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1099 Filing Question: Can my company issue a 1099 using only partial social security numbers?

March 19, 2012

How can I meet the rules and still protect the identities of recipients?

Yes, this is possible, at least for 1099s issued for 2011 and 2012. A “pilot program” was just extended and modified by the IRS allowing certain information filers to use truncated versions of taxpayer ID numbers. (IRS Notice 2011-38). Two years ago, an initial program (explained in IRS Notice 2009-93) was designed to reduce the risk of misuse of identifying numbers.

Background information: The IRS often requires the preparation of information returns like 1099s reporting certain amounts to payees. One copy is sent to the IRS and another, with the same information, is given to the payee. Filers are required to furnish these payee statements to the appropriate recipients by January 31 every year.

The information returns always include the tax identifying numbers of the payees. This can often be their Social Security number or sometimes, as a tax ID number issued by the IRS. The IRS will issue either an individual identification number (ITIN) or an Employer Identification number (EIN). These numbers are in the form of 000-00-0000 and 00-0000000.

Of course, a person’s Social Security number is sensitive personal information and accordingly, there’s a risk that the number might be misappropriated and misused by illegitimate parties who gain access to it. The IRS recognizes that filing information returns has created problems and issues for taxpayers who have fallen victim to identity theft.

As a result, the IRS allowed filers of 1099s to truncate an individual’s nine-digit Social Security number and an Individual ID number (ITIN) for 2009 & 2010. Now, IRS Notice 2011-38 extends the program to 1099’s furnished for 2011 and 2012. This extension will provide more time for the benefits of the pilot program to be evaluated and the IRS has invited public comment on the issue.

To qualify for the truncation program, the following requirements must be met:

  • Only payer Social Security numbers (SSN) and individual taxpayer identification numbers (ITIN) are eligible. Employer ID numbers (EIN) cannot be truncated and must be fully presented.
  • The identifying number is truncated by replacing the first five digits of the nine-digit number with asterisks or Xs. For example, a Social Security number 123-45-6789 could appear on a paper payee statement as ***-**-6789 or XXX-XX-6789.
  • The truncated number can appear only on a paper payee statement. The copy mailed or e-filed to the IRS must still contain the full nine digits.

There is talk that this program may be expanded to include a payor’s tax identification number as well as the possibility of including EIN numbers. This would be a great help to sole proprietors and landlords. Stay tuned for more.

KLR’s tax professionals are CPAs and attorneys who have specialized training and experience in all matters of Federal, State and Local Tax Issues. Their expertise in tax strategies for individuals and families includes everything from estate gift & trust services, voluntary disclosure issues, transfer pricing, M&A assistance, cost segregation studies and research & development tax credits.

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