What is an IP PIN and Do You Need One?

print January , 2020

Identity theft has become a serious problem and fraudsters have used stolen identities to file false tax returns and claim refunds before the rightful filers can do so. Even children’s Social Security numbers are being targeted.

The Internal Revenue Service (IRS) created an Identity Protection Personal Identification Number (IP PIN) Opt-In Program to protect taxpayers whose identities had been stolen. Although the program was initially for victims of identity theft, it is being expanded in phases to all taxpayers. The IP PIN is a six-digit number assigned to eligible taxpayers to help prevent the misuse of their Social Security number on fraudulent federal income tax returns. An IP PIN is used only on Forms 1040, 1040PR and 1040SS.

There are a number of reasons for signing up for an IP PIN, but also some drawbacks. Data breaches have become prevalent and most of us have our personal information stored somewhere online, which means we risk having that information leaked or stolen. The IP PIN offers a greater level of security when it comes to protecting people from tax-related crimes. The IP PIN is an important tool as it will thwart tax-related identity theft, preventing many of the problems that come with identity theft. If your identity is stolen, the IRS flags your account for the next three years, resulting in slower processing of your tax return and a delayed refund if one is due.

Once you sign up for an IP PIN, you will be in the program for life. The IP PIN changes each year, unlike the four-digit PIN that people use without the need for change when filing online taxes each year. Some people may find that annual change cumbersome. The IRS will automatically send taxpayers a new IP PIN by mail each January, which makes it vital for taxpayers who have moved to use Form 8822 to inform the IRS of an address change. Without a new IP PIN, taxpayers will have issues filing their federal tax return. They will have to file their tax return on paper, by mail, as the IRS will reject any electronic version submitted without the proper IP PIN.

That is where having a tax advisor or tax preparer can make life less stressful. They can help walk taxpayers through the process of applying for an IP PIN and notifying the IRS if there has been identity theft. A tax advisor can also assist taxpayers with retrieval of their IP PIN if it is lost or if they do not receive their annual CP01A letter in January. Retrieval of an IP PIN can take up to 21 days as the IRS will have to send it by mail. If a return is filed after October 14, it will have to be filed on paper and the IP PIN cannot be used.

You are eligible this year for the online IP PIN Opt-In Program if you filed a federal tax return in 2019 as a resident of one of the following 20 states: Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Georgia, Florida, Illinois, Maryland, Michigan, Nevada, New Jersey, New Mexico, New York, North Carolina, Pennsylvania, Rhode Island, Texas and Washington. The IRS will send a CP01A notice or letter in early January to taxpayers eligible to receive an IP PIN in 2020. It hopes to make the program available to all taxpayers by 2024.

To sign up, use the online Get an IP PIN tool, which became available mid-January. If you do not already have an account on IRS.gov, you will first have to register in order to validate your identity.

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