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Tax Administration: IRS Needs to Consider Options for Revising Regulations to Increase the Accuracy of Social Security Numbers on Wage Statements

GAO-04-712 Published: Aug 31, 2004. Publicly Released: Oct 05, 2004.
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Highlights

Inaccurate social security numbers (SSN) on wage statements contribute to growth in the Social Security Administration's (SSA) Earnings Suspense File, increase the Internal Revenue Service's (IRS) workload to ensure that wages are properly identified for those earning them, and burden individuals who must work with SSA and IRS to resolve disputes that may affect their social security benefits and tax obligations. IRS's ability to penalize employers for submitting inaccurate SSNs on wage statements is intended to promote SSN accuracy. Items GAO was asked to describe included: (1) the statutory provisions authorizing IRS to penalize employers who file wage statements with inaccurate SSNs; (2) IRS's program to penalize such employers; and (3) the extent IRS's program meets legislative requirements, the likelihood of any penalties, and any program changes being considered.

Recommendations

Recommendations for Executive Action

Agency Affected Recommendation Status
Internal Revenue Service Given the central role that the reasonable cause standard plays in defining the responsibilities of employers and thereby potential progress in improving the accuracy of SSNs on wage statements, the Commissioner of Internal Revenue should consider options for revising this standard.
Closed – Implemented
In December 2006, IRS completed its review of employers that it undertook to determine if changes should be made to the reasonable cause standard. Based on the results of the review, IRS chose not to make changes to the reasonable cause standard. Even though IRS chose not to make changes to the standard, since IRS did consider making changes to the standard, IRS did implement GAO's recommendation. (Previous information entered about the status of this recommendation: In December 2004, IRS told Congress that the corrective action implementation date was August 31, 2005. As of August 25, 2006, IRS is still working on this recommendation. IRS was in the process of conducting a study of employers who filed W-2s with inaccurate SSNs. The study will be used to develop possible changes to the reasonable cause standard. IRS planned to complete this study by the end of November 2005; however, due to Hurricane Katrina, the study was rescheduled for completion as of February 15, 2006. The delay was due to the possible inclusion of taxpayers affected by Katrina. As of March 2006, IRS was analyzing the collected data and needed additional time to draw conclusions and write the report. As of August 16, 2006, action on this recommendation has been delayed until January 15, 2007. Per IRS, there are several ongoing related employment tax audits and numerous proposals are in the works. IRS needs additional time to finalize actions associated with this recommendation.)
Internal Revenue Service Because changes to this standard likely would have consequences for other federal agencies, the Commissioner of Internal Revenue should ensure that as IRS officials consider whether and how to modify this standard, representatives of other potentially affected federal agencies are consulted prior to issuing any proposed regulations.
Closed – Not Implemented
IRS could only implement this recommendation if it chose to make changes to the reasonable cause standard. Since IRS chose not to make changes to the reasonable cause standard, IRS could not implement this recommendation. Therefore, this recommendation is closed and was not implemented. (Previous information entered about the status of this recommendation: In December 2004, IRS told Congress that the implementation date would be 60 days prior to any issuance of new regulations. As of August 25, 2006, IRS is still working on this recommendation. IRS planned to meet with SSA and DHS at the end of October 2005 to discuss possible changes to the reasonable cause standard. As of April 14, 2006, action on this recommendation had been delayed until December 15, 2006. IRS's study of egregious filers was scheduled for completion in August 2006. IRS will need additional time to confer with its counterparts in affected federal agencies before making any changes to the reasonable cause standard.)

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Topics

Data integrityFines (penalties)Income taxesPayroll recordsPersonnel recordsReporting requirementsSocial security numberTax administrationTax lawTax violations