification number to the jurisdiction when electronically filing the organization’s returns.   The officer identification must be a valid social security number or employer identification number (EIN) of the signing officer. 

As it relates to individual tax returns, there are now a few states that require a state-issued driver’s license or state ID information number to be submitted to the jurisdiction in order to electronically file. 

These taxpayer authentication procedures are new to the 2017 filing season and are being employed to protect against tax refund fraud caused by identity theft.   The state driver’s license number verification was a recommendation in the recent Security Summit group meeting.  The group is sponsored by the IRS, state taxing authorities, the tax software industry, financial services providers and other members.  The recent Summit focused on “identifying and enacting safeguards that would help ensure the legitimacy of the tax return filed and the authentication of the taxpayer filing it.”

It is important to note that these identification numbers are not required to be disclosed on taxpayers’ federal tax returns.  Furthermore, although the information is required to be transmitted to certain state jurisdictions, the information is not reported on the face of the returns.  The numbers are merely included in the digital transmission of the returns. 

The officer’s ID requirement for business returns applies to all states with the exception of California, Florida, Michigan and Texas.  The state driver’s license number requirement applies to individual tax returns filed in Alabama, New York and Ohio.

During IRS Commissioner John Koskinen’s remarks to the Security Summit he stated, “The bottom line for taxpayers is that the IRS and the states, with the help of the tax industry, are stopping more suspicious tax returns at the door, and we’re preventing more fraudulent refunds from being issued.”

Schneider Downs continues to monitor these developing identity theft security measures and will advise our clients regarding these ever-evolving efforts to reduce fraud. Please contact us with any questions and visit the Our Thoughts On blog for more articles on state and local tax

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