In the interest of providing an extra layer of identification verification, software for processing e-filed New York state personal income tax returns will now require the inclusion of driver's license or state-issued ID information, according to recent guidance from the New York State Department of Taxation and Finance, released earlier this week.
According to the guidance, all approved e-file software will now require that taxpayers provide the ID number, issuing state, issuing date, and expiration date for all licenses or identification cards. If the taxpayer license/ID is a New York state driver's license or non-driver ID, the document number found on the license/ID must also be entered.
The field to input the information is not visible on the return but appears in the Authentication Header of the software's XML.
An FAQ by the Department on the measure said that providing the information had previously been optional but, as of the 2016 tax year, is now required. However, if the client does not have a driver's license or non-driver ID, then, according to the guidance, the software will prompt the preparer to indicate this by checking a box claiming that their client has "No Applicable ID," which will allow them to fulfill the requirement.
The FAQ says that not including the information will not necessarily cause a delay in refund processing time, though it might if all other efforts to validate the taxpayer are unsuccessful.
UPDATE: The New York State Department of Taxation and Finance has informed us that if a client does not want to share his or her driver's license or non-driver ID information, then the preparer should check the "No Applicable ID" box, even if the client technically does have a valid license. The preparer will not face any sanction or penalties for checking that box, but the taxpayers should understand that they are signing a return that states they do not have a license when in fact they do. This return would run through the department's validation rules and, depending on the information on the return from all fields, including the driver's license information, a determination would be made regarding the validity of the return, similar to what would happen if any other information did not match the public record.
The department also recommended that, if preparers have already sent tax packages to their clients, the preparers should reach out to them again and inform them of the new requirement.
The notice announcing the change, which came out Wednesday evening, said that historically the tax department's process of informing tax preparers of changes has been to communicate and work with tax preparation software developers; test for their compliance before approving; and then notify tax professionals through the issuance of an updated Publication 93. This year, however, the department decided that it would enhance communications with the tax preparer community by reaching out directly to its members.
UPDATE: The New York State Department of Taxation and Finance said that the department had discussed this change with software developers in a conference call in August, and then reminded them of the new requirement in November. The department said that this was not normally something that it would directly communicate with the tax preparer community, as normally the software developers would have included the relevant information in the program itself. The department chose to issue this communication after finding out that the software developers had not done any outreach on this matter.
"Could we have possibly done a better job of communicating this? Probably," an NYSTDF spokesperson said on Friday. "And it is something we are going to review and come up with a plan for in the following years."
For questions not addressed in the tax department’s FAQ, the department is encouraging practitioners to post their query in an online form, which they say will be answered within three business days.
More helpful may be the Department's "Answers" page dedicated to the issue, which has additional information, more than what is available on the original FAQ the Department published.
The new requirement has also been the topic of significant discussion on the NYSSCPA's exchange Open Forum. Join the discussion, here (login required).