Tax Reporting Season Updates and Digital IDs Present Challenges for Businesses

Wendy Walker, solution principal at Sovos, said changes to IRS reporting that help identify firms may catch some businesses unaware.

As Walker illustrated in a recent interview with PYMNTS, if an enterprise wants to file information with the IRS — such as 1099s — they must have transmitter control codes (TCCs) in place. The codes themselves are issued by the IRS and are used to identify who’s conveying third-party information to the agency.

In past practice, the process of obtaining a TCC was just like any other interaction with the IRS – paper based, done through the mail.

What’s Changing

But now, she said, the mechanics are changing, especially in the digital age, and due to fraud concerns, the IRS has, in Walker’s words, “stepped up” its processes for authenticating parties that are using IRS systems to file returns.

“Instead of that paper form, they’ve now implemented a system called IR Application for TCC,” Walker said. The system is used to store the identity of all TCC holders and to handle the applications for and assignments of new TCCs.

Applying for a TCC entails setting up an account with the government’s verification systems, through either ID.me or the login.gov system. Upon establishing those accounts, users verify personal information such as social security numbers, but also set up a multi-factor authentication process.

In addition to a TCC, businesses that file directly in the IRS system must have an eServices account in place, a portal that gives them access to a broad range of IRS systems, where they establish or designate officers responsible for the business. Those officers must be licensed bar attorneys or CPAs, and in some cases, must provide significant amounts of personal data, said Walker, including fingerprints.

Avoiding the Scramble

The transition to the new means of setting up new TCC codes began more than a year ago, but Walker said that some companies may not have embraced the changes or have run into problems with data mismatches or other frictions.

Sovos, for its part, has had to tackle the protocols for over 100 TCCs, and Walker said that she’s seen other firms have to wait as long as two months to get their TCCs. Given the fact that many companies seek to file their returns as soon as the end of January, the scramble to get TCCs in place could conceivably bump right into 2024’s tax season.

One way to streamline the TCC process is to work with third-party providers such as Sovos — which is already using the new systems. Otherwise, businesses that intend to file directly should attempt to escalate the TCC application process with the IRS or apply for a one-time waiver. If it’s not a company’s first time asking for a waiver, Walker noted, the firm will have to demonstrate to the IRS that a catastrophic event has taken place, rendering the company unable to qualify for the waiver request.

The shift in TCC processes, Walker said, will improve the accuracy of data submitted to the IRS, reduce fraud and get refunds and returns processed more quickly. And there’s an added benefit, too, as other government systems like the Social Security Administration Business Services Online platform also leverage ID.me and login.gov authentication systems, streamlining login access for users of multiple government agency systems.

But most immediately, Walker said, the TCC modernization beckons for enterprises and executives to pay attention as 2023 comes to a close.

“You don’t want to roll the dice here and hope that [last year’s 1099 filing processes] still work,” she said.

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