Permission to Use a Truncated Identifying Number

Concerned about the growing risks of identity theft including its effect on tax administration? A number of years ago, the Internal Revenue Service (IRS) established a pilot program to test a new system of allowing an individual's tax identifying number, typically their social security number, to be truncated on certain information returns.

The pilot program was successful, and the program was expanded in subsequent years.

In 2013, the IRS published a notice of proposed rule-making and established the truncated taxpayer identification number (TTIN), provided guidelines for its use and called for comments related to the new TTIN.

After considering the comments received, on July 9, 2014, the IRS issued final regulations regarding the use of a TTIN.

A TTIN displays only the last four digits of a taxpayer identification number; the first five digits are replaced with an asterisk or an X. According to the final regulations, a TTIN can be used in lieu of a taxpayer's social security number, IRS individual taxpayer identification number, IRS adoption taxpayer identification number or employer identification number where not prohibited by the Internal Revenue Code, applicable regulations, other guidance published in the Internal Revenue Bulletin, forms or instructions on payee statements and other documents.

While the effective date of the final regulations is July 15, 2014, they are generally effective for payee statements due after December 31, 2014.  But, a TTIN may not be used on a return filed with the IRS and a person may not truncate their own taxpayer identification number on any tax form, statement or other document that person furnishes to another person. For example, an employee cannot use a TTIN on a form W-4 provided to an employer and an employer cannot use a TTIN on a form W-2 given to an employee.

It should also be noted that the use of a TTIN is not mandatory, it is permissive. The choice of using a TTIN is with the person providing the information.

However, even then it can get complicated when an information return is designed in multiple parts, some going to the named individual and one or more parts going to the IRS. A TTIN may be used for the parts going to the individual identified person, but cannot be used on the parts going to the IRS. Undoubtedly, the computer programs that produce information returns will be changed to make this complication seamless for users, but if prepared manually, it will require some extra attention.

Contact your Eide Bailly representative for more information. For complete information from the Department of Treasury, click here.