New IRS vERIFICATION CODE

[taxea]

I got this from TTB email. Wonder how much of a problem this is going to create.

New W-2 Verification Code

Post Date: 11/18/2015
Last Updated: 11/18/2015

Summary
Cross References
- www.irs.gov

For filing season 2016, the Internal Revenue Service will test a capability to verify the authenticity of Form W-2 data. This test is one in a series of steps to combat tax-related identity theft and refund fraud.

The objective is to verify Form W-2 data submitted by taxpayers on e-filed individual tax returns. The IRS has partnered with certain Payroll Service Providers (PSPs) to include a 16-digit code and a new Verification Code field on a limited number of Form W-2 copies provided to employees.

The code will be displayed in four groups of four alphanumeric characters, separated by hyphens. Example: XXXX-XXXX-XXXX-XXXX.

The Verification Code will appear on some versions of payroll firms’ Form W-2 copies B and C, in a separate, labeled box (Copy B is "To be filed with employee’s federal tax return" and Copy C is "For employee’s records.")

The form will include these instructions to taxpayer and tax preparers:
Verification Code. If this field is populated, enter this code when it is requested by your tax return preparation software. It is possible your software or preparer will not request the code. The code is not entered on paper-filed returns.

Some W-2s that employees receive will have a "Verification Code" box which is blank. These taxpayers do not need to enter any code data into their tax software product.

For the purposes of the test, omitted and incorrect W-2 Verification Codes will not delay the processing of a tax return. The IRS will analyze this pilot data in a "test-and-learn" review to see if it is useful in evaluating the integrity of W-2 information.

The code will not be included in Forms W-2 or W-2 data submitted by the PSPs to the Social Security Administration or any state or local departments of revenue. Nor will this pilot affect state and local income tax returns or paper federal returns.

[kathyc2]

I'm not seeing the benefit of this. Is the # specific to each W-2 produced? If so, what benefit would it have beyond matching amounts on 1040 to employer submitted W-2's?

Is it employer specific and changing every year? That would make more sense as you would not only need the EIN but the employer specific verification number for the year.

The cynic in me wants to know if/how much federal tax money is going to the PSP to test this?

[MDEA]

Irs code

It is to stop people using DIY software from making up a phony W-2. In some software they will be asked to enter the code when they put in their W-2

[Rapid Robert]

I'm not seeing the benefit of this.

I think they're doing a test, much like private industry (Google, Facebook, etc) does tests on consumers all the time. Better to conduct a test than to accept or reject an unsupported hunch. "IRS will analyze this pilot data in a "test-and-learn" review to see if it is useful in evaluating the integrity of W-2 information."

[Dusty2004]

Proseries

I have asked ProSeries what they are doing as the current version of the software does not have that field available.

Dusty

[kathyc2]

I think they're doing a test, much like private industry (Google, Facebook, etc) does tests on consumers all the time. Better to conduct a test than to accept or reject an unsupported hunch. "IRS will analyze this pilot data in a "test-and-learn" review to see if it is useful in evaluating the integrity of W-2 information."

Yep, but they already have a simple solution right under their nose in not issuing refunds until amounts match W-2s submitted. Big deal if refunds take longer than 10 days, we somehow survived refunds taking a month or 2 just a couple decades ago. Their solution makes about as much sense as traveling from Indy to Chicago by way of NYC.

[David1980]

I'm not seeing the benefit of this. Is the # specific to each W-2 produced? If so, what benefit would it have beyond matching amounts on 1040 to employer submitted W-2's?

Is it employer specific and changing every year? That would make more sense as you would not only need the EIN but the employer specific verification number for the year.

My thoughts are the opposite. If the # was specific to the employer (and the same on every W-2 issued by that employer) one would only need see one W-2 from that employer before making up a fake W-2 for every other return they do. If the # is specific to each W-2 produced on the other hand so that IRS would know the W-2 was real that would help substantially in sorting out all the returns filed with a fake / fictitious W-2.

Sounds like this year the IRS is just collecting information and won't be using it to do anything with the returns.

As far fraud / identity theft, how successful will it be? Some, but not all. Obviously the goal behind fraud is to get a tax refund. The goal is money. To that end, the fraudulent returns will rely upon refundable tax credits and withholding. W-2's are the most common source of tax withholding. But not the only source, and you can still get refundable credits. If fraudsters could not use W-2's, they would do something else. However, that doesn't make the information useless - at least not for identity theft detection. Say Mr. and Mrs. Smith have filed a tax return with two W-2 the past 17 years, and suddenly the return has Schedule C or Household Help or something and no W-2. Possible that they left their jobs and started a business, but also possible identity theft.

Though, I'd guess if this was adopted more wide spread it would hit hardest those preparers filing returns prior to the taxpayer receiving a W-2. Faking it off a paystub or what not. And that's a good thing as well I think.

[David1980]

Yep, but they already have a simple solution right under their nose in not issuing refunds until amounts match W-2s submitted. Big deal if refunds take longer than 10 days, we somehow survived refunds taking a month or 2 just a couple decades ago. Their solution makes about as much sense as traveling from Indy to Chicago by way of NYC.

Well, the IRS currently matches them much later than a month or two (starting in July, I believe). Speeding that process up and implementing processes to match it in real time or faster anyway would be ideal. I believe there's some states planning to do just that though, so it might be a good test case to see if it can be done at the federal level.

The problem the IRS has that states don't is probably congress. Could be taxpayers contacting politicians to complain about it and congress doesn't seem to be showing a lot of love to the IRS as it is.

[taxea]

ProSeries will have to update their W2 form to include a box for this ID#. IRS is using it in conjunction with employers for Id theft purposes, not for income matching. It will not appear on all W2's but if it does it has to be input.

[kathyc2]

ProSeries will have to update their W2 form to include a box for this ID#. IRS is using it in conjunction with employers for Id theft purposes, not for income matching. It will not appear on all W2's but if it does it has to be input.

From the release: "For the purposes of the test, omitted and incorrect W-2 Verification Codes will not delay the processing of a tax return. The IRS will analyze this pilot data in a “test-and-learn” review to see if it is useful in evaluating the integrity of W-2 information."

Doesn't sound to me like it HAS to be input.

[taxea]

The IRS instructions on this say it does have to be input if it appears on the W2

[dtlee]

My thoughts are the opposite. If the # was specific to the employer (and the same on every W-2 issued by that employer) one would only need see one W-2 from that employer before making up a fake W-2 for every other return they do. If the # is specific to each W-2 produced on the other hand so that IRS would know the W-2 was real that would help substantially in sorting out all the returns filed with a fake / fictitious W-2.

Sounds like this year the IRS is just collecting information and won't be using it to do anything with the returns.

As far fraud / identity theft, how successful will it be? Some, but not all. Obviously the goal behind fraud is to get a tax refund. The goal is money. To that end, the fraudulent returns will rely upon refundable tax credits and withholding. W-2's are the most common source of tax withholding. But not the only source, and you can still get refundable credits. If fraudsters could not use W-2's, they would do something else. However, that doesn't make the information useless - at least not for identity theft detection. Say Mr. and Mrs. Smith have filed a tax return with two W-2 the past 17 years, and suddenly the return has Schedule C or Household Help or something and no W-2. Possible that they left their jobs and started a business, but also possible identity theft.

Though, I'd guess if this was adopted more wide spread it would hit hardest those preparers filing returns prior to the taxpayer receiving a W-2. Faking it off a paystub or what not. And that's a good thing as well I think.

While I have no details, this hexadecimal code is likely built from nonpublic information (like a password or PIN) provided by the IRS to the payor (and perhaps also from the W2 vendor) as well as the information on the W-2. If the combination does not match what the IRS can build themselves from the same information, I would imagine a flag would be set on their side. My guess is that the trial this year would be to determine how often a false flag would be set. This should allow them to detect a falsified W2.

I suppose if you could determine the algorithm used by the IRS, you might only need one valid W2 to back into the nonpublic information used, but I suspect it may not be that easy.

[David1980]

I suppose if you could determine the algorithm used by the IRS, you might only need one valid W2 to back into the nonpublic information used, but I suspect it may not be that easy.

I expect it to work like you describe. The post I responded to suggested there wouldn't be any benefit unless the code was specific to the employer and not specific to the W-2. It sounded like they were saying every W-2 from an employer should have the same 16 digit code. With it being specific to the W-2 (based an an algorithm as you describe) I believe it would be useful in detecting made up W-2's.

[taxea]

Update frm irs 12/14/15

Issue Number: IRS Security Awareness Tax Tip Number 4
Inside This Issue
________________________________________
What You Need to Know to Protect Your Passwords
It’s time to have a word about your password.
Many of us use the same sign-on and password over and over for our online accounts.
That’s why phishing scams, which often seek password information, are so successful. Once a criminal has your password for one account, it’s highly likely you’ve used the same sign-on information for other accounts.
The IRS, state revenue departments and the tax industry have teamed up to combat identity theft in the tax arena. Our theme: Taxes. Security. Together. Working in partnership with you, we can make a difference.
That’s why we have all agreed to new stronger standards that you will see when you access your tax software products for 2016 and file your taxes. These include:
• A password that has eight or more characters, including upper case, and lower case letters as well as numbers and a special character.
• New features include a timed lockout and limits on unsuccessful log-in attempts.
• You must complete three security questions.
• Tax software partners must verify email addresses. In many cases, this means a PIN will be sent to your email or text that you must use to verify your address before you can proceed with your tax software.
These are just a few of the new protections that will be in place for the 2016 tax season to protect you from identity thieves. Most of the protections we are taking may not be visible to you, but they will add layers of protection nonetheless, adding new and stronger protections during tax time.
While we are taking these steps, it’s a good time for you to think about the passwords you use for other accounts. You should always use strong passwords with a mix of letters, numbers and special characters. Do not use the same password for multiple accounts. The longer, the better. And change your passwords regularly.

[Matt Sova]

Problem with this idea

Yep, but they already have a simple solution right under their nose in not issuing refunds until amounts match W-2s submitted. Big deal if refunds take longer than 10 days, we somehow survived refunds taking a month or 2 just a couple decades ago. Their solution makes about as much sense as traveling from Indy to Chicago by way of NYC.

The issue is that if you electronically file the W-2's, they are not due until 3/31. Can you imagine? No one would get their tax return done early in the year because they would have to wait until after 3/31 to get their refund.