ID Theft: Two Prevention “Hassles” Worth Your Time
Even if you aren’t personally a victim of identity theft, as a CPA you still bear the burden of combating it on behalf of your clients. More often than not, for tax practitioners, the big cost is your time.
Recently, to help combat thieves, the IRS implemented various authentication measures, which emerged from the Security Summit. While many of these measures may not be noticed, some are quite visible. One measure, two-factor authentication for e-Services, has already prompted comments and complaints and another, the optional W-2 pilot program, is not being used much by practitioners and I suspect time has a lot to do with that too.
Identity theft protection walks a fine line between granting taxpayers access to their private information and blocking identity thieves from the same information. With this in mind, the IRS implemented the two-factor authentication measure for e-Services. On the plus side, this measure has resulted in fewer reported cases of identity theft. On the flip side, only 30% of e-Services users are able to authenticate themselves on their first attempt.
AICPA members have already called with concerns about the two-factor authentication process. A few of the common questions are:
- Why is information being requested from my personal return? The IRS asks for information on your most recently filed return because that information is readily available to them for matching.
- What if I have a cell phone, but it is registered under the company’s name? If your cell phone is registered to a family member or under a company’s name, you will fail the online authentication.
- If I fail the authentication process, what can I do? If you fail the online authentication, your account will be locked and you will have to devote some time to call the IRS or possibly go into a service center to authenticate yourself in person.
Yes, this new authentication process will be time-consuming, and the time you spend won’t be billable. But do you really want to take the chance of having to explain to that client that you didn’t have time to put in a number?
The AICPA has been in constant communication with the IRS to help improve this process for our members. The good news is that once you authenticate yourself, you are set as long as your account remains active.
W-2 Pilot Program
The W-2 pilot program assigns a unique code to a taxpayer’s W-2, copy B. While preparing the tax return, the preparer has the option to enter the unique code. The IRS is then able to match the unique code with its information and validate that the W-2 is legitimate. The program was deemed highly successful by the IRS, and is being expanded from 2 million to 50 million W-2s.
When I’ve spoken to members about the program, there has been unanimous support for the pilot program. In a conversation with the Commissioner of the IRS Wage and Investment Division, however, I was surprised to learn that most tax practitioners are not entering the unique code.
Since the input of the number is not mandatory – and, yes, it consumes valuable time during busy season (about half a minute per W-2) – the unique code is not being entered. At the same time, self-preparers are inputting the information not knowing why they are doing it. Regardless, the pilot program has successfully helped cut down tax return identity theft.
In talking with practitioners, I know they want to help combat identity theft. I also know from conversations with members who have either had clients’ identities compromised or their own identity compromised that the cost and pain associated with cleaning up the aftermath is timely, costly and stressful. Knowing that there are real benefits to the IRS preventative measures makes the cost of time more manageable and worthwhile.
Melanie Lauridsen, Senior Manager, Tax Policy and Advocacy, Association of International Certified Professional Accountants. Melanie is the staff liaison of the American Institute of CPAs IRS Advocacy and Relations Committee. Her public accounting experience includes working for PriceWaterhouseCoopers, where she provided tax expertise to high net worth individuals and privately held companies, as well as public accounting at a regional firm. Melanie has a Master’s degree in Accountancy from the George Washington University and a Bachelors in Economics from Brigham Young University.
Identity theft image courtesy Shutterstock.