Identity protection services not reportable income to “compromised” persons

Identity protection services are not reportable income

The IRS today released an advance version of Announcement 2015-22 concerning the tax treatment of identity protection services provided at no cost to customers, employees, or other individuals whose personal information may have been compromised in a data breach.

Related content

Announcement 2015-22 [PDF 31 KB] states that the IRS:

  • Will not assert that an individual whose personal information may have been compromised in a data breach must include in gross income the value of the identity protection services provided by the organization that experienced the data breach
  • Will not assert that an employer providing identity protection services to employees whose personal information may have been compromised in a data breach of the employer’s (or employer’s agent or service provider’s) recordkeeping system must include the value of the identity protection services in the employees’ gross income and wages
  • Will also not assert that these amounts must be reported on an information return (such as Form W-2 or Form 1099-MISC) filed with respect to such individuals

Non-application measures

The relief provided by today’s announcement does not apply to:

  • Cash received in lieu of identity protection services
  • Identity protection services received for reasons other than as a result of a data breach, such as identity protection services received in connection with an employee’s compensation benefit package
  • Proceeds received under an identity theft insurance policy (the treatment of insurance recoveries is subject to existing law)

The IRS has requested comments concerning when organizations commonly provide identity protection services in situations other than as a result of a data breach, and whether additional guidance would be helpful in clarifying the tax treatment of the services provided in those situations. Comments are due by October 13, 2015.

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