Tax Administration:

Accuracy of Taxpayer Identification Numbers on Information Returns Can Be Improved

GGD-88-110: Published: Sep 6, 1988. Publicly Released: Sep 6, 1988.

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In response to a congressional request, GAO assessed the Internal Revenue Service's (IRS) administration of its Taxpayer Identification Number (TIN) Penalty Program, specifically how IRS: (1) enforced withholding requirements when financial institutions, or payers, submitted returns with missing or incorrect TIN; (2) provided accurate and timely information to payers; and (3) reduced missing and incorrect TIN on information returns.

GAO found that IRS: (1) did not enforce the interest and dividend withholding requirement as it applied to TIN; (2) did not monitor the extent to which payers withheld payments or determine the reasons for nonwithholding; (3) had no basis for determining whether a payer was liable for the amount not withheld; and (4) may have lost an estimated $2.4 billion in tax not withheld in 1985. GAO also found that IRS: (1) resolved about 10 percent of its missing TIN problems by using two tax-return files to generate lists of incorrect and missing TIN; (2) did not allow payers enough time to correct their data before submitting the next year's information returns; and (3) did not use any manual research procedures to resolve errors.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: GAO was told that IRS auditors are now required, when auditing a payer, to determine, among other things, compliance with withholding requirements.

    Recommendation: To ensure better compliance with information return reporting requirements and a more effective and accurate TIN Penalty Program, the Commissioner of Internal Revenue should establish and implement procedures to determine whether payers are complying with withholding requirements on interest and dividend information returns and to enforce that requirement, including the assessment of any penalty where appropriate.

    Agency Affected: Department of the Treasury: Internal Revenue Service

  2. Status: Closed - Implemented

    Comments: According to IRS, the Key Index File is now used annually to research missing and incorrect TINs on those returns considered to have the highest potential yield.

    Recommendation: If IRS, after assessing its test results, decides to use the Key Index File on interest and dividend information returns with missing TIN, the Commissioner of Internal Revenue should consider expanding that use to returns with incorrect TIN until the automated TIN correction system is implemented. To best use its limited staff, IRS should focus on returns that have the highest potential to yield additional taxes.

    Agency Affected: Department of the Treasury: Internal Revenue Service


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