IRS and SSA Can Improve the Verification and Recording of Data Provided by Self-Employed Taxpayers

GGD-85-21: Published: May 28, 1985. Publicly Released: May 28, 1985.

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GAO reviewed processing of self-employment earnings information to determine whether the Internal Revenue Service (IRS) and the Social Security Administration (SSA) are properly processing such information and crediting it to taxpayers' accounts.

Workers are required to report self-employment earnings on a form known as schedule SE. IRS processes the schedule, collects any social security taxes that are due, and reports the information to SSA, which credits earnings information to individuals' social security accounts. GAO found that, while the system is functioning well, IRS and SSA could: (1) increase the amount of self-employment earnings that get properly credited; and (2) more accurately account for due taxes. GAO also found that: (1) IRS does not always detect errors in computing self-employment earnings on SE schedules; (2) IRS does not verify wage amounts reported by self-employed persons who report other earned income, which causes underpayments of social security taxes; (3) IRS could help SSA correctly credit earnings to individuals' social security accounts by ensuring that, whenever it corrects social security numbers (SSN) on tax returns, corrected numbers are provided to SSA; and (4) SSA and IRS need to establish better control over SE schedules to help ensure that all self-employed persons are receiving credit for self-employment earnings.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: IRS corrected those SE schedules showing more earnings than the sum of farm and nonfarm earnings when the optional method was used. Action was completed on May 8, 1986.

    Recommendation: The Commissioner of Internal Revenue should expand the use of the error register to include those situations where the sum of farm and nonfarm earnings is less than the total earnings amount being recorded and correct any identified earnings and tax errors.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: On May 8, 1986, IRS completed a recovery program for those SE schedules processed in 1983.

    Recommendation: The Commissioner of Internal Revenue should identify, review, and correct those SE schedules processed in 1983 with math problems, similar to action taken for 1981-processed SE schedules.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Closed - Implemented

    Comments: By mutual agreement, IRS sent SSA computer tapes with schedule SE information for reconciliation of SE records processed, including the number of records and amounts of money involved. Action was completed on May 8, 1986.

    Recommendation: The Commissioner of Internal Revenue should modify existing returns processing procedures to: (1) record SE schedules whose wages alone equal maximum taxable earnings; and (2) verify wages on schedule SE for workers with maximum taxable earnings.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Closed - Implemented

    Comments: Under an agreement between IRS and SSA, in January 1986, SSA began receiving computer tapes from IRS enabling SSA to identify individuals who have not received proper credit for their earnings and to make necessary corrections.

    Recommendation: The Commissioners of Internal Revenue and Social Security should work together to identify those self-employed individuals who did not receive proper credit for their earnings and correct their accounts. Specifically, SSA should identify for IRS, using SE schedules with maximum reportable earnings, those individuals whose earnings were not properly credited. IRS should help SSA identify specific individuals and their earnings. SSA should then correct the problem for those individuals, as well as any others similarly affected.

    Agency Affected: Social Security Administration

  5. Status: Closed - Implemented

    Comments: Under an agreement between IRS and SSA, in January 1986, SSA began receiving computer tapes from IRS enabling it to identify individuals who have not received proper credit for their earnings and to make necessary corrections.

    Recommendation: The Commissioners of Internal Revenue and Social Security should work together to identify those self-employed individuals who did not receive proper credit for their earnings and correct their accounts. Specifically, SSA should identify for IRS, using SE schedules with maximum reportable earnings, those individuals whose earnings were not properly credited. IRS should help SSA identify specific individuals and their earnings. SSA should then correct the problem for those individuals, as well as any others similarly affected.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Closed - Implemented

    Comments: In January 1986, SSA began receiving IRS tapes to make necessary corrections to the accounts of the self-employed.

    Recommendation: The Commissioners of Internal Revenue and Social Security should work together to develop a systematic way of identifying and correcting tax and earnings overpayments for self-employed persons who erroneously elected the nonfarm optional method of determining their earnings either because they: (1) were not self-employed in 2 of the 3 previous years; or (2) exceeded the 5-year usage limit.

    Agency Affected: Social Security Administration

  7. Status: Closed - Implemented

    Comments: In January 1986, IRS began sending tapes to SSA to make necessary corrections to the accounts of self-employed individuals.

    Recommendation: The Commissioners of Internal Revenue and Social Security should work together to develop a systematic way of identifying and correcting tax and earnings overpayments for self-employed persons who erroneously elected the nonfarm optional method of determining their earnings either because they: (1) were not self-employed in 2 of the 3 previous years; or (2) exceeded the 5-year usage limit.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Closed - Implemented

    Comments: The request for data services, requesting an abstract of the Returns Transaction File (RTF) for tax years 1979 through 1982, for use by SSA, was implemented on January 1, 1987.

    Recommendation: The Commissioner of Internal Revenue should identify and provide SSA, starting with the 1980 processing year, with self-employment records showing different SSN for the same person or self-employment earnings that were not previously provided.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  9. Status: Closed - Implemented

    Comments: SSA processed self-employed persons' records for tax years through 1982 were obtained from IRS. IRS was not in a position to give SSA this data on a continuing basis. Contributing to this delay was the fact that IRS did not keep records of wrong SSN when inputting corrections. A joint IRS/SSA meeting was held and there was agreement that IRS can at least provide both correct and incorrect SSN.

    Recommendation: The Commissioner of Social Security should use the self-employed persons' records with different SSN obtained from IRS to correct earnings accounts credited erroneously and those not previously credited.

    Agency Affected: Social Security Administration

  10. Status: Closed - Implemented

    Comments: All recoverable, previously unprocessed self-employment returns were posted by November 20, 1989.

    Recommendation: The Commissioner of Social Security should credit the social security accounts of those self-employed individuals whose records were never processed and ensure that the trust funds are provided the correct tax amount from their earnings.

    Agency Affected: Social Security Administration

  11. Status: Closed - Implemented

    Comments: Specifications for representative sampling of several different types of self-employment returns from 10 IRS service centers were completed on April 21, 1989. SSA sent specifications to IRS May 1989 and received sample cases in September 1989. Accuracy reviews will be conducted annually.

    Recommendation: The Commissioner of Social Security should periodically conduct tests of the accuracy of self-employment earnings and identification data and work with IRS to resolve any problems that are identified.

    Agency Affected: Social Security Administration

  12. Status: Closed - Implemented

    Comments: SSA agreed to receive IRS tapes showing all of the necessary information from SE schedules and to reconcile the number of self-employment records processed by IRS and SSA.

    Recommendation: The Commissioners of Internal Revenue and Social Security should work together to establish overall control of the number of self-employment records received for processing so that differences between the number processed by IRS and SSA can be reconciled. IRS should provide SSA with overall control totals of all SE schedules processed; SSA should then account for all records received and processed.

    Agency Affected: Social Security Administration

  13. Status: Closed - Implemented

    Comments: IRS and SSA agreed to have IRS send SSA computer tapes containing all the necessary information from SE schedules for SSA to reconcile the number of self-employment records processed between the two agencies.

    Recommendation: The Commissioners of Internal Revenue and Social Security should work together to establish overall control of the number of self-employment records received for processing so that differences between the number processed by IRS and SSA can be reconciled. IRS should provide SSA with overall control totals of all SE schedules processed; SSA should then account for all records received and processed.

    Agency Affected: Department of the Treasury: Internal Revenue Service

 

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