Treasury
Inspector General for Tax Administration
Office of Audit
MULTIPLE USE OF TAXPAYER
IDENTIFICATION NUMBERS CONTINUES TO RESULT IN SIGNIFICANT ERRONEOUS EXEMPTIONS
AND CREDITS
Issued on September 14, 2010
Highlights
Highlights of
Report Number: 2010-40-117 to the
Internal Revenue Service Commissioner for the Wage and Investment Division.
IMPACT ON TAXPAYERS
Any person
required to file a tax return must include an identifying number, referred to
as a Taxpayer Identification Number (TIN).
For the majority of filers, the TIN is the individual’s Social Security
Number. Generally, a TIN cannot be used
on more than one tax return per year.
When a TIN is used on more than one tax return per year, individuals may
inappropriately receive tax benefits.
WHY TIGTA DID THE AUDIT
This audit was
initiated because multiple TIN use has grown from almost 2.2 million TINs used
on 3.9 million tax returns in Tax Year (TY) 2005 to 2.6 million TINs used on
4.6 million tax returns in TY 2007.
The overall objective of this review was to assess the
effectiveness of the Internal Revenue Service’s (IRS) identification of
multiple TIN uses and its ability to prevent individuals from inappropriately
receiving tax benefits as a result of the improper use of TINs.
WHAT
TIGTA FOUND
TIGTA estimates
that individuals inappropriately received at least $380 million in personal tax
exemptions and tax credits in TY 2007 as a result of the multiple use of
TINs. TIGTA identified 2,450,205 unique
TINs that were used to claim a personal exemption or one or more of the tax
credits TIGTA analyzed in TY 2007. These
TINs were used on over 3.2 million tax returns.
Over five years, erroneous exemptions and credits could exceed $1.9
billion.
The IRS faces significant difficulties in preventing erroneous tax benefits associated with multiple TIN uses. However, there are actions that the IRS can take to reduce erroneous claims. These include:
·
Expanding the issuance of notices to
additional segments of individuals involved with multiple TIN uses.
·
Initiating additional compliance
efforts on multiple TIN uses for erroneous Earned Income Tax Credit
claims.
·
Disallowing multiple uses of
IRS-issued identification numbers.
·
Initiating compliance efforts to prevent the abusive use of TINs.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the Commissioner, Wage and
Investment Division:
·
Expand the
issuance of notices to more individuals.
·
Identify
alternative compliance processes to address all individuals involved in the
multiple use of TINs to claim the EITC.
·
Implement a
process to prevent and/or recover erroneous claims resulting from the multiple
use of an Individual Taxpayer Identification Number (ITIN).
In
addition, the IRS should establish processes to prevent and/or recover tax
benefits erroneously provided to taxpayers when a TIN is used excessively in a
single tax year.
The IRS agreed with two of our four
recommendations. The IRS did not agree
to expand the issuance of notices to additional segments of individuals involved
with multiple TIN uses. It indicated
doing so would be inconsistent with current electronic filing processes. In addition, the IRS did not agree to expand
its processes to prevent and/or recover erroneous claims resulting from an ITIN. The IRS indicated its processes for verifying
the use of ITINs is consistent with those used for Social Security Numbers.
Expanding the issuance of notices to additional segments of
individuals involved with multiple TIN uses is consistent with the IRS’s
current notice processes. The IRS
already issues a notice to individuals in a similar situation. In addition, the IRS collects extensive
information from individuals who apply
for an ITIN. The IRS should use
all of the information available to prevent the use of an ITIN for erroneous
claims for exemptions and tax credits.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2010reports/201040117fr.html.
Email Address: inquiries@tigta.treas.gov
Phone
Number: 202-622-6500
Web Site: http://www.tigta.gov