Tax Administration:

IRS Could Do More to Verify Taxpayer Identities

GGD-95-148: Published: Aug 30, 1995. Publicly Released: Aug 30, 1995.

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GAO reviewed the Internal Revenue Service's (IRS) procedures for processing and posting tax returns with missing or incorrect social security numbers (SSN), focusing on: (1) the growth in IRS individual master file (IMF) accounts with missing or incorrect SSN; (2) IRS procedures for verifying the identities of tax return filers; and (3) the potential effect of these procedures on IRS plans to modernize the tax system and on the income-matching program.

GAO found that: (1) the average annual growth rate for invalid IMF accounts was significant from 1986 through 1994; (2) IRS has revised its procedures to require taxpayers with missing or incorrect SSN or temporary numbers to provide documentation that verifies their identity; (3) these revised procedures could help reduce the number of invalid IMF accounts when fully implemented; (4) the IRS Tax Modernization System is in jeopardy because the master file structure allows two or more taxpayers to have accounts under the same number, or one taxpayer to have several accounts under different numbers; (5) the IRS income-matching program is hampered by posting returns to IMF invalid accounts; and (6) IRS plans to assign permanent taxpayer identification numbers to filers that are ineligible to obtain SSN and encourage the use of these numbers on information returns.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: To improve the processing of returns with missing or incorrect SSN and help clean up accounts currently posted on the IMF invalid segment, the Commissioner of Internal Revenue should finalize the CP54B notice in time for use during the 1996 tax filing season.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: IRS revised the CP54B notice for use during the 1996 filing season.

    Recommendation: To improve the processing of returns with missing or incorrect SSN and help clean up accounts currently posted on the IMF invalid segment, the Commissioner of Internal Revenue should apply the revised documentation requirements to taxpayers who filed tax returns that were posted to the IMF invalid segment before 1995 and whose accounts now have a permanent refund release code.

    Agency Affected: Department of the Treasury: Internal Revenue Service

    Status: Closed - Implemented

    Comments: In the several years since the report was issued, IRS has taken various steps directed at better ensuring that income tax returns include correct SSNs for taxpayers, their spouses, and their dependents. Those actions include the denial of claimed refunds or credits, such as the Earned Income Credit, if a required SSN is missing or incorrect. Among other things, IRS' actions resolved the problem addressed by the recommendation.

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