Treasury Inspector General for Tax Administration
August 30, 2016
TIGTA - 2016-21
Contact: Karen Kraushaar, Director of Communications
WASHINGTON — The Internal Revenue Service (IRS) does not currently notify taxpayers it identifies as victims of employment-related identity theft, nor has it established an effective process to ensure that it sends the required notice to the Social Security Administration (SSA) to alert the SSA of earnings not associated with a victim of employment-related identity theft.
These are two significant findings in an audit report that the Treasury Inspector General for Tax Administration (TIGTA) publicly released today.
Employment-related identity theft occurs when someone uses the identity of another person to gain employment. Taxpayers may first realize they are victims of this type of crime when they receive an IRS notice of a discrepancy in the income they reported on their tax return.
The IRS’s Automated Underreporter (AUR) program identifies such discrepancies when it matches taxpayer income reported on third-party information returns (e.g., Forms W-2, Wage and Income Statement) to amounts that taxpayers report on their individual income tax returns.
TIGTA conducted this audit to evaluate the IRS’s AUR processes to identify and assist victims of identity theft. In July 2011, TIGTA reported that the IRS was in a unique position to identify cases of employment-related identity theft. TIGTA recommended that the IRS implement procedures to timely alert taxpayers when it becomes aware that their identity was stolen. However, in this review, TIGTA determined that taxpayers are still not notified.
During the period February 2011 to December 2015, the IRS identified almost 1.1 million taxpayers who were victims of employment-related identity theft. In April 2014, the IRS started a pilot initiative to begin notifying taxpayers that they may be a victim of employment-related identity theft. TIGTA’s review of the pilot notification initiative found that the IRS did not sufficiently design the pilot to include a representative sample of employment-related identity theft victims.
Further, TIGTA found that the IRS has not established an effective process to ensure that it sends the required notice to alert the SSA of earnings not associated with a victim of employment-related identity theft. TIGTA’s review of a statistically valid sample of 71 cases from the population of 1,878 Tax Year 2013 AUR cases closed as identity theft (i.e., cases that involved a discrepancy related to wages reported on the tax return) identified that the SSA has no record of receiving an IRS notice for 15 (21 percent) of the 71 cases.
“Employment-related identity theft can cause significant burden to taxpayers, including the incorrect computation of taxes based on income they did not earn,” said J. Russell George, the Treasury Inspector General for Tax Administration.
TIGTA made four recommendations in the report. The IRS agreed with three recommendations and partially agreed with the fourth. The IRS plans to take corrective action on the recommendations. In its response to TIGTA’s report, the IRS stated that it has scheduled programming changes that will be implemented in January 2017 to notify taxpayers when the IRS has reason to believe they may be victims of identity theft.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.