The IRS Will Now Vouch for You in a File a Lender Can Verify

The IRS has started issuing a document whose whole purpose is to be handed to somebody else. The Tax Compliance Report, announced August 20, is a statement of a taxpayer’s compliance status that can be downloaded on demand from IRS Individual Online Account and passed to a third party.

What it is for

The IRS lists the situations it has in mind: applying for employment, applying for a loan, applying for government benefits, or other services that require verification of tax compliance. These are all cases where somebody currently asks a taxpayer to prove a negative — that there is no outstanding problem with the IRS — and where the usual proof is a transcript or a self-declaration.

By providing a secure, digitally authenticated report, the IRS is making it easier for taxpayers to access and share important information while protecting privacy and data integrity.

The authentication is the point

A downloadable PDF is trivial to alter. The IRS addresses that by attaching a digital certificate to each report. According to the agency, the certificate confirms authenticity, protects taxpayer information and maintains the integrity of the report, and the verification features are embedded in the downloadable file itself.

That is the practical difference from a transcript. A financial institution, government agency or other organization receiving the file can check the certificate rather than having to trust the copy in front of it or call the IRS.

Getting to it

The report sits inside Individual Online Account, which the IRS describes as the place to view return information including adjusted gross income, access transcripts or the tax compliance report, track refunds and amended returns, read digital notices, retrieve information returns such as W-2s and certain 1099s, make and schedule payments, apply for or change a payment plan, obtain an Identity Protection PIN, and sign certain forms electronically.

Access requires identity verification. The IRS instruction to new users is short: have your photo identification ready.

What to watch

Whether mortgage lenders and state benefit agencies begin naming the Tax Compliance Report in their documentation requirements. A verifiable document is only useful if the institutions on the receiving end decide to ask for it.