IRS Removes Automatic Extension for Filing Forms W-2
IR-2015-87
As reported in IR-2015-87, on June 11, 2015, the IRS partnered with representatives of tax preparation and software firms, payroll and tax financial product processors and state tax administrators to announce new efforts in place to combat fraudulent refunds and to protect taxpayers from identity theft.
The IRS and its partners reached an agreement, through the sharing of information, which includes necessary precautions to ensure that taxpayer information, including tax return information, is validated. IRS Commissioner John Koskinen was quoted, “This agreement represents a new era of cooperation and collaboration among the IRS, states and the electronic tax industry that will help combat identity theft and protect taxpayers against tax refund fraud. We’ve made tremendous progress, and we will continue these efforts. Taxpayers filing their tax returns next filing season should have a safer and more secure experience.”
The IRS and its partners agreed to implement several new initiatives including:
- Taxpayer Authentication;
- Fraud Identification;
- Information Assessment;
- Cybersecurity Framework; and
- Taxpayer Awareness and Communication.
Treasury Inspector General for Tax Administration
In its Fiscal Year 2015 Annual Audit Plan (“Plan”), Treasury Inspector General for Tax Administration (“TIGTA”) indicated that it would be focusing on “key emphasis areas that are significant components of the major management challenges facing the IRS”; identity theft being one of them.
In the Plan, TIGTA stated that the IRS has acknowledged that billions of dollars in fraudulent refunds resulting from identity theft go undetected each year and that the IRS has a number of projects underway to continue to improve its detection and prevention efforts. The efforts include victim case resolution, development of programs and information to protect the taxpayer from future misuse of their personal information and providing various options for victims to obtain assistance and resource information for resolving tax issues.
Temporary and Final Regulations
On August 12, 2015 the IRS issued temporary and final regulations related to its identity theft efforts. The regulations are effective for the 2017 filing season and remove the automatic 30-day extension of time to file Forms W-2.
Currently, IRS Treasury Regulation Sections 1.6081-8(a) and 1.6081-8(d) allow a person who is required to file certain information returns, including Form W-2, an automatic 30-day extension of time to file those information returns, as well as an additional non-automatic 30-day extension of time to file. The Form 8809, “Application for Extension of Time to File Information Returns” must be filed by a filer or transmitter of the forms.
Electronically filed Forms W-2 are currently due to the IRS by March 31, but with extensions, these returns may be filed by the end of May. Paper filings of information returns are due to the IRS by the last day of February and, with an extension, can be filed with the IRS by the end of April. Accordingly, the IRS receives these information returns late in the filing season. As a result, the IRS frequently receives taxpayers’ filed income tax returns prior to receiving this pertinent information; which leads to fraudulent and erroneous refunds. By allowing one 30-day non-automatic extension, the IRS will increase its chances of discovering identity theft prior to issuing a fraudulent refund.
Effective for the 2017 filing season, Treasury Regulation Section 1.6081-8T, removes the automatic 30-day extension of time to file Forms W-2. This change by the IRS was due to identity thieves who often electronically file fraudulent refund claims early in the tax filing season by using fictitious wages and other information stolen from legitimate taxpayers. The IRS is unable to verify the wage and other information reported on tax returns filed before April 15 due to the fact that the IRS doesn’t receive the information returns until later in the filing season.
State Efforts
When it comes to identity theft, states are following suit. Due to similar fraud issues, states are increasing their efforts to combat identity theft. States such as Alabama, Indiana, Utah and Virginia have, like the IRS, accelerated the deadline for employers to file state Forms W-2 to January 31.
More recently, in Connecticut, effective July 1, 2015, employers are now required to electronically file Form CT-W-3, Connecticut Annual Reconciliation of Withholding, and the corresponding Forms W-2 by January 31, rather than the previous deadline of February 28 for Forms W-2 filed on paper and March 31 for electronically filed Forms W-2.
Conclusion
Identity theft will continue to be a problem that the IRS and taxpayers face. As hackers become more sophisticated, the IRS and its partners will need to continue to ramp up efforts to fight identity thieves and prevent fraudulent refunds from being issued.
The IRS website, www.irs.gov, contains a wealth of information related to identity theft and its efforts to prevent it. As indicated on the website, identity theft places a burden on its victims and presents a challenge to businesses, organizations and government agencies, including the IRS. The IRS combats tax-related identity theft with an aggressive strategy of prevention, detection and victim assistance.
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