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Noonan’s Notes Blog is written by a team of Hodgson Russ tax attorneys led by the blog’s namesake, Tim Noonan. Noonan’s Notes Blog regularly provides analysis of and commentary on developments in the world of New York and multistate tax law. Noonan's Notes Blog is a winner of CreditDonkey's Best Tax Blogs Award 2017.


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New Security Safeguards for the 2017 Filing Season

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The NYS Tax Department’s ongoing efforts to combat identify theft and deter fraud have yielded a new requirement for this filing season. Beginning with the 2016 tax year, all e-filed personal income tax returns must provide certain information from the taxpayer’s state-issued driver’s license or non-driver ID.

Under the new requirement, the following information must be provided: the license/ID number, issuing state, issue date, expiration date, and document number (for NYS-issued licenses/IDs only). If the taxpayer has no license/ID, the preparer can indicate this, which will also satisfy this new requirement. Failure to comply may result in processing delays.

While this new requirement applies to both e-filed returns and e-filed extension requests, some recently released FAQs address the situation where the preparer is running out of time and might not (yet) have access to the taxpayer’s license/ID information:

  1. If I need to e-file an extension but don’t have time to gather all the information, can I check the box for No applicable ID on the extension and then provide the driver license or state-issued I information when I file the actual return?
  2. If you file an extension and check the No applicable ID box, you’ll fulfill the requirement. However, when you subsequently e-file the client’s tax return or credit claim form, you’re required to collect and submit the driver license or state-issued ID information.

So apparently practitioners are permitted to check the “no applicable ID” box even if that’s not the case. But what if, for whatever reason, the return preparer doesn’t have this information? The recently released FAQs address this situation as well:

  1. If my client is known to have a valid driver license or state-issued ID, but chooses not to disclose it, can I check the No applicable ID box without repercussion? Am I required to disclose this (similar to when a taxpayer refuses to e-file)?
  2. As with any return data, you should submit the information as it’s provided by your client.

This obviously has created a lot of angst and headaches in the practitioner community. I presented on a panel with acting Commissioner Nonie Manion at the FAE’s Tri-State Tax Conference on January 19th (this is Tim talking), and the audience had A LOT of questions about the new requirement. Part of the concern is that it adds another hassle for the accountant when getting all the tax return info together. But there has also been a lot of concern about the communication on this issue. Practitioners first learned of this not from the Tax Department, but from the tax software providers! And since most practitioners had already started the information-gathering phase with their clients (without knowing of this requirement), many were upset as to the timing.

We didn’t really get into the communication issues at the conference. But Ms. Manion did confirm that this requirement was indeed aimed at combatting identity theft. It is also only required if the taxpayer has a New York license, so nonresident taxpayers without a New York driver’s license are off the hook. We also confirmed that the failure to include driver’s license info would not make the return invalid. But would there be prepare penalties for failing to include this information if the accountant knows or should know that the taxpayer indeed has a license? That’s not clear, though I think at least in this first year, there would not be aggressive enforcement on this issue, since the Tax Department likely realizes it could have handled the communication a bit better!

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