Final Regulations Issued for Use of Truncated Taxpayer Identification Numbers

New IRS Regulations Aim to Fight Identity Theft Through Use of Truncated Taxpayer Identification Numbers

This week, in an effort to safeguard taxpayers from identity theft, the IRS issued its final regulations regarding the use of Truncated Tax Identification Numbers or (TTINs). The final regulations, published on July 15, are amendments to the Income Tax Regulations and Procedure and Administration Regulations, which allow the tax filer to truncate a payee’s identification number on certain documents. The Service states that the amendments are specifically targeted at reducing the risk of identity theft, which can stem from the use of an employee’s entire identification number on documents.

A “Truncated” identification number simply takes an existing nine-digit identification number and replaces the first five numbers with either asterisks or “X”s so that only the last four digits remain. (i.e. A tax identification number of 99-9999999 would become XX-XXX9999). Because a TTIN is merely a method of masking taxpayer identification numbers that already exist, use of a TTIN does not require the Service to issue any new identification numbers or expend any funds for the taxpayer to be able to use a TTIN. The new regulations allow for TTIN to be used for a taxpayer’s social security number (SSN), IRS individual taxpayer identification number (ITIN), IRS adoption taxpayer identification number (ATIN), or employer identification number (EIN) on payee statements and certain other documents.

Before issuing their final regulations, the IRS ran a pilot program, which allowed certain qualified filers to truncate an individual’s payee identification number on a paper payee statements for Forms 1098, 1099, and 5498. This program ran from 2009 to 2010. In 2011 the IRS extended the pilot program for two more years and modified it by removing Form 1098-C from the list of eligible documents.

In January of 2013, the US Treasury and the IRS issued proposed regulations, in response to the growing threat of identity theft and associated tax fraud. The proposed regulations largely mirrored the pilot program, with TTINs permitted on electronic payee statements in addition to paper statements.

The final regulations became effective on July 15, 2014 and permit the use of TTINs “on any federal tax-related payee statement or other document required to be furnished to another person….” TTINs may not be used (1) on any return or statement filed with, or furnished to, the IRS, (2) where prohibited by statute, regulation, or other guidance by the IRS, or (3) where a SSN, ITIN, ATIN, or EIN is specifically required. Further a TTIN cannot be used by an individual to truncate their own identification number on any statement or other document that they give to another person. This includes an employer’s EIN on a W-2 or Wage and Tax Statement that they might give to an employee, and also an individual’s identification number on either a W-9 or Request for Taxpayer Number and Certification. 

If you have questions about the use of TTINs, please contact our office.

Brand Protection through Trademarking for your Brand

Many producers spend a lot of time creating a marketable image for their products through innovative images, label designs and catch phrases.  As a producer you hope to stand out based on the sensation of taste.  However, to get the consumer to the point of enjoying what you have created, it is likely that you will need to convey your craft through images, designs and marketing tools that create a brand which represents your hard work – namely the wine, beer or distilled spirit that is the ultimate product you sell.

Since your brand image will represent the beverage you create, and ultimately your business, it is important to make sure that it is protected.  In some ways protecting your actual product is a bit easier than protecting your brand because you have the ability to set up procedures that are only known internally for production of your beverage.  Your graphic design, logo, or tagline is intentionally placed into public view.  As a matter of fact, you want it in front of as many people as possible! 

As you become more successful, there is a higher likelihood that an individual or business will seek to “borrow” some of your hard work to create their own success.  However, what you have created as your brand image is actually an intellectual property right that is protected under the law of the U.S. and many foreign countries.  When someone else uses this property without proper permission, which usually comes in the form of a license, they are basically stealing from you and subjecting themselves to liability.

In order to protect your brand, you need to properly register your trademark.  So, what is a trademark?  The U.S. government describes a trademark as a word, phrase, symbol, or design, or a combination of these, that identifies and distinguishes the sources of goods of one party from those of others.

Many may be surprised to learn that a trademark interest is not created when you register with the federal government.  The trademark is established by using the mark in commerce.  The longer that you use it, the stronger your claim to it becomes. However, if you are looking to establish the highest level of protection, then your goal should be to register the mark with the United States Patent and Trademark Office (USPTO). This registration will do the following:

  • Create a legal presumption of your ownership of the mark and your exclusive right to use the mark nationwide on or in connection with the goods/services listed in the registration;
  • Put the public on notice of your claim of ownership of the mark;
  • Place a listing in the USPTO’s online databases;
  • Provide the ability to record the U.S. registration with the U.S. Customs and Border Protection Service to prevent importation of infringing foreign goods;
  • Provide you with the right to use the federal registration symbol “®”;
  • Create the ability to bring an action concerning the mark in federal court; and
  • Create the use of the U.S. registration as a basis to obtain registration in foreign countries.

You will want to begin the process of registering your mark as soon as you know what your mark is and how you want to use it.  It is not necessary for you to be using the mark in commerce at the time you begin the registration process.  As long as you know that you will be using the mark in commerce in the next few years, you will be able to take priority over any other person or entity that files after you, even if your basis for the mark is an intent, rather than actual use in commerce.

It is also important to work through your brand protection issues early because you may be infringing on the intellectual property rights of another business.  Proper registration of a trademark with the USPTO should start with a trademark search to determine if there are any immediate conflicts with your preferred mark.  The USPTO will only register unique marks.  The examining attorneys at the trademark office will not allow for registration unless your mark is unique.  Therefore, it is important to perform a search before submitting your request in case there is an immediate, identifiable conflict.

If in fact there is a conflict, it may still be possible to utilize the mark.  One of two things could happen.  Either you perceive a conflict and proceed to register your mark in the hopes it will be deemed unique and registered. Or, you approach the owner of the mark with a proposition to either purchase the mark from them if they no longer wish to use it, or you could purchase a license from them to use the mark in some manner while paying them a fee to do so.  Should you be able to purchase the mark from them, then you will want to properly record your “Assignment” of trademark with the USPTO.  There is a process for this and it will allow you to become the proper owner of the mark.

When you apply for your mark, it will be necessary for you to determine what good you are trademarking, as each good represents a separate mark. The USPTO will allow you to register one type of good, based on a description from the International Schedule of Classes of Goods and Services, for one fee.  However, the specific item of goods must be listed.  So, for example, you may want your logo to be a registered mark and use it on both your beverage container and also on an item of clothing – these would technically be two separate marks that carry two registration fees.  However, there is the possibility of listing multiple items of goods to be covered in any one class that will have a single fee.  So, if you intend to sell merchandise in your tasting room with your logo and that merchandise falls within the same class – such as shirts and ball caps do for clothing, then you will simply have one trademark to register.  It will be necessary to carefully describe the goods in which you intend to place your mark.

It should be refreshing to know that your business has the opportunity to grow and develop a recognizable brand image that can be protected in the marketplace.  It would be our pleasure to answer any questions you may have about trademarks, or assist you with proper protection of your brand. 

Why the use of a General Durable Power of Attorney is superior to Joint Ownership with Rights of Survivorship

It may be easy to add someone as an owner with survivorship rights to your real estate or other property, but the simplicity of this action does not offset the risks associated with co-ownership. Many individuals either make the decision on their own, or with the advice of someone with practical knowledge about re-titling assets, to add a child or another intended beneficiary as the owner of their real estate, bank account, or other asset. The premise is rather simple: ownership with someone who has a right of survivorship, known as joint tenants with rights of survivorship, avoids probate at the death of the first owner, thereby leaving the surviving owner, (typically the younger intended beneficiary), with full ownership rights and no court involvement. Additionally, the objective of many is to make sure that someone, usually an adult child, has access to the original owner’s assets so that they can handle their financial affairs if that person is unable to do so on their own.

The objectives of avoiding probate at death and providing someone with access to financial means for care can be met by adding an individual as an owner to an asset. But the risks are far too high to approach these objectives in this way.

Probate avoidance at death generally involves planning that either utilizes a trust adopted by the individual owner of the asset, along with funding through transfer of assets to the trust, or, an individual may use non-probate transfer tools to make sure each asset transfers to its intended beneficiary outside of probate. Think of Transfer on Death (TOD), Pay on Death (POD), life insurance beneficiaries and beneficiary or transfer-on-death deeds. There are times when planners will utilize both a trust and a series of non-probate transfers. The point is that there are alternative methods of avoiding probate at death. These methods are used for a variety of reasons, many of which are illustrated below in a conversation about General Durable Powers of Attorney.

Adoption of a General Durable Power of Attorney (DPOA) is one of the most powerful probate avoidance tools available. Utilized during one’s life, the DPOA can authorize someone to act on another person’s behalf to make financial decisions. So, if you are incapacitated or disabled, your Attorney in Fact under the DPOA could access your checking account to pay your bills, sell your house if you were going into a nursing home, and make other financial decisions for you without a formal court order or the costs associated with that proceeding.

The General Durable Power of Attorney is a superior option to joint ownership for a variety of reasons. To begin with, when you add a person as owner of your property, that person will have equal rights to the property. This is a loss of control for you. This ownership option provides either owner with total access to the property. So, for example, if your pension or other income is deposited into a jointly owned bank account, the joint owner could legally remove 100% of that deposit for his or her individual use. Naming the same individual as your Attorney in Fact under a DPOA merely gives them rights to use your property for your benefit only. They are statutorily prohibited from using your property for their benefit. They merely have access to your property for your use and benefit, rather than acquiring any form of ownership interest allowing them to use the property for their own benefit.

From a tax perspective, it is more advantageous to continue to own the entire property in the name of the person who is thinking of transferring title. When you add an individual as a co-owner, you are actually giving them a gift equal to one-half of the value of the property at that time. If the value of the property exceeds the annual gift tax exclusion, (currently $14,000 for 2013), then you are required to file a gift tax return. Additionally, at your death, any built in gain from that part of the gifted asset will be subject to capital gains at the time your intended beneficiary sells it. This is due to the fact that the gift provides a carry over basis equal to the basis of the donor, while a death time transfer equates to a stepped-up basis to fair market value at date of death. So, if you have owned your home for 40 years and you deed half to your child, you have a basis equal to the cost of the home 40 years ago plus a variety of increases for certain improvements, etc. Likely the price has appreciated over the years and there is a built-in gain. That built-in gain merely transfers to your intended beneficiary at the time of the gift and when the home is ultimately sold, a tax will be paid by the intended beneficiary on this built-in gain. This could be avoided if the house remained in the donor’s name until death, at which point the intended beneficiary received a stepped-up basis to date of death value. This benefit most likely eliminates tax consequences presuming the home is sold shortly after date of death A similar analysis would occur for other assets, such as securities.

From a risk management perspective, joint ownership is objectionable because your assets become subject to creditors of the co-owner. So, if you add a child as owner of your home or bank account and that child is going through a divorce or has judgments outstanding to creditors, your asset could be used to satisfy those creditors. Furthermore, as joint owners, you could be held responsible for the other owner’s actions while using a jointly owned asset. Probably the most common example here would be a car accident where you get sued for being a co-owner of a car you weren’t even driving.

From a business owner’s perspective, joint ownership is particularly problematic for risk management. If the business operates as a sole proprietorship, adjusting ownership so that an intended beneficiary is a co-owner creates many negative tax consequences and the entire business operations could become subjected to the liabilities of the new co-owner. Should that new co-owner file for bankruptcy, the bankruptcy trustee will have a high level of interest in the operations of the business venture to determine how it’s cash flow and assets can satisfy the new co-owner’s debtors. Fundamentally, it is also possible to alter ownership interests in corporations, limited liability companies and other business organizations. Similar risk is involved in that new co-owners bring a whole host of potential creditors and liabilities that could affect the viability of the business in an unintended way.

The adoption of a General Durable Power of Attorney, in combination with a review of business operation documents, such as bylaws, operating agreements, buy-sell agreements, etc., could effectively protect the business from involvement by the Court if an owner is incapacitated and can’t function on their own. It would likewise eliminate concern for the above issues as created by a joint ownership situation.

Should you have questions about General Durable Powers of Attorney for your personal or business situation, please don’t hesitate to contact our office.