RECOVERY
ACT
Individuals Who
Are Not Authorized to Work in the United States Were Paid $4.2 Billion in
Refundable Credits
July 7, 2011
Reference Number: 2011-41-061
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Redaction Legend:
1 = Tax Return/Return Information
2(f) = Risk circumvention of agency Regulations or Statutes
Phone
Number | 202-622-6500
Email Address | TIGTACommunications@tigta.treas.gov
Web Site |
http://www.tigta.gov
HIGHLIGHTS
INDIVIDUALS WHO ARE
NOT AUTHORIZED TO WORK IN THE UNITED STATES WERE PAID $4.2 BILLION IN
REFUNDABLE CREDITS
Highlights
Final
Report issued on July 7, 2011
Highlights of Reference Number: 2011-41-061 to the Internal Revenue Service
Commissioner for the Wage and Investment Division and the Chief of Criminal
Investigation.
IMPACT ON TAXPAYERS
Many individuals who are not
authorized to work in the United States, and thus not eligible to obtain a
Social Security Number (SSN) for employment, earn
income in the United States. The
Internal Revenue Service (IRS) provides such individuals with an Individual
Taxpayer Identification Number (ITIN) to facilitate their filing of tax
returns. Although the law prohibits
aliens residing without authorization in the United States from receiving most
Federal public benefits, an increasing number of these individuals are filing
tax returns claiming the Additional Child Tax Credit (ACTC), a refundable tax
credit intended for working families. The payment of Federal funds through this tax
benefit appears to provide an additional incentive for aliens to enter, reside,
and work in the United States without authorization, which contradicts Federal
law and policy to remove such incentives.
WHY TIGTA DID THE AUDIT
This audit was initiated to determine whether potentially
fraudulent tax returns filed with ITINs were being properly and consistently
worked. Because of the significant volume of
these returns claiming the ACTC, we focused on those returns.
WHAT TIGTA FOUND
Claims for the ACTC by ITIN filers have increased from
$924 million in Processing Year 2005 (the calendar year in which the tax
return was processed) to $4.2 billion in Processing Year 2010. Clarification to the law is needed to address whether or
not refundable tax credits such as the ACTC may be paid to those who are not
authorized to work in the United States.
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Also, employees in the Accounts
Management Taxpayer Assurance Program are not taking steps to notify taxpayers
when it is obvious their SSNs and
names have been compromised.
TIGTA also found that a feature on tax preparation software
programs which automatically takes the taxpayer identification number and enters
it as the identifying number for the taxpayer’s Wage and Tax Statements
******************2(f)*************************************************************************************.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the IRS work with the
Department of the Treasury to seek clarification on whether or not refundable
tax credits may be paid to individuals who are not authorized to work in the
United States. TIGTA also recommended the
IRS require individuals filing with ITINs and claiming the ACTC to provide
specific verifiable documentation to support that their dependents meet the
qualifications for the credit, including residency, and that questionable Child
Tax Credit (CTC) and ACTC claims on ITIN returns
**********2(f)*******************************. The IRS should also notify
taxpayers when their SSNs are
compromised and ensure that software packages do not auto-populate an ITIN onto
Wage and Tax Statements.
IRS management agreed to discuss with the Department
of the Treasury the issue of ITIN filers’ ACTC eligibility. The IRS did not agree to require additional
documentation to support CTC and ACTC claims on ITIN returns
********************2(f)************************************************************************************ The IRS is exploring options
to alert taxpayers whose SSNs have been compromised
and plans to address software that auto-populates an ITIN onto Wage and Tax Statements and take sanctions for noncompliance.
July 7, 2011
MEMORANDUM
FOR COMMISSIONER, WAGE
AND INVESTMENT DIVISION
CHIEF, CRIMINAL INVESTIGATION
FROM: (for) Michael R. Phillips /s/ Michael E. McKenney
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2 Billion in Refundable Credits (Audit # 200940031)
This report
presents the results of our review to determine whether potentially fraudulent
tax returns filed with Individual Taxpayer Identification Numbers (ITIN) were
properly and consistently worked.
Because of the significant volume of these returns claiming the Additional Child
Tax Credit, we focused on returns filed by individuals with ITINs claiming the
Child Tax Credit and Additional Child Tax Credit.
The
cases we reviewed were at the Fraud Detection Centers. This audit is included
in our Fiscal Year 2011 Annual Audit Plan and addresses the major management
challenges of Tax Compliance Initiatives and Erroneous and Improper Payments
and Credits. It also presents selected
information related to the Internal Revenue Service’s (IRS) implementation of
Section 1003 of the American Recovery and Reinvestment Act of 2009 (Recovery
Act).[1]
Management’s complete response to the draft report is included in Appendix V.
Copies of
this report are also being sent to the IRS managers affected by the report
recommendations. Please contact me at
(202) 622-6510 if you have questions or Michael E. McKenney, Assistant
Inspector General for Audit (Returns Processing and Account Services), at (202)
622-5916.
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Taxpayers
Are Not Notified When Their Social Security Numbers Are Compromised
Appendices
Appendix
I – Detailed Objectives, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Individual Taxpayer Identification Number Filing Statistics
Appendix
V – Management’s Response to the Draft Report
Abbreviations
ACTC |
Additional Child Tax Credit |
AMTAP |
Accounts Management Taxpayer Assurance
Program |
CTC |
Child Tax Credit |
EITC |
Earned Income Tax Credit |
FDC |
Fraud Detection Center |
IRS |
Internal Revenue Service |
ITIN |
Individual Taxpayer Identification
Number |
SSN |
Social Security Number |
TIGTA |
Treasury Inspector General for Tax
Administration |
U.S. |
United States |
Everyone who is employed in the United States (U.S.) is
required to have a Social Security Number (SSN). An SSN is a unique, nine-digit identification
number used for taxpayer identification, income reporting, and record-keeping
purposes. The Social Security
Administration issues numbers to all U.S. citizens, permanent residents, and
eligible foreign nationals. Generally,
only those noncitizens authorized to work in the United States by the
Department of Homeland Security can get an SSN.
Any person required to file a tax return is required to include an identifying number, referred to as a taxpayer identification number. For the majority of filers, the taxpayer identification number is the individual’s SSN. Non-U.S. citizens who do not have employment authorization must prove a valid reason for requesting an SSN in order to receive one. There are very limited circumstances for this, and these Social Security Cards are marked “Not Valid for Employment.”
Many individuals who are not eligible to obtain an SSN earn income in the United States. This presents a problem for tax administration because the Internal Revenue Code requires foreign investors and individuals working without authorization in the United States to file tax returns and pay any Federal income taxes owed. As explained by a former Internal Revenue Service (IRS) Commissioner, “the IRS’s job is to make sure that everyone who earns income within our borders pays the proper amount of taxes, even if they may not be working here legally.”[2]
Individual Taxpayer Identification Number
An Individual Taxpayer Identification Number (ITIN) is available to individuals who are required to have a taxpayer identification number for tax purposes, but do not have and are not eligible to obtain an SSN because they are not authorized to work in the United States. An ITIN is issued by the IRS and looks very similar to an SSN in that it is a nine-digit number. ITINs are issued regardless of immigration status, because both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code. ITINs are for Federal tax reporting only and are not intended to serve any other purpose. Even income obtained illegally is subject to income taxes. Therefore, the IRS issues ITINs to help individuals comply with the U.S. tax laws and to provide a means to process and account for tax returns and payments for those not eligible for SSNs. An ITIN does not authorize an individual to work in the United States or provide eligibility for Social Security benefits or the Earned Income Tax Credit (EITC); however, the IRS currently processes claims for the Additional Child Tax Credit (ACTC), a refundable tax credit, filed by taxpayers with ITINs.
Refundable Credits
Refundable credits can
result in refunds even if no income tax is withheld or paid; that is, the
credits can exceed the liability for the tax.
Two of the largest refundable tax credits are the EITC and the ACTC. The appropriations for these credits in Fiscal
Year 2010 were $54.7 billion for the EITC and $22.7 billion[3] for the ACTC. Because
concerns were raised by Congress, the Government Accountability Office, and the
IRS regarding noncompliance with EITC requirements, a law was passed in Calendar
Year 1996 to deny the EITC to individuals who file a tax return without an SSN that
is valid for employment.[4] As such, filers using
an ITIN are not eligible for the EITC. The
change in the law was made prior to the establishment of the ACTC.[5] However, the same law
prohibits aliens residing without authorization in the United States from
receiving most Federal public benefits, with the exception of certain emergency
services and programs.
Nonetheless, IRS
management’s view is that the law does not provide sufficient legal authority
for the IRS to disallow the ACTC to ITIN filers. In addition, the Internal Revenue Code does
not require an SSN to claim the ACTC and does not provide the IRS math error
authority to deny the credit without an examination. As such, the IRS continues to pay the ACTC to
ITIN filers.
The ACTC is the
refundable portion of the Child Tax Credit (CTC). The CTC can reduce an individual’s taxes owed
by as much as $1,000 for each qualifying child.
The ACTC is provided in addition to the CTC to individuals whose taxes
owed were less than the amount of CTC they were
entitled to claim. The ACTC is always the
refundable portion of the CTC, which means an individual claiming the ACTC
receives a refund even if no income tax was withheld or paid. As with all refundable credits, the risk of
fraud for these types of claims is significant.
Fraud Detection Program
The Accounts Management
Taxpayer Assurance Program (AMTAP) is a nationwide program designed to identify
fraudulent returns, stop the payment of fraudulent refunds, and refer
identified fraudulent refund schemes to Criminal Investigation field offices. This program was transferred in Calendar Year
2009 from Criminal Investigation to the Accounts Management function in the IRS
campuses.[6]
One common type of
fraudulent refund involves taxpayers fabricating a Wage and Tax Statement (Form
W-2) that shows excess withholding, resulting in a tax refund. When one of these potentially fraudulent
returns is identified, the IRS contacts the employer or third party to verify
wage and withholding information on the return.
If the wage information is verified, the refund is issued. However, if the information is determined to
be false, the refund is stopped and the return is referred to other IRS
functions that are responsible for resolving the issue with the affected
taxpayers. The individuals filing these false
returns often improperly claim the EITC based on the fictitious wages shown on
the Form W-2; they also may claim the ACTC.
Again, both of these credits are refundable and can significantly
increase the taxpayers’ refunds. If a
taxpayer’s wages and withholding are questionable, the refundable credits they
claim are likely questionable as well.
This review was performed at the IRS Campus in Ogden, Utah. It included discussions with personnel in Criminal Investigation and the Accounts Management function. Discussions were also held with the Office of Privacy, Information Protection, and Data Security. The data available to us at the start of the audit were from Processing Year[7] 2009, when the program was still in Criminal Investigation. However, the issues presented are still applicable to the new AMTAP function. We conducted this performance audit in accordance with generally accepted government auditing standards. Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objectives. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objectives. Detailed information on our audit objectives, scope, and methodology is presented in Appendix I. Major contributors to the report are listed in Appendix II.
Tax Law Changes and Questionable Claims Have Resulted in a Rapid Increase in Refunds for Additional Child Tax Credits Claimed by Individuals Who Are Not Authorized to Work in the United States
Although they are not
authorized to work in the United States, ITIN filers are receiving billions of
dollars in CTCs and ACTCs intended for working families. Prior to Tax Year[8] 2001, the CTC was only refundable if the taxpayer had three
or more qualifying children and Social Security taxes[9] exceeding any earned income credits. The Economic Growth and Tax Relief
Reconciliation Act of 2001[10] removed these requirements and increased the CTC over time from
$500 to $1,000 per child, making more families eligible for the refundable portion
of the credit (known as the ACTC). Since
then, claims for the ACTC by ITIN filers have increased significantly. In Processing Year 2005, 796,000 ITIN filers
claimed ACTCs totaling $924 million.
By Processing Year 2008, these claims had risen to 1,526,276 ITIN filers
claiming ACTCs totaling $2.1 billion.
The American Recovery
and Reinvestment Act of 2009 (Recovery Act)[11] temporarily increased eligibility by changing the income
threshold for calculating the ACTC for Tax Years 2009 and 2010. Prior to the Recovery Act, the ACTC would
have been limited to 15 percent of earned income more than $12,550. The Recovery Act changed this threshold to
15 percent of earned income more than $3,000. As such, more taxpayers could claim the ACTC
or claim a greater amount. In Processing
Year 2010, 2.3 million ITIN filers claimed ACTCs totaling $4.2 billion.[12] The Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010[13] extends the increased eligibility
through Tax Year 2012. Figure 1 shows
the dollar amount in ACTCs paid to ITIN filers over the last 6 years.
Figure
1: Total Claims for the ACTC on Returns Filed
With ITINs
Figure 1 was removed
due to its size. To
see Figure 1, please go to the Adobe PDF version of the report on the TIGTA
Public Web Page.
Another reason for the increase is that a significant number of individuals are filing multiple claims to obtain the ACTC for prior year tax returns (e.g., filing Tax Years 2007, 2008, and 2009 returns at the same time). In Processing Year 2010, approximately 238,000 ITIN filers submitted more than 608,000 tax returns for multiple years at the same time and claimed just more than a billion dollars in ACTCs on those returns. The ACTC claims for these individuals for the combined tax periods can be substantial. However, not all of these claims were refunded because of the statute of limitations rules that apply. The average amount claimed per single return for the ACTC to ITIN filers in Processing Year 2010 was approximately $1,800. However, nearly 9,000 taxpayers claimed a total of $10,000 or more in ACTCs by filing multiple tax periods. **********************1*********************
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Moreover, in our analysis of returns filed in Processing Year 2010, some individuals had submitted duplicate tax returns for multiple years to multiple IRS processing centers and received ACTC refunds. **************1************************************************************
**********************1*********************************.
The payment of Federal
funds through this tax benefit appears to provide an additional incentive for
aliens to enter, reside, and work in the United States without authorization,
which contradicts Federal law and policy to remove such incentives. At the time the Taxpayer Relief Act of 1997[14] was enacted, guidance would have been beneficial on how the
IRS would implement the refundable portion of the CTC while complying with the prohibitions
contained in the Personal Responsibility and Work Opportunity Reconciliation
Act of 1996.
In a prior Treasury
Inspector General for Tax Administration (TIGTA) report,[15] we recommended legislation to clarify whether an SSN which
is valid for employment is needed in order to claim the ACTC, consistent with
the requirements for the EITC. Both
credits are calculated based on a percentage of earned income and both are
refundable. We continue to believe the
legislation is needed to ensure compliance with both laws.[16]
Legislative Recommendation
Recommendation 1: The Commissioner, Wage and Investment Division, should work with the Department of the Treasury’s Office of Tax Policy to seek clarification on whether or not refundable tax credits (or the refundable portion of tax credits) such as the ACTC may be paid to those who are not authorized to work in the United States. If these credits may not be paid, math error authority is needed for the IRS to disallow associated claims for the credits. Based on claims made in Processing Year 2010, disallowance of the ACTC to filers without a valid SSN would reduce Federal outlays by approximately $8.4 billion over 2 years.[17]
Management’s
Response: IRS management agreed
with the recommendation and will discuss with the Department of the Treasury’s
Office of Tax Policy their views of the current state of the law regarding the
eligibility for the CTC and the ACTC.
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Refundable credits are often the targets of unscrupulous individuals, who file erroneous claims for these credits. *************2(f)****************
******************************************************************
Erroneous or fraudulent
claims are not unique to the ACTC, nor are they unique to ITIN filers. However, ITIN filers are much more likely to
claim the ACTC than other individual taxpayers.
We found that in Processing Year 2010, 72 percent of all ITIN filers
claimed the ACTC, while only 14 percent of non-ITIN filers claimed the ACTC.
In a prior report,[18] TIGTA noted that billions of dollars in CTCs and ACTCs are being provided to ITIN filers without verification of eligibility. ***2(f)******************************************************************************************************************
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TIGTA issued a report
on the First-Time Homebuyer Credit.[19] That report discusses
a need for improved controls over all refundable credits. In it, we recommended that the IRS require
taxpayers to provide supporting documentation to verify eligibility for all
refundable credits and that the IRS seek legislation
to be given math error authority to deny credits when supporting documentation
is not provided for a refundable credit.
IRS management agreed that requiring supporting documentation is
appropriate for many refundable credits and that math error authority is an
important compliance tool in many cases.
They stated that the IRS evaluates the administration of each refundable
credit based on its unique characteristics.
IRS management further stated that the IRS continually assesses and
evaluates compliance risks, and where it determines that the benefits of this
approach outweigh the compliance burden and legal constraints, it will consider
requiring documentation. Given the
significant amounts at risk and the compliance risks associated with the ACTC,
we believe a requirement for supporting documentation is warranted.
We reviewed a statistically
valid sample of 250 Processing Year 2009 refund returns filed by taxpayers with
ITINs that were selected through the Electronic Fraud Detection System[20] screening process as potentially fraudulent. Approximately 91 percent (228) of these
returns contained claims for the CTC or ACTC.
The amount of the CTCs and ACTCs on these returns was $569,000.
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Another area responsible for reviewing ACTC claims by individuals
with ITINs is the IRS Examination function.
Examination function officials informed us that approximately 95 percent
of the ITIN cases they currently work contain ACTC issues. The assessment rate on ITIN cases worked in
the Examination function during Fiscal Year 2010 was very high; 91 percent resulted
in additional assessments. However, the Examination
function currently works these cases after refunds have been issued, and the
volume of cases worked is relatively low compared to the number of ITIN filers
claiming the ACTCs overall.
*****************************************2(f)**********************************************************************.[22] **********************************2(f)*************************************************************************
****************************************************************************.
The Examination function informed us that the ITIN Operation
in Austin, Texas, is its primary source of referrals of questionable ITIN
returns for auditing. ITINs are only
issued to resident and nonresident aliens who are filing tax returns. Individuals applying for ITINs must file tax
returns with their ITIN applications. These
applications are processed through the ITIN Operation. This operation identifies ITIN applications
with documentation that appears suspect (for example, the documents indicate
that the child or children live outside the United States or the documentation appears
to be made up or forged) and refers the associated tax returns to the
Examination function for audit.
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********************************************************2(f)********************************************************.
Recommendations
Recommendation 2: The Commissioner, Wage and Investment Division, should require individuals filing with ITINs and claiming the ACTC to provide specific verifiable documentation to support that their dependents meet the qualifications for the credit, including residency.
Management’s
Response: IRS management disagreed
with this recommendation, stating the IRS does not have the legal authority to
verify and disallow the CTC and/or ACTC based on residency of dependents during
return processing. ******2(f)**************************
********************2(f)*******************************Questionable claims, including those where
dependent residency is an issue, must be addressed through deficiency
procedures. The Examination function
requests proof of residency and other requisite documentation when a taxpayer is
notified his or her return is being examined.
Office
of Audit Comment: We disagree with
the IRS’s response. Although it does not
presently have math error authority to disallow the ACTC during processing, it
does have the authority to require documentation to claim a credit and to refer
questionable or unverifiable claims to its Examination function prior to
issuance of refunds.
Recommendation 3: The Commissioner, Wage and Investment Division, should ensure CTC and ACTC claims on ITIN returns with questionable wages and withholding are verified in the AMTAP function or referred to the Examination function for verification.
Management’s
Response: IRS management
disagreed with this recommendation. Questionable
CTC and ACTC claims are identified earlier in the processing stream by the Submission
Processing function and referred to the Examination function for verification
under deficiency procedures. IRS
management stated that verification of CTC and ACTC claims is beyond the scope
and authority of the AMTAP.
Office of Audit Comment: We believe the scope of the AMTAP function’s responsibilities in reviewing documentation and verifying data with third parties is within the control of the IRS. Even without math error authority, if the IRS required documentation to support eligibility for the ACTC on tax returns with ITINs, the scope of the AMTAP function could be expanded to identify potentially erroneous or fraudulent claims and refer them to the Examination function before refunds are issued.
Recommendation 4: The Commissioner, Wage and Investment Division, should ensure that, when possible, questionable CTC and ACTC claims on ITIN returns identified by or referred to the Examination function are worked ***************2(f)***************************
Management’s Response: IRS management agreed with this recommendation. The Submission Processing and Examination functions have procedures in place for the referral and evaluation of questionable CTC and ACTC claims prior to issuance of the refund. It should also be noted that the majority of the IRS’s EITC examinations also include the CTC and/or ACTC as an issue.
Taxpayers Are Not Notified When Their Social Security Numbers Are Compromised
In March 2011, the Federal Trade Commission reported that for the eleventh year in a row identity theft was the number one consumer complaint nationwide. Identity theft occurs when someone uses personally identifiable information, such as an individual’s name, SSN, credit card numbers, or other account information, to commit fraud and other crimes. Identity theft affects tax administration when an individual intentionally uses the identity of another person to file a false tax return or fraudulently obtain employment.
Although the IRS created the ITIN to help individuals who cannot legally obtain an SSN comply with the U.S. tax laws, the fact remains that these individuals generally cannot obtain a job in the United States without an SSN. Therefore, these individuals may either fabricate an SSN or improperly use someone else’s SSN (and sometimes their name) to obtain employment. These SSNs may also be used for other purposes, such as to obtain credit, which can cause significant hardships to the lawful taxpayers to whom these SSNs belong.
In the process of validating wages and withholding, AMTAP function employees are in a unique position to identify cases in which a taxpayer’s SSN has been compromised. In reviewing the Forms W-2 attached to the returns, these employees can see that an SSN was used to gain employment that did not belong to the person filing the return. We selected a statistically valid sample of 250 cases which had been subject to the wage and withholding verification.[23] Forty‑two of those returns did not have the Form W-2 available for review. The remaining 208 returns contained 257 Forms W-2. Among the 257 Forms W-2, we found 56 with indications of potential identity theft: [24]
These 56 Forms W-2 contained the SSNs (and sometimes names) of 45 different taxpayers. In a prior report,[25] we recommended that the IRS establish a process to notify taxpayers when there is evidence that the taxpayers’ identities have been compromised. Since that report, procedures have been established to identify some potential identify theft and, in some cases, notify taxpayers. However, the IRS took no steps to inform 30 of the 45 taxpayers previously discussed that their SSNs had been compromised, or to even notate the identity theft on the taxpayers’ accounts. Identity theft indicators had been placed on the accounts of 15 of the 45 taxpayers. However, the indicator was placed on five of these accounts because the taxpayer contacted the IRS about the identity theft.
In cases of identity theft, the
sooner a taxpayer can be made aware of a possible stolen identity, the
better. Without a process in place to timely notify taxpayers when there is
evidence of identity theft, taxpayers’ credit cards, bank accounts, and other
related accounts could be at risk.
Recommendation
Recommendation 5: The Commissioner, Wage and Investment Division, should implement procedures that are proactive in timely alerting taxpayers when the IRS has become aware that a taxpayer’s identity has potentially been stolen. At a minimum, those taxpayers whose names and SSNs have both been compromised should be notified.
Management’s Response: IRS management agreed with this recommendation and is exploring options in this area. Any significant process change must be thoroughly vetted prior to implementation, due to the impact on affected taxpayers. The IRS has initiated a study to determine if additional cases of potential identity theft, including situations similar to those identified in this audit, can or should be marked with identity theft account indicators. The IRS currently has a series of account indicators that identify taxpayers who have been victims of identity theft and frequently updates the procedures for handling these cases. The indicators streamline the taxpayer assistance process and help mitigate future account problems by issuing notices to taxpayers of their potentially compromised identities, as well as additional steps the taxpayer can take to protect their identities.
******************************************2(f)************************************************************************************
The IRS generally uses automated methods to ensure that wages and withholding on tax returns are accurate. The automated system employed by the IRS to accomplish this matches Form W-2 income and withholding information provided directly to the IRS by the employer with information provided by taxpayers on their tax returns. When a mismatch occurs, the IRS may contact the taxpayer to determine the reason for the mismatch. *********2(f)****
********************************************2(f)********************************************************************** In 2005, returns
filed with an ITIN reported wages of more than $28.5 billion and income tax
withholding of more than $1.16 billion. In
2010, these numbers grew to about $60 billion and $1.78 billion, respectively.
In a prior report,[27] we recommended and the IRS agreed to develop a cross-referencing process to match ITIN tax returns to the related Forms W-2 on the Information Returns Master File. In order to accomplish this, the IRS must have the ITIN as well as the SSN provided to the employer (which is available from the Form W-2 included with the tax return). *****************2(f)**************************************************
*****************************************************************
These tax preparation software packages automatically populate the identification
number on the electronic Form W-2 (for e-filed
tax returns) with the identification number reported on the tax return; i.e.,
the ITIN. This occurs even though there
is an SSN on the actual Form W-2 that does not belong to the individual filing
the return.
TIGTA also previously reported this issue and the IRS agreed to coordinate with electronic tax software preparation companies to initiate actions to limit the auto-populate feature of the taxpayer identification numbers on Forms W-2 associated with e-filed ITIN tax returns. **********2(f)**********.[28]
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********************************************************************************************************************
*****************************************.
**************************************************************2(f)***************************************************
***********************************************.
Recommendation
Recommendation 6: The Commissioner, Wage and Investment Division, should take steps to ensure tax preparation software packages do not auto-populate an ITIN onto Forms W-2 instead of asking for the taxpayer identification number as shown on the Forms W-2. The IRS should not accept ITIN returns prepared with software that is not compliant with this requirement.
Management’s Response: IRS management agreed with this recommendation. The IRS has addressed the auto-population
issue with software developers in the past, including the most recent IRS
Software Developers Conference in June 2011.
The IRS will emphasize on the instructions for Form W-2 that the
taxpayer identification number transmitted with electronic returns match the
number shown on the copy of Form W-2 provided to taxpayers by their
employers. The requirement for manual
entry of Form W‑2 data on ITIN returns will also be prominently
displayed in Electronic Return File Specifications
and Record Layouts for Individual Tax Returns (Publication 1346).
The IRS will also assess return preparation software compliance with the
manual input requirement during the 2012 Filing Season.[29] If warranted,
noncompliance will be addressed by appropriate sanctions that may result in
suspension from the program if requisite corrections are not made.
Appendix I
Detailed Objectives, Scope, and Methodology
The overall objective of this review was to determine
whether potentially fraudulent tax returns filed with ITINs were properly and
consistently worked at the Fraud Detection Centers (FDC).
Because of the significant volume of these returns claiming the ACTC, we focused
on returns filed by individuals with ITINs claiming the CTC and ACTC.
To accomplish these objectives, we:
I.
Obtained both ITIN and non-ITIN U.S. Individual Income Tax
Return (Form 1040) data from the IRS Return Transaction File and the Individual
Master File.[30]
A. For
Processing Years[31]
2005–2010, obtained the following ITIN information:
1.
Number
of ITIN returns filed.
2.
Returns
with tax and the dollar amounts.
3.
Returns
with refund and no tax along with the dollar amounts of those refunds and
associated tax withholding.
4.
Returns
claiming the CTC and ACTC along with dollar amounts of these claims.
B.
For
Processing Year 2010, obtained the following ITIN information:
1.
ITIN
filers claiming the ACTC on tax returns for multiple years along with the
dollar amounts of these claims.
2.
ITIN
filers claiming the ACTC on duplicate returns for the same year(s) along with
the dollar amounts of these claims.
C.
For
Processing Year 2010, obtained the following non-ITIN statistics:
1.
Number
of non-ITIN returns filed.
2.
Returns
with tax.
3.
Returns
claiming the CTC and ACTC.
D. For
Processing Year 2010, we validated the IRS Return Transaction File data we
received by comparing 25 records selected at random to the IRS Master File
data. We also had another auditor
independently perform the same data analysis that was done in steps A through D
above to validate the results or our analysis.
II.
Identified procedures for and issues with verifying
information on tax returns with ITINs at the FDCs:
A. Researched
IRS publications, the Internal Revenue Manual, training information, TIGTA
audit reports, and Government Accountability Office audit reports dealing with
the subject matter.
B.
Interviewed
IRS personnel associated with processing questionable ITIN refunds and obtained
procedures for working ITIN cases at the FDCs.
III.
Determined whether ITIN employment verification procedures
were being administered consistently at the FDCs.
A. Interviewed
FDC employees who work ITIN cases from Ogden, Utah, (fax site) and Fresno,
California, (call site) to determine if ITIN procedures were being
followed. Also, we determined if these
procedures are being followed in Cincinnati, Ohio, (fax site) and Andover,
Massachusetts, (call site) through email or phone conversations.
B.
Reviewed
verification procedures (telephone, fax, letters, etc.) and disclosure
procedures at these sites to ensure these procedures are adequate and determined
whether these procedures are being consistently followed.
IV.
Determined whether returns with ITINs were being properly
worked at the FDCs.
A. Obtained
a statistically valid sample of 250 ITIN returns worked at the FDCs during Processing
Year 2009.[32]
B.
Performed
analysis to quantify the following for each case in the sample:
1.
Refund
amount.
2.
Timeliness
of working the case.
3.
Type
of procedure used to validate the Wage and Tax Statement (Form W-2). (Telephone, letter, or fax).
4.
Whether
all tax compliance considerations were made on the case.
5.
Whether
the refund was correctly released or not.
6.
Whether
disclosure and identity theft procedures were properly followed.
7.
Actions
taken by other functions regarding the return.
C.
Based
on information obtained from the analysis, reviewed our prior reports to
determine if previously reported ITIN issues were still a problem (ACTC claims,
identity theft issues, auto-populate issues).
V.
Determined whether ITIN returns claiming the ACTC were
being worked by the IRS Examination function.
A. Reviewed
Examination function results on ITIN returns claiming the ACTC.
B.
Selected
a judgmental sample of 50 Examination cases to determine the collection rate on
those cases. The 50 cases were all ITIN
cases claiming the ACTC for which the credit was disallowed. The cases were selected from a population of
1,168 cases closed by the Examination function during Fiscal Year 2010.
VI.
***************************************************************************2(f)******************************
********************************************************************.
A. Selected
a judgmental sample of five tax software packages listed under the Free File
section of IRS.gov.
B. **************************************************2(f)***************************************************
Internal controls methodology
Internal controls relate to management’s
plans, methods, and procedures used to meet their mission, goals, and
objectives. Internal controls include
the processes and procedures for planning, organizing, directing, and
controlling program operations. They
include the systems for measuring, reporting, and monitoring program
performance. We determined the following
internal controls were relevant to our audit objective: the IRS’s policies, procedures, and practices
related to the processing of ITIN returns and the identification of potential
erroneous claims pertaining to these returns.
Appendix II
Major Contributors to This Report
Michael E. McKenney, Assistant Inspector General for Audit (Returns
Processing and Account Services)
Kyle R. Andersen, Director
Larry Madsen, Audit Manager
Annette Bates, Lead Auditor
Roy E. Thompson, Lead Auditor
Michele Jahn, Auditor
Laura Paulsen, Auditor
Lance Welling, Auditor
Appendix III
Commissioner C
Office of the Commissioner – Attn: Chief of Staff C
Assistant Secretary of the Treasury for Tax Policy
Deputy Commissioner, Wage and Investment Division SE:W
Deputy Chief, Criminal Investigation CI
Director, Accounts Management, Wage and Investment Division SE:W:CAS:AM
Director, Office of Privacy, Information Protection and Data Security OS:P
Chief, Program Evaluation and Improvement, Wage and Investment Division SE:W:S:PRA:PEI
Program Manager, Automated Under Reporter Program, Wage and Investment Division SE:W:CP:RC:AUR
Program Manager, ITIN Program Office, Wage and Investment Division SE:W:CAS:SP:ITIN
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaison: CI Senior Analyst, Planning and Strategy CI
Appendix IV
Individual Taxpayer Identification Number
Filing Statistics
Table
1 - Forms 1040 With ITINs |
|
|
|
|
|
|
Return Transaction File |
|
|
|
|
|
|
Processing
Year[33] |
2010 |
2009 |
2008 |
2007 |
2006 |
2005 |
ITIN Returns |
3.02 M |
2.86 M |
2.55 M |
2.44 M |
2.04 M |
1.55 M |
|
|
|
|
|
|
|
Returns With Tax |
713,483 |
797,878 |
788,487 |
868,154 |
736,820 |
539,912 |
% of Returns With Tax |
24% |
28% |
31% |
36% |
36% |
35% |
Total Tax |
$870.07
M |
$1.04
B |
$1.02
B |
$1.12
B |
$877.13
M |
$640.01
M |
|
|
|
|
|
|
|
Returns With Refund & No Tax |
2.22 M |
1.98 M |
1.68 M |
1.49 M |
1.20 M |
921,511 |
% of Returns With Refund & No Tax |
73% |
69% |
66% |
61% |
59% |
59% |
Total Refunds |
$4.93
B |
$4.13
B |
$3.26
B |
$2.64
B |
$1.99
B |
$1.42
B |
Total Withholding |
$976.64
M |
$1.31
B |
$1.17
B |
$930.43
M |
$702.48
M |
$504.42
M |
|
|
|
|
|
|
|
Returns With CTC |
819,737 |
976,620 |
910,404 |
803,997 |
659,409 |
513,804 |
% of Returns With CTC |
27% |
34% |
36% |
33% |
32% |
33% |
Total CTC |
$559.11
M |
$741.88
M |
$712.53
M |
$631.02
M |
$501.59
M |
$380.23
M |
Returns With ACTC |
2.18 M |
1.85 M |
1.53 M |
1.30 M |
1.06 M |
795,705 |
% of Returns With ACTC |
72% |
65% |
60% |
53% |
52% |
51% |
Total ACTC |
$4.00
B |
$2.86
B |
$2.14
B |
$1.71 B |
$1.31
B |
$924 M |
Table 1 includes ITIN filing statistics taken from the IRS Return Transaction
File (an IRS databases that store various types of taxpayer account information).
Table 2 - Forms 1040 With ITINs
(2010) |
||
Return
Transaction File (RTF) |
||
|
Returns |
Dollars |
Returns With ACTC (RTF) |
2.18 M |
$4.00
B |
Returns Corrected |
2,636 |
$4.38
M |
Net ACTC |
2.18 M |
$4.00
B |
Subsequent Claims |
153,151 |
$193 M |
Total ACTC Claims (IMF) |
2.33 M |
$4.20
B |
Table 2 shows the reconciliation between the Return Transaction File and
the Invidivual Master File.
Table 3 - Forms 1040 Non-ITIN (2010) |
|
Return
Transaction File |
|
Non-ITIN Returns |
138.05
M |
Returns With Tax |
99.61
M |
% Returns With Tax |
72% |
Returns With CTC |
22.88
M |
% Returns With CTC |
17% |
Returns With ACTC |
19.10
M |
% Returns With ACTC |
14% |
Table 3 shows non-ITIN Form 1040 statistics.
Appendix V
Management’s Response to the Draft
Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
ATLANTA, GA 30308
WAGE
AND INVESTMENT DIVISION
June 16, 2011
MEMORANDUM
FOR MICHAEL R. PHILLIPS
DEPUTY
INSPECTOR GENERAL FOR AUDIT
FROM: Richard
Byrd, Jr. /s/ Richard Byrd, Jr.
Commissioner,
Wage and Investment Division
SUBJECT: Draft Audit Report -
Individuals Who Are Not Authorized to Work in the United States Were Paid $4.2
Billion in Refundable Credits (Audit # 200940031)
We have
reviewed the subject draft report and welcome the opportunity to provide comments.
The report accurately describes recent legislative amendments that have contributed
to the increase in both the number and amount of claims for the Child Tax Credit
(CTC) and its refundable component, the Additional Child Tax Credit (ACTC). Working
within the framework of the law, we have established processes and controls to administer
the provisions of the Internal Revenue Code (the Code) and are constantly assessing,
evaluating, and modifying those processes to ensure they remain effective. It
is important to recognize that unlike many other tax benefits, the law does not
require the taxpayer or eligible child to have a social security number in
order to receive the CTC or the ACTC. The IRS is administering the law accordingly.
Legislative changes would be required to deny many of the claims discussed in
the report.
The IRS agrees that the requirement for taxpayers to provide supporting documentation to verify eligibility for certain tax benefits could present a deterrent to some individuals who make improper claims. However, as indicated in the report, the IRS does not have the legal authority to deny credits during processing when documentation is not provided. Also, in addition to the obvious resource limitations associated with such a requirement, in the case of the CTC and the ACTC, ************************************2(f)************************. In most cases, eligibility can ****2(f)****** *************************2(f)******************************************************************
The Accounts Management Taxpayer Assurance Program (AMTAP), which is responsible for reviewing refund claims arising from questionable wages and/or with holdings reported on Form W-2, Wage and Tax Statement, does not have the legal authority to deny questionable ACTC claims that may also be present on the returns it reviews. Instead, such claims must be referred to the Examination function for verification under the deficiency procedures. ****************************************2(f)********************************************************************
The IRS
recognizes the prominent role identity theft has assumed as one of the fastest growing
crimes in the U.S. and the impact it has on the lives of its victims and has
taken a number of steps recently to improve taxpayer service related to this
issue. With regard to tax administration, identity theft can manifest itself as
a refund-related crime where a perpetrator fraudulently uses the identity of
another to claim a refund to which they are not entitled or as an
employment-related crime where the identity of another individual is used to
obtain employment. In either case, the victim is generally not aware that their
identity has been compromised until they have contact with the IRS. We are
currently conducting a study to determine the feasibility of expanding the use
of account indicators. Indicators are placed on taxpayer accounts when those
taxpayers have been identified as victims of identity theft. These indicators
streamline the assistance process and help mitigate future account problems.
They are also responsible for the generation of notices to the taxpayers,
informing them that their Social Security Number and/or other identifying
information appears to have been compromised and providing guidance in steps
they can take to protect themselves.
With respect
to the duplicate refund claims addressed in the report, we have taken actions
to recover these refunds.
Attached are
our responses to your specific recommendations. If you have any questions,
please contact me, or a
member of your staff may contact Robin L. Canady, Director, Strategy and
Finance, at (404) 338-8801.
Attachment
Attachment
LEGISLATIVE
RECOMMENDATION
RECOMMENDATION
1:
The
Commissioner, Wage and Investment Division, should work with the Department of the
Treasury's Office of Tax Policy to seek clarification on whether or not
refundable tax credits (or the refundable portion of tax credits) such as the
ACTC may be paid to those who are not authorized to work in the United States.
If these credits may not be paid, math error authority is needed for the IRS to
disallow associated claims for the credits. Based on claims made in Processing
Year 2010, disallowance of the ACTC to filers without a valid SSN would reduce
Federal outlays by approximately $8.4 billion over 2 years.
CORRECTIVE
ACTION:
We will
discuss with the Department of Treasury's Office of Tax Policy their views of
the current state of the law regarding the eligibility for the Child Tax Credit
(CTC) and the Additional Child Tax Credit (ACTC).
IMPLEMENTATION
DATE:
N/A
RESPONSIBLE
OFFICIAL:
N/A
CORRECTIVE
ACTION MONITORING PLAN:
N/A
RECOMMENDATION
2:
The
Commissioner, Wage and Investment Division, should require individuals filing
with ITINs and claiming the ACTC to provide specific verifiable documentation
to support that their dependents meet the qualifications for the credit,
including residency.
CORRECTIVE
ACTION:
We disagree with this recommendation. The IRS does not have the legal authority to verify and disallow the CTC and/or ACTC based on residency of dependents during return processing. *****************************2(f)********************************************
**************************************Questionable claims, including those where dependent residency
is an issue, must be addressed through deficiency procedures. The Examination
function requests proof of residency and other requisite documentation when the
taxpayers are notified their return is being examined.
IMPLEMENTATION
DATE:
N/A
RESPONSIBLE OFFICIAL:
N/A
CORRECTIVE ACTION MONITORING PLAN:
N/A
RECOMMENDATION 3:
The
Commissioner, Wage and Investment Division, should ensure CTC and ACTC claims
on ITIN returns with questionable wages and withholding are verified in the AMTAP
function or referred to the Examination function for verification.
CORRECTIVE ACTION:
Questionable
CTC and ACTC claims are identified earlier in the processing stream by Submission
Processing and referred to the Examination function for verification under deficiency
procedures. The verification of CTC and ACTC claims is beyond the scope and
authority of the Accounts Management Taxpayer Assurance Program.
IMPLEMENTATION DATE:
N/A
RESPONSIBLE OFFICIAL:
N/A
CORRECTIVE ACTION MONITORING PLAN:
N/A
RECOMMENDATION 4:
The
Commissioner, Wage and Investment Division, should ensure that, when possible, questionable
CTC and ACTC claims on ITIN returns identified by or referred to the Examination
function are worked**********2(f)************************************.
CORRECTIVE ACTION:
We agree with
this recommendation. The Submission Processing and Examination functions have
procedures in place for the referral and evaluation of questionable CTC and ACTC
claims prior to issuance of the refund. It should also be noted that the majority
of the Service's EITC examinations also include the CTC and/or ACTC as an issue.
IMPLEMENTATION DATE:
Implemented
and ongoing
RESPONSIBLE OFFICIAL:
N/A
CORRECTIVE ACTION MONITORING PLAN:
N/A
RECOMMENDATION 5:
The
Commissioner, Wage and Investment Division, should implement procedures that are
proactive in timely alerting taxpayers when the IRS has become aware that a taxpayer's
identity has potentially been stolen. At a minimum, those taxpayers whose names
and SSNs have both been compromised should be notified.
CORRECTIVE ACTION:
We agree with
this recommendation and are exploring options in this area. Any significant
process change must be thoroughly vetted prior to implementation, due to the
impact on affected taxpayers. The IRS has initiated a study to determine if additional
cases of potential identity theft, including situations similar to those
identified in this audit, can or should be marked with identity theft account
indicators. The IRS currently has a series of account indicators that identify
taxpayers who have been victims of identity theft and frequently updates the
procedures for handling these cases. The indicators streamline the taxpayer
assistance process and help mitigate future account problems by issuing notices
to taxpayers of their potentially compromised identity, as well as additional
steps the taxpayer can take to protect their identity.
IMPLEMENTATION DATE:
September 15,
2012
RESPONSIBLE OFFICIAL:
Director,
Office of Privacy and Information Protection & Data Security
CORRECTIVE ACTION MONITORING PLAN:
The IRS will
monitor this corrective action as part of our internal management control system.
RECOMMENDATION 6:
The
Commissioner, Wage and Investment Division, should take steps to ensure tax preparation
software packages do not auto-populate an ITIN onto Forms W-2 instead of asking
for the taxpayer identification number as shown on the Forms W-2. The IRS should
not accept ITIN returns prepared with software that is not compliant with this requirement.
CORRECTIVE ACTION:
We agree with
the recommendation to take steps to ensure tax preparation software packages do
not auto-populate an Individual Taxpayer Identification Number (ITIN) onto Forms
W-2 , Wage and Investment Statement. We
have addressed the auto-population issue with software developers in the past, including
the most recent IRS Software developers conference in June 2011. The dialog
with the developer community was encouraging in that it demonstrated an
interest in working with the IRS to disable the auto-population function and
require manual entry for Forms W-2 filed with ITIN returns.
We will
emphasize on the instructions for Form W-2 that the Taxpayer Identification
Number transmitted with electronic returns match the number shown on the copy
of Form W-2 provided to taxpayers by their employers. The requirement for
manual entry of Form W-2 data on ITIN returns will also be prominently
displayed in Publication 1346, Electronic
Return File Specifications and Record Layouts for Individual Tax Returns
We will also assess return preparation software compliance with the
manual input requirement during the calendar year 2012 filing season. If
warranted, non-compliance will be addressed by appropriate sanctions that may
result in suspension from the program if requisite corrections are not made.
IMPLEMENTATION
DATE:
December 15,
2011
RESPONSIBLE
OFFICIAL:
Director,
Submission Processing, Wage and Investment Division – Update Form 1346
Director,
Media & Publications, Wage and Investment Division – Update Form W-2
Instructions
Director,
Electronic Tax Administration and Refundable Credits, Wage and Investment
Division – Compliance Assessment
CORRECTIVE
ACTION MONITORING PLAN:
The IRS will
monitor this corrective action as part of our internal management control system.
[1] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[2] Testimony before the House Committee on Ways and Means, February 16, 2006.
[3] Actual refunds for the ACTC processed in Fiscal Year 2010 totaled $28.3 billion.
[4] The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (Pub. L. No. 104-193).
[5] The Taxpayer Relief Act of 1997 (Pub. L. No. 105-34) established the Child Tax Credit and the Additional Child Tax Credit.
[6] The data processing arm of the IRS. The campuses process paper and electronic submissions, correct errors, and forward data to the Computing Centers for analysis and posting to taxpayer accounts.
[7] The calendar year in which the tax return or document is processed by the IRS.
[8] A 12-month accounting period for keeping records on income and expenses used as the basis for calculating the annual taxes due. For most individual taxpayers, the tax year is synonymous with the calendar year.
[9] Including one-half of self-employment taxes.
[10] Pub. L. No. 107-16, 115 Stat. 38.
[11] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[12] These figures are from the Individual Master File, while the figures used in Appendix IV and in other places throughout this report are from the IRS Return Transaction File. The Master File and Return Transaction File are both IRS databases that store various types of taxpayer account information. The Return Transaction File data are not as current because they do not include subsequent adjustments or amended/duplicate return information processed in a given year. For Processing Year 2010, we used the Master File data because we wanted the most accurate ACTC figures for the most current year. We did not use the Master File for all years because some data were not readily available on the Master File, such as CTC claims and wage information. We reconciled the ACTC claims on the Master File against the Return Transaction File for Processing Year 2010 and, as expected, found the Master File data contained more claims. For Processing Year 2010, the Return Transaction File contained 2,179,764 ACTC claims amounting to $4,002,767,115. The Master File data showed 2,330,279 claims amounting to $4,191,154,694. Based on this information, the other Return Transaction File figures presented throughout this report are also likely understated.
[13] Pub. L. No. 111-312, 124 Stat. 3296.
[14] Pub. L. No. 105-34, 111 Stat. 788 (codified as amended in scattered sections of 5 U.S.C., 19 U.S.C., 26 U.S.C., 29 U.S.C., 31 U.S.C., 42 U.S.C., and 46 U.S.C. app.).
[15] Actions Are Needed to Ensure Proper Use of Individual Taxpayer Identification Numbers and to Verify or Limit Refundable Credit Claims (Reference Number 2009-40-057, dated March 31, 2009).
[16] IRS management previously agreed to discuss with the Department of the Treasury’s Office of Tax Policy the merits of amending the Internal Revenue Code to limit eligibility for the CTC and ACTC to individuals who have an SSN that is valid for employment. A bill was recently introduced in the U.S. Senate (S.577 – Child Tax Credit Integrity Preservation Act of 2011) to clarify eligibility for the child tax credit. It would require a taxpayer to provide an SSN that is valid for employment in order to claim the CTC and ACTC.
[17] Changes made to the ACTC in the Recovery Act were effective through Tax Year 2012. If no further changes are made, the eligibility requirements revert to previous levels and would result in fewer individuals qualifying for the ACTC.
[18] Actions Are Needed to Ensure Proper Use of Individual Taxpayer Identification Numbers and to Verify or Limit Refundable Credit Claims (Reference Number 2009-40-057, dated March 31, 2009).
[19] Administration of the First-Time Homebuyer Credit Indicates a Need for Improved Controls Over Refundable Credits (Reference Number 2011-41-035, dated March 31, 2011).
[20] The Electronic Fraud Detection System is a computer system that automates the identification of potentially fraudulent electronically filed tax returns, increases data available for analysis, and assists in the development of information related to paper and electronic refund schemes.
[21] Although these cases were worked prior to the transition of the Questionable Refund Program to the AMTAP, we confirmed that the AMTAP function would have handled the cases in the same manner.
[22] Audit assessments on these cases totaled $243,125 and the total amounts collected were $73,939, of which $39,024 were refund offsets.
[23] The cases included in our review were worked prior to the transition of this function from Criminal Investigation to the AMTAP function.
[24] The remaining 201 Forms W-2 contained the following: 66 had an SSN that was apparently fabricated (Social Security Administration records showed the SSNs had not been issued to anyone), 8 had no entry for the SSN, and the remaining 127 had ITINs listed on the Form W-2.
[25] Procedures Need to Be Developed for Collection Issues Associated With Individual Taxpayer Identification Numbers (Reference Number 2010-40-040, dated March 29, 2010).
[26] The IRS database that maintains information provided by employers on Forms W-2. This information includes wages and other compensation paid to employees, tax withholding, 401(K) contributions, Social Security/Medicare taxes paid, etc.
[27] Procedures Need to Be Developed for Collection Issues Associated With Individual Taxpayer Identification Numbers (Reference Number 2010-40-040, dated March 29, 2010).
[28] In addition, we identified 1,039,282 Forms W-2 filed for Tax Year 2009 for which the identifying number on the form contained an ITIN (per the Information Returns Master File), which indicates that the individual provided an ITIN to their employer rather than an SSN.
[29] The period from January through mid-April when most individual income tax returns are filed.
[30] The Individual Master File and Return Transaction File are both IRS databases that store various types of taxpayer account information.
[31] The calendar year in which the tax return or document is processed by the IRS.
[32] Selected a random sample from the population of 22,137 Electronic Fraud Detection System ITIN cases that had a Disposition Code other than a 0 or 6. We selected these cases with a ±5 percent precision, a 20 percent expected error rate, and a 95 percent confidence level. This resulted in a sample size of 244. We oversampled (250 cases) in case we could not obtain all requested data. Although these cases were worked prior to the transition of the Questionable Refund Program to the AMTAP, we confirmed that the AMTAP function would have handled the cases in the same manner. The Electronic Fraud Detection System is a computer system that automates the identification of potentially fraudulent electronically filed tax returns, increases data available for analysis, and assists in the development of information related to paper and electronic refund schemes.
[33] The calendar year in which the tax return or document is processed by the IRS.
[34] The Returns Transaction File and the Individual Master File are both IRS databases that store various types of taxpayer account information.