Here’s the Skinny on Driver’s License Information for State Tax Returns
As you have probably heard, several states have added a request or a requirement for a driver license number (or other state identification number) to be entered into the tax software system for the return to be electronically filed. As practitioners, you likely understand the reasoning for the request – this information helps states confirm the identity of taxpayers, which aids in reducing identity theft. However, the logistics of obtaining the information and explaining this requirement to your clients may prove to be difficult.
Here are some frequently asked questions (and answers) to help you with this issue.
Why am I being asked for my client’s driver license number?
States are making an effort to better protect taxpayers from identity thieves. The thinking is that a thief could have a taxpayer’s name and Social Security number, but they probably don’t have their driver license number. States match the information in their database to confirm the identity of the taxpayer, helping to prevent fraud.
Is a driver’s license or other state-issued ID required to file a federal return?
No, this information is not required in order to file a federal return.
What states are requiring the information for electronically filed returns?
At this time, only Alabama, Ohio and New York are requiring the driver’s license for electronically filing. California, Kansas, Louisiana, New Jersey, Pennsylvania, Virginia and Wisconsin, are requesting (but not requiring) the information. State policies are constantly changing. The best source for more detailed information will be the client’s state tax agency.
Is the driver license information required for extension requests?
In the case of an electronically filed New York extension, either the document number of the driver’s license or state identification will be required. New York has stated that if the information is not available at the time of the filing of the extension, then the preparer should check the “No applicable ID” box. Alabama and Ohio both accept the federal extension; therefore, it is not necessary to file a separate extension.
What information from the driver’s license is required?
This will vary by state. New York taxpayers must provide the ID number, issuing state, issuing date and expiration date for the license or identification card. If the taxpayer’s license/ID is a New York driver license or non-driver ID, the document number found on the license/ID must also be entered. Some of this information may be found on the back of the license, so if you are making a copy of the license, be sure to copy both front and back.
My tax software is asking for this information, but my client does not file in any of the states requiring it. How should I proceed?
If you have the information and your client is aware that you will be using it to file their return, the easiest thing would be to enter it into the software. If you don’t have it or your client does not want to provide it, you should be able to bypass this question. Check with your software provider to determine if input is necessary to process the return. If so, entering all zeros may work to allow you to electronically file the return.
My client is a taxpayer in a state that requires a driver’s license to be entered, but they do not have a driver’s license or other type of state identification. What should I do?
For each of the states that require driver license information to be entered, there is an option to say that no identification is available. This is also the case for deceased taxpayers.
If I do not provide the taxpayer’s driver’s license, will there be a delay in the processing of the return and/or the refund?
This will depend on the state. New York guidance states that failure to provide the information when it is not available (see prior question) will not cause delays. However, the processing of the refund may be delayed if efforts to validate the taxpayer’s identity are unsuccessful.
My client is refusing to provide their driver’s license for the filing of their return even though their state requires it. What is my alternative?
New York has addressed this question by saying that for this year of transition (the first year in which New York is requiring taxpayers’ driver’s license information), they are permitting preparers to check the “No Applicable ID” box if the taxpayer refuses to provide the required information. They recommend keeping contemporaneous information to document that the preparer used proper due diligence to try to obtain the information and that the taxpayer refused to provide it. Based on my research, Ohio and Alabama do not appear to have addressed this question.
What is a best practice for collecting and safeguarding this information for my clients?
Consider adding a request for a copy of your clients’ driver license to your tax organizer, especially if you file returns in states where the information is required. You should safeguard this information as you would any other confidential client information. For example, client data should be secured at the end of each day so that it is not accessible by visitors (welcome or otherwise) to your offices. And if your office is paperless, proper care should be taken to ensure that the data is stored in a secure manner. For a reminder on these issues, you should review the AICPA’s Statements on Standards for Tax Services (SSTSs) and Circular No. 230.
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April Walker, CPA, CGMA, Lead Technical Manager – Tax Practice and Ethics, Association of International Certified Professional Accountants