Written by Eamonn McElroy, CPA, Atlanta
Published June 20, 2021
Background
Unfortunately, data leaks and theft of sensitive consumer information have become all too common. Hackers and thieves often target companies that have this information with the goal of selling the information on the dark web, fraudulently applying for and obtaining credit cards, and filing fraudulent tax returns.
The latter situation is generally done to trick the Internal Revenue Service (“IRS”) into issuing an incorrect refund which can be intercepted by the fraudster. While the IRS does have certain “passive” authentication measures in place, such as a matching system that may cause a superficially “incorrect” tax return to be flagged, the fact that all one generally needs to file a federal income tax return for an individual is the individual’s name and Social Security Number (“SSN”) does not inspire a lot of confidence. As hinted in the first paragraph, in this new normal of regular data breaches, our SSNs may not be as secret as we’d like to believe.
Fortunately, the IRS is aware of this shortcoming and offers a solution that is mutually beneficial for all stakeholders: the Identity Protection Personal Identification Number (“IP PIN”) Program. There are currently two ways to enroll in the program. The first is automatic enrollment if the IRS receives notice that you have been the victim of identity theft. The second is voluntary opt-in.
What is an IP PIN?
After enrolling in the program, an IP PIN will be issued to you around mid-January of every year. The IP PIN is a random six-digit number that must be included on all federal individual income tax returns that are filed for you during the calendar year. If the IP PIN is not included on your return, or is incorrect, the IRS will generally reject the return and notify you of the rejection.
The IP PIN’s purpose is to serve as a check figure, or authentication number on your federal income tax returns. IP PINs make it much more difficult for an individual to file a fraudulent tax return using your information, even if they have obtained your SSN.
Any individual with a US income tax return filing obligation and a taxpayer identification number – either SSN or ITIN – may apply for an IP PIN by voluntarily opting in.
How do I apply for an IP PIN?
If you would like to apply for and obtain an IP PIN, you generally must use the IRS’s online “Get an IP PIN” tool and pass a rigorous identity verification process. The IRS offers other, alternative methods to apply for an IP PIN if you cannot use the online tool or pass the identity verification process.
For more information and to apply for an IP PIN, navigate to: https://www.irs.gov/identity-theft-fraud-scams/get-an-identity-protection-pin
Limitations
Currently, the IRS IP PIN program is for federal individual income tax returns only (IRS Form 1040 series). The program is not available for entity income tax returns, such as Partnerships (IRS Form 1065), S Corporations (IRS Form 1120-S), C Corporations (IRS Form 1120) and Estates/Trusts (IRS Form 1041). Also, the program does not automatically cover an individual’s state and local income tax returns, although select jurisdictions may offer a separate and proprietary authentication program.
In Summary
If a fraudulent tax return is filed using your information and is accepted by the IRS, you’ll realize all too late how much of a headache the resolution process is. You’ll generally have to commit time to get everything straightened out with the IRS. You may also incur professional fees if you request that your tax advisor help you navigate the process. The fraudulent return isn’t your fault, but you’ll waste time and money all the same. Opting into the IRS IP PIN program is a cheap way to substantially mitigate the risk that a fraudulent return can be filed using your information. Opting into the IP PIN program is a no-brainer.
Copyright © 2021 Eamonn McElroy CPA, LLC.
Disclaimer: Tax law, regulation and procedure are constantly changing. Eamonn McElroy CPA, LLC has provided this article as general information only and is under no obligation to update the article for future changes, including but not limited to changes in tax law or procedure. The information contained in the article is not tax advice, nor should it be construed as tax advice. You should consult with your tax advisor to determine how the information in this article affects you and what actions you may take and should take.