It just got harder for some payroll departments to report tax return information.
The Internal Revenue Service has announced on its Web site that it is requiring employers to manually enter Taxpayer Identification Numbers (TINs) on Forms W-2 for all taxpayers with Individual Taxpayer Identification Numbers (ITINs) who report wages. The requirement is effective for the 2011 tax year.
No software package should use an auto-population feature, regardless of the presence of an override feature, to populate the TINs on Forms W-2 for ITIN filers. Failure to comply with the new rules could result in a written reprimand, suspension, or even expulsion from the e-filing program. The IRS has cited Rev. Proc. 2007-40
as authority for taking such actions.
The change is part of ongoing IRS efforts to crack down on taxpayer and tax return preparer fraud. In the past, the IRS has used ITINs to help ferret out tax cheaters.
An ITIN is a 9-digit number that always begins with 9 and has a range of 70-88 in the fourth and fifth digits. Effective April 12, 2011, the range was extended to include 90-92 and 94-99 in the fourth and fifth digits. The IRS issues ITINs to individuals who are required to have a TIN, but who do not have, and are not eligible to obtain, a Social Security number.
The new IRS announcement, which has largely flown under the radar, could gum up the works for W-2 issuers. Steven Hoffman, a speaker and former IRS agent who often comments on tax compliance issues, foresees major problems: "I think this is going to cause the payroll departments a headache . . . it will be difficult to stop the automated process of placing this number on the W-2. It might be wise to consult with your IT department now, and if you use outside software to prepare your W-2s, you should ensure that this doesn't happen either. The penalty looks severe."