IRS plans to mask info on business tax transcripts

The Internal Revenue Service said Friday it intends to start “masking” sensitive information on business tax transcripts, beginning Dec. 13, to safeguard taxpayers against the threat of identity theft.

Friday’s announcement gives taxpayers and tax professionals 30 days to make any necessary adjustments. The IRS began telling tax professionals about the upcoming change during its summer Nationwide Tax Forums. It started hiding sensitive data on individual tax transcripts two years ago.

The IRS has had problems in the past with the security of its Get Transcript app on IRS.gov and needed to temporarily take down the app in 2015 when it discovered cybercriminals were using it to access the transcripts of hundreds of thousands of tax returns. It restored the app in 2016 after improving its authentication features (see story). Tax transcripts summarize older tax returns and are often used by tax professionals to prepare prior-year tax returns or represent a client before the IRS. Lenders and others also employ tax transcripts for income verification purposes.

After the IRS does the masking to protect against identity theft, here’s what will be visible on the new tax transcript:

• Last four digits of any Employer Identification Number listed on the transcript: XX-XXX1234.
• Last four digits of any Social Security number or Individual Tax Identification Number listed on the transcript: XXX-XX-1234.
• Last four digits of any account or telephone number.
• First four characters of the first and last name for any individual (first three characters if the name has only four letters).
• First four characters of any name on the business name line.
• First six characters of the street address, including spaces.
• All money amounts, including wage and income, balance due, interest and penalties.

For both individual and business tax transcripts, there will be space for a Customer File Number, an optional 10-digit number that can be generated, typically by third parties, to enable them to match a transcript with a specific taxpayer. The Customer File Number field will show up on the transcript when that number is entered on Line 5 of Form 4506-T, "Request for Transcript of Tax Return," and Form 4506T-EZ.

This is how it will work for a taxpayer who wants to verify their income for a lender:
1. The lender will assign a 10-digit number, such as a loan number, to the Form 4506-T. The form can be signed and submitted by the taxpayer or signed by the taxpayer and submitted by the lender.
2. The Customer File Number assigned by the requestor on the Form 4506-T will show up on the transcript. The requestor can assign any number except the taxpayer’s Social Security number or Employer Identification Number.
3. Once it’s received by the requester, the transcript’s Customer File Number will become the tracking number to match the transcript with the taxpayer.

More information about the masking of transcripts will be available on the IRS.gov e-Services page after Dec. 13.