Legal Alert - Identity Theft Protection Services – Federal Income Tax Treatment


by William A. Kastin, Carlene Y. Lowry and Patrick X. Fowler

I. Executive Summary

The Treasury Department and the IRS are sensitive to the data security problems facing organizations, their employees and their customers and, as a result, have provided some welcomed taxpayer-favorable assistance. Specifically, the IRS will not assert that an individual must include in gross income the value of identity protection services provided by an organization to which the individual provided personal information (e.g., name, social security number (SSNs), or banking or credit account numbers), nor will the IRS assert that the value of such services must be included as wages or is otherwise reportable on an IRS Form W-2 or 1099-MISC.

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