Executive Summary

TREASURY INSPEcTOR GENERAL

FOR TAX ADMINISTRATION

FOLLOW-UP REVIEW OF PARENT AND DEPENDENT

DUPLIcATE EXEMPTION cLAIMS

December 1998

Reference No. 091000
Executive Summary

In 1996, Internal Audit issued a report on Parent and Dependent Duplicate Exemption claims (Reference No. 063502). That report advised Service management that action was needed to reverse the continuous and costly problem of duplicate social security numbers (SSNs) use and recommended that management:

Identify solutions that minimize both taxpayer burden and impact on the Service's resources.
Segment the condition for control and aggressive management.

Management agreed with our recommendations and placed the Duplicate Dependents Project in the fiscal year (FY) 1996 Research Plan. The North Florida District Office Research and Analysis (DORA) function is in charge of the project. Internal Audit has been supporting the project by identifying the duplicate SSN population each year and providing the needed master file extracts.

The overall objective of this follow-up review was to determine whether agreed to corrective actions were implemented and how their implementation benefited the IRS. The review was conducted in the North Florida District (NFD) DORA function and in the National Office in accordance with generally accepted government auditing standards. The results included in this follow-up report were primarily based on information contained in the Duplicate SSN Research Report issued by the NFD DORA in May 1998. We relied heavily on the data provided by DORA to maximize use of audit resources.

Results

Management is implementing our recommendations as part of an on-going national strategy on Invalid and Multiple Use of SSNs. This strategy should help reverse the increasing use of duplicate SSNs that we identified in our prior report. Management’s efforts since we first reported this issue have shown some initial positive results in identifying potential solutions for the duplicate SSN problem. However, these initial results are not complete and management plans to continue their testing.

Management’s initial actions to address our recommendations include the following:

Segmenting the duplicate SSN population for research and testing. Management’s profiling efforts on the tax year (TY) 1994 duplicate SSN population showed that approximately half of the population was the result of invalid SSN use. Since new laws allow the Service to disallow the use of invalid SSNs by math error correction procedures, DORA focused their attention on the valid SSNs in the duplicate population.

Segmenting the TY 1995 valid duplicate SSN population showed that duplicate claims were largely composed of three groups.

Duplicate dependents (36% of the population)
Duplicate Earned Income credit (16% - most included duplicate dependent claims)
Dependents who filed as primary taxpayer (48% of the population)

Testing and measuring the effectiveness of notices and correspondence examinations in improving compliance. Management sent notices to a small sample of TY 1995 taxpayers in the above three categories. The notices advised the taxpayer that two or more tax returns, including theirs, used the same SSN to claim a tax benefit. The notices asked the taxpayer to determine if they were entitled to the claim, and if not, to refrain from using the SSN in the future. One notice also requested an amended return for TY 1995. The notices showed positive results in improving future compliance among the taxpayers.

Based on these results, management sent notices to a major portion (2.1 million) of the TY 1996 duplicate SSN population in December 1997. They plan to measure the results of the mailout (including compliance improvement), perform a cost/benefit analysis, and issue recommendations for 1999.

Management also conducted correspondence examinations on a nationwide sample of approximately 3,000 repeat taxpayers (those in the TY 1995 duplicate SSN population that were also in the TY 1994 duplicate SSN population). These examinations resulted in approximately $3.2 million in adjustments to taxpayers' accounts. Approximately $1.6 million of the $3.2 million had been collected at the time of our review. collection actions are still in process and may result in additional recovery of revenue. The correspondence examinations were also helpful in improving future compliance.

The above results have provided management with valuable insight on the duplicate SSN population which can be used to identify cost effective solutions that protect revenue and minimize both taxpayer burden and impact on the Service's resources. Management plans to continue their research and make recommendations to improve compliance after all analyses are completed.

Based on management’s on-going national strategy efforts, we are not making further recommendations at this time. Management agreed with the facts presented in this follow-up report.