# Announcement 2016-2: Federal Tax Treatment of Identity Protection Services > Federal · IRS announcements · In force URL: https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_2 ## Section - **Citation:** Announcement 2016-2 - **Heading:** Federal Tax Treatment of Identity Protection Services - **Jurisdiction:** Federal - **Kind:** IRS announcements - **Status:** In force - **Text as of:** August 14, 2026 - **Source:** Compiled text - **Location:** Internal Revenue Bulletin / IRB 2016 / Announcement / Announcement 2016-2 ## Text Federal Tax Treatment of Identity Protection Services Announcement 2016-02 On August 13, 2015, the Treasury Department and the IRS released Announcement 2015-22, 2015-35 I.R.B. 288, which provides information on the Federal tax treatment of identity protection services that are provided to victims of a data breach. The announcement provides 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. Announcement 2015-22 also provides that the IRS 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. The announcement further provides that the IRS will 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. In Announcement 2015-22, the Treasury Department and the IRS requested comments on whether organizations commonly provide identity protection services in - 2 - 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. The IRS received four comments. Several commenters requested that the Treasury Department and the IRS clarify the taxability of identity protection services provided at no cost to employees or other individuals before a data breach occurs. The commenters stated that data security has become a major concern for many organizations due to data breaches e services provided in those situations. The IRS received four comments. Several commenters requested that the Treasury Department and the IRS clarify the taxability of identity protection services provided at no cost to employees or other individuals before a data breach occurs. The commenters stated that data security has become a major concern for many organizations due to data breaches. Some commenters cited statistics showing a significant increase in the number of data breaches that result in unauthorized access to information systems containing personal information of employees and other individuals. Despite heightened efforts by organizations to prevent data breaches using traditional information technology security features (such as firewalls and antivirus software), some organizations are making security decisions based on the belief that breaches of their information systems are inevitable. The commenters further stated that an increasing number of organizations are combating data breaches by providing identity protection services to employees or other individuals before a data breach occurs in order to help detect any occurrence of a breach in their information systems, and to minimize the impact to their operations. The Treasury Department and the IRS have considered the comments received, including statements by commenters that providing identity protection services to employees and other individuals before a data breach occurs will allow earlier detection of a data breach and minimize the impact of a breach on operations. The Treasury Department and the IRS have determined that Announcement 2015-22 should be extended to include identity protection services provided to employees or other - 3 - individuals before a data breach occurs otection services to employees and other individuals before a data breach occurs will allow earlier detection of a data breach and minimize the impact of a breach on operations. The Treasury Department and the IRS have determined that Announcement 2015-22 should be extended to include identity protection services provided to employees or other - 3 - individuals before a data breach occurs. Accordingly, the IRS will not assert that an individual must include in gross income the value of identity protection services provided by the individual’s employer or by another organization to which the individual provided personal information (for example, name, social security number, or banking or credit account numbers). Additionally, the IRS will not assert that an employer providing identity protection services to its employees must include the value of the identity protection services in the employees’ gross income and wages. The IRS also will 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. Any further guidance on the taxability of these benefits will be applied prospectively. This announcement does not apply to cash received in lieu of identity protection services. This announcement also does not apply to proceeds received under an identity theft insurance policy; the treatment of insurance recoveries is governed by existing law. DRAFTING INFORMATION The principal author of this announcement is Innessa Glazman of the Office of Associate Chief Counsel (Income Tax & Accounting). For further information regarding this announcement, contact Ms. Glazman at (202) 317-7006 (not a toll-free call). ## Nearby sections - [Announcement 2016-2 Federal Tax Treatment of Identity Protection Services](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_2.md) - [Announcement 2016-3 Limited Penalty Relief for Filers of Form 1098-T, Tuition Statement, Under Section 6724(f)](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_3.md) - [Announcement 2016-12 provides guidance and instructions on filing APA requests as well as guidance and information on the administration of APAs](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_12.md) - [Announcement 2016-14 December 2015 Revision of Form 3115](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_14.md) - [Announcement 2016-16 Withdrawal of Proposed Nondiscrimination Rules Applicable to Certain Qualified Retirement Plan Benefit Formulas](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_16.md) - [Announcement 2016-17 Part IV – Items of General Interest Limited Penalty Relief for Filers of Form 1098-T, Tuition Statement](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_17.md) - [Announcement 2016-25 Tax Treatment of Payments Made on Behalf of or Reimbursements Received by Residents Affected by the Southern California Gas Company Natural Gas Leak](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_25.md) - [Announcement 2016-27 Part IV—Items of General Interest Update on Jurisdictions Treated as If They Have an IGA in Effect](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_27.md) - [Announcement 2016-30 Relief for Victims of Louisiana Storms](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_30.md) - [Announcement 2016-32 Facilitating Compliance with Qualified Plan Document Requirements](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_32.md) - [Announcement 2016-39 Relief for Victims of Hurricane Matthew](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_39.md) - [Announcement 2016-42 Part IV – Items of General Interest Limited Penalty Relief for Filers of Form 1098-T, Tuition Statement](https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_42.md) --- Source: Frix Law Library, https://www.frixlaw.com/law-library/statutes/IRS_ANN_2016_2. 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