Notice 2011-38, 2011-20 IRB
In a Notice, IRS has extended to calendar years 2011 and 2012 the pilot program that authorized filers of certain information returns to truncate an individual payee's nine-digit identifying number on specified paper payee statements for calendar years 2009 and 2010, if the filers met certain requirements. The Notice also modifies the pilot program by excluding one of the forms in the Form 1098 series.
Background. An information return is a return, statement, form, or other document that must be filed with IRS to report certain payments or distributions to a payee or amounts received from a payee in a calendar year. (Code Sec. 6724(d)(1), Reg. §301.6721-1(g)(1)) A filer is any person required to file an information return. (Reg. §301.6721-1(g)(6)) A payee is any person who is required to receive a copy of the information set forth on an information return by the filer of the return. (Reg. §301.6721-1(g)(5)) A filer generally must also furnish a payee statement to each payee that contains the same information as the information return for that payee.
Regs, forms, or instructions to forms typically require that the payee statement include the identifying number of the payee. The three types of identifying numbers applicable to individuals are: (1) Social Security numbers; (2) IRS individual taxpayer identification numbers; and (3) IRS adoption taxpayer identification numbers. All three of these identifying numbers are nine-digit numbers taking the form 000-00-0000. (Reg. §301.6109-1(a)(1)(i))
Identity theft risk. IRS recognizes that a person's identifying number is sensitive personal information. A risk exists that this information could be misappropriated from a payee statement and misused in various ways, such as to facilitate identity theft. In 2009, in an effort to minimize this risk, Notice 2009-93, 2009-51 IRB 863, created a pilot program allowing truncation of individual identifying numbers on certain paper payee statements.
Initial pilot program. Notice 2009-93 created a pilot program that allowed filers of information returns to truncate an individual payee's nine-digit identifying number on paper payee statements for calendar years 2009 and 2010 if the filers met certain requirements. Notice 2009-93 only applied to paper payee statements in the Form 1098 series (mortgage interest), Form 1099 series (various payments including, for example, interest and dividends), and Form 5498 series (IRA and other items). Filers who met the notice's requirements were treated as having satisfied any requirement in IRS guidance. Notice 2009-93 did not apply to any information return filed with IRS, any payee statement furnished electronically, or any payee statement not in the Form 1098 series, Form 1099 series, or Form 5498 series.
Extended and modified program. To allow IRS and taxpayers more time to evaluate the program, Notice 2011-38, effective on its release, extends the initial pilot program to paper payee statements furnished for calendar years 2011 and 2012. Notice 2011-38 also modifies Notice 2009-93 by excluding Form 1098-C, Contributions of Motor Vehicles, Boats, and Airplanes, from the pilot program. This form is an “acknowledgment” required by Code Sec. 170(f)(12), rather than a payee statement, and, as such, is not within the scope of the pilot program.
Observation: Notice 2011-38 notes that truncation of an identifying number on a paper payee statement is authorized notwithstanding that the calendar year 2011 form instructions state that the pilot program announced in Notice 2009-93 has expired.
Under Notice 2011-38, a filer must satisfy these requirements to be authorized to truncate identifying numbers for individuals on paper payee statements for the calendar years 2011 and 2012:
... The identifying number must be a Social Security number, IRS individual taxpayer identification number, or IRS adoption taxpayer identification number;
... It must be truncated by replacing the first five digits of the nine-digit number with asterisks or Xs (for example, the Social Security number 123-45-6789 could appear on the paper payee statement as XXX-XX-6789);
... It must appear on a paper payee statement (including substitute and composite substitute statements) in the Form 1098 series (excluding Form 1098-C), Form 1099 series, or Form 5498 series for calendar year 2011 or 2012.
Comments sought. IRS invited the public to submit comments on Notice 2011-38 by July 29, 2011.
References: For information reporting of mortgage interest received, see FTC 2d/FIN ¶S-3900; United States Tax Reporter ¶60,50H4; TaxDesk ¶814,054; TG ¶60512.