Introduced in tax year 2016 as part of the partnership between the IRS and state agencies to combat identity theft and tax fraud, a significantly increased focus has been placed on developing "trusted customer" features that will help ensure the authenticity of the taxpayer and the tax return.
Collectively, through the Security Summit, state agencies and the IRS identified the need for additional information to be collected and provided with the electronic return. Without the additional information, state agencies lack access to databases available to the federal government (for example, Social Security Administration), which can restrict states' ability to protect against fraud. As a result, the IRS implemented new identity verification data elements to be submitted with the electronic return.
Through the collection of driver's license and state ID information, data is now readily available to state taxing agencies and can be shared at the state level. As a professional tax software vendor, we are required to implement the collection of the identity verification data that is reflected in the ProSeries Identity Verification Worksheet.
The IRS and state agencies, along with industry partners, continue to work together to analyze and share data to combat fraud income tax fraud. Processing protocols that are used to identify fraudulent returns have and will continue to evolve significantly throughout the season and into the future. These protocols use a variety of data to identify potentially fraudulent returns that require review. While unfortunate, valid returns can be flagged as suspicious and require review, which results in delays. The driver's license and state ID information, when provided, offers additional data the agency can use to identify the taxpayer and the return as being authentic.
While some state agencies indicate identity verification data such as driver's license and state ID info may not be required, this data is still available to the state tax agencies and can be used to prevent a return from being flagged for review, or if flagged can speed the processing and release of a taxpayer's refund. As the Identity Verification Worksheet is a protection provided to the taxpayer, we encourage you to allow your client to determine if they wish to provide the information.