Employment-Related Identity Fraud:

Improved Collaboration and Other Actions Would Help IRS and SSA Address Risks

GAO-20-492: Published: May 6, 2020. Publicly Released: May 6, 2020.

Additional Materials:

Contact:

Jessica Lucas-Judy
(202) 512-9110
LucasJudyJ@gao.gov

 

Rebecca Shea
(202) 512-6722
SheaR@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

Employment-related identity fraud occurs when people use a name or Social Security number (SSN) other than their own to get a job. This fraud makes it harder for IRS to collect taxes and harder for the Social Security Administration to manage benefits.

Though the true scope of this fraud is unknown, we identified 1.3 million SSNs from 2016 that were associated with both signs of potential fraud (e.g., wages reported for the SSNs of children or the elderly), and underreported wages to IRS by the taxpayer.

Our recommendations include improving how both agencies share wage data to better detect this type of fraud.

Employment-related identity fraudsters use identities other than their own to gain employment

Resume

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Additional Materials:

Contact:

Jessica Lucas-Judy
(202) 512-9110
LucasJudyJ@gao.gov

 

Rebecca Shea
(202) 512-6722
SheaR@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

What GAO Found

Employment-related identity fraud occurs when people use a name or Social Security number (SSN) other than their own to get a job. People may do this if they are not authorized to work in the United States or are trying to avoid child support payments, among other reasons. Victims may face Internal Revenue Service (IRS) enforcement actions based on wages earned by fraudsters. IRS identified more than 818,000 cases in 2018, but this included only one form of employment-related identity fraud—mismatches between the identity listed on the Form W-2, Wage and Tax Statement (W-2) and the identity on the tax return. The true scope of employment-related identity fraud is unknown.

GAO reviewed additional forms of this fraud and identified 1.3 million SSNs that for 2016 had both (1) characteristics associated with employment-related identity fraud; and (2) wages reported by the employer on a W-2, but not reported by the employee on a tax return. This includes about 9,000 individuals whose employers reported W-2s in five or more states, but who did not include them all on their tax return (see figure).

Example of a Social Security Number Potentially Used for Employment-Related Identity Fraud

Example of a Social Security Number Potentially Used for Employment-Related Identity Fraud

The Social Security Administration (SSA) processes W-2s before sending W-2 data to IRS for enforcement purposes. SSA has developed processes to detect some inaccurate W-2s and notify potential fraud victims. IRS uses W-2 information to deter some potential fraudsters, but has not assessed the costs and benefits of expanding its enforcement efforts to include certain individuals who may underwithhold taxes or not file returns. Doing so could help IRS determine if such an effort would enable the agency to collect additional revenue.

SSA and IRS entered into a memorandum of understanding (MOU) to collaborate to exchange wage data. However, they have not established performance goals and measures for the MOU, implemented the MOU's monitoring provisions, or clearly defined the data elements they exchange.

Why GAO Did This Study

Employment-related identity fraud poses risks to IRS's ability to collect taxes owed on wages and to SSA's ability to correctly calculate and manage Social Security benefits.

GAO was asked to review employment-related identity fraud. This report examines (1) the potential scope of employment-related identity fraud, including what IRS knows about this type of fraud and what GAO could determine by analyzing Department of Health and Human Services' National Directory of New Hires (NDNH) and IRS data; (2) SSA and IRS actions to detect and deter this fraud as well as notify victims; and (3) SSA and IRS's collaboration on the issue.

GAO analyzed 3 months of 2016 NDNH wage data and 2016 IRS taxpayer data to identify potential employment-related identity fraud. GAO also reviewed relevant IRS and SSA documentation and interviewed agency officials.

This is a public version of a sensitive report that GAO issued in January 2020. Information that SSA deemed sensitive has been omitted.

What GAO Recommends

GAO is making 12 recommendations to IRS and SSA, including that IRS assess the feasibility of adding checks to its review of employment-related identity fraud, and assess the costs and benefits of expanding enforcement; and that both agencies improve the implementation of their MOU. SSA agreed and IRS neither agreed nor disagreed with the recommendations.

For more information, contact Jessica Lucas-Judy at (202) 512-9110 or LucasJudyJ@gao.gov, or Rebecca Shea at (202) 512-6722 or SheaR@gao.gov.

Recommendations for Executive Action

  1. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should modify the title of IRS's employment-related identity theft action code 525 to reflect the type of employment-related identity fraud encompassed by this action code. (Recommendation 1)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should assess and document the feasibility of incorporating additional checks into its automated checks of employment-related identity fraud for populations at risk of employment-related identity fraud, such as children, elderly, deceased persons, and individuals associated with multiple wage records. (Recommendation 2)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  3. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should assess and document the costs and benefits of using the Withholding Compliance Program (WHC) to address compliance risks posed by potential employment-related identity fraudsters who owe taxes and take appropriate action, as needed. (Recommendation 3)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  4. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should modify Automated Underreporter (AUR) to include wage discrepancy checks for victims of employment-related identity fraud once IRS has updated AUR's legacy programming code. (Recommendation 4)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  5. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should, in collaboration with the Commissioner of Social Security, develop and document a plan for updating future Combined Annual Wage Reporting (CAWR) MOUs. The plan should identify actions, time frames, and responsible parties, including executive leadership. (Recommendation 5)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  6. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should, in collaboration with the Commissioner of Social Security, develop and implement goals and performance measures for the CAWR MOU. (Recommendation 6)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  7. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should, in collaboration with the Commissioner of Social Security, develop and document a strategy for assuring that the reviews required by the updated MOU are completed within the specified time frames. (Recommendation 7)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  8. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Internal Revenue should, in collaboration with the Commissioner of Social Security, clearly define data elements they exchange with SSA. (Recommendation 8)

    Agency Affected: Department of the Treasury: Internal Revenue Service

  9. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Social Security should, in collaboration with the Commissioner of Internal Revenue, develop and document a plan for updating future CAWR MOUs. The plan should identify actions, time frames, and responsible parties, including executive leadership. (Recommendation 9)

    Agency Affected: Social Security Administration

  10. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Social Security should, in collaboration with the Commissioner of Internal Revenue, develop and implement goals and performance measures for the CAWR MOU. (Recommendation 10)

    Agency Affected: Social Security Administration

  11. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Social Security should, in collaboration with the Commissioner of Internal Revenue, develop and document a strategy for assuring that the reviews required by the updated MOU are completed within the specified time frames. (Recommendation 11)

    Agency Affected: Social Security Administration

  12. Status: Open

    Comments: When we confirm what actions the agency has taken in response to this recommendation, we will provide updated information.

    Recommendation: The Commissioner of Social Security should, in collaboration with the Commissioner of Internal Revenue, clearly define the data elements they exchange with IRS. (Recommendation 12)

    Agency Affected: Social Security Administration

 

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