type: other

jurisdiction: US

text: b' The Internal Revenue Service\xe2\x80\x99s Individual\n Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n January 2004\n\n Reference Number: 2004-30-023\n\n\n\n\nThis report has cleared the Treasury Inspector General for Tax Administration disclosure\nreview process and information determined to be restricted from public release has been\n redacted from this document.\n\n\n\nRedaction Legend:\n2d = Law Enforcement Technique(s)\n2e = Law Enforcement Procedure(s)\n\x0c DEPARTMENT OF THE TREASURY\n WASHINGTON, D.C. 20220\n\n\n\n\nINSPECTOR GENERAL\n for TAX\n ADMINISTRATION\n\n\n\n\n January 8, 2004\n\n\n MEMORANDUM FOR DEPUTY COMMISSIONER FOR SERVICES AND\n ENFORCEMENT\n\n\n FROM: Gordon C. Milbourn III\n Acting Deputy Inspector General for Audit\n\n SUBJECT: Final Audit Report - The Internal Revenue Service\xe2\x80\x99s Individual\n Taxpayer Identification Number Creates Significant Challenges\n for Tax Administration (Audit # 200230050)\n\n\n This report presents the results of our analysis of United States (U.S.) Individual Income\n Tax Returns (Form 1040) filed with an Internal Revenue Service (IRS) Individual\n Taxpayer Identification Number (ITIN) by resident aliens 1 for Tax Year (TY) 2001 and,\n where applicable, TY 2000.2 This evaluation included identifying attributes of these\n Forms 1040, such as income, deductions, credits and refunds, and the related tax\n administration issues that affect compliance with tax laws and regulations.\n Forms 1040 filed with ITINs represent significant challenges for tax administration and\n affect other areas of Federal Government concern and tax policy. An analysis of the tax\n return attributes for TY 2001 resident aliens who were not authorized to work in the U.S.\n showed that approximately 530,000 Forms 1040 were filed with ITINs as the primary\n number.\n\n\n\n\n 1\n 26 U.S.C. \xc2\xa7 7701 (2003) defines a resident alien as a resident of the U.S. for any calendar year if that individual\n was lawfully admitted for permanent residence. A resident alien is also a foreign person in the U.S. who meets the\n \xe2\x80\x9csubstantial presence\xe2\x80\x9d test, which is based on the number of days that person resides in the U.S.\n 2\n TYs 2001 and 2000 were the most recent years available at the time of this review. Our data are based on the\n primary filer\xe2\x80\x99s identification number as an ITIN.\n\x0c 2\n\nThese returns reported adjusted gross income (AGI) 3 of $10.7 billion, which was\nreduced by $7.5 billion for the standard and itemized deductions and exemptions. The\namount of taxes due was $495 million.\nThe taxes due were reduced by tax credits and payments, leaving a reported total tax\nliability of $184 million. This tax liability represented 1.7 percent of the $10.7 billion\nin AGI. After the tax liability was computed, the claimed amount of refunds totaled\n$522 million.\nIn all likelihood, the number of Forms 1040 with ITINs will increase. The approximately\n530,000 returns is a 99 percent increase in the number of Form 1040 returns filed with\nan ITIN over a 3-year period. Moreover, the number of ITINs issued to resident aliens,\ntheir spouses, and dependents increased from approximately 693,000 in Calendar\nYear (CY) 2001 to 925,000 in CY 2002.\nForms 1040 filed with an ITIN represent two major challenges for tax administration.\nFirst, unauthorized resident aliens 4 with questionable identification benefit 2d, 2e---------\n2d, 2e---------------------------------------------------------------------- In TY 2000, 353,000 tax\nreturns included an estimated 309,000- paper filed returns with 2 different identification\nnumbers: an ITIN on the Form 1040 and a Social Security Number (SSN) on 1 or more\nof the attached Wage and Tax Statements (Form W-2). 2d, 2e----------------------------\n-----------------------------------------------------------------------------------------------------------\n2d, 2e--- These returns raise concerns about identity theft, 6 perjury, 7 and fraud.8\nSecond, unauthorized resident aliens benefit 2d, 2e----------------------------------------\n2d, 2e-----------------------------------------------------------------------------------------For TY 2000,\nwe estimated that 82,000 unauthorized resident aliens (1 in 4 return filers) did not report\nincome from wages and nonemployee compensation of $324 million,9 an average of\nalmost $4,000 per return.\nOther Federal Government agencies and tax policy issues also are affected b y ITIN\nusage because unauthorized resident aliens benefit from the tax law10 that generally\nprohibits disclosing tax return information. First, the Illegal Immigration Reform and\nImmigrant Responsibility Act of 1996 provided that information concerning immigration\n\n\n\n\n3\n 26 U.S.C. \xc2\xa7 62 (2003) provides that AGI is income from all taxable sources reduced by certain deductions, such as\nbusiness expenses, retirement savings, and alimony payments.\n4\n See Appendix VII for an explanation of the term unauthorized resident alien.\n5\n The margin of error for this figure and all subsequent figures, except electronically filed returns, is in Appendix V.\n6\n Identity Theft and Assumption Deterrence Act of 1998, Pub. L. No. 105-318, 112 Stat. 3007 (1998).\n7\n 26 U.S.C. \xc2\xa7 6065 (2003).\n8\n 26 U.S.C. \xc2\xa7 7206 (2003).\n9\n Projection based on a statistically valid sample of TY 2000 Forms 1040 with an ITIN for resident aliens claiming\nwages and nonemployee compensation and comparing this amount to the IRS Information Returns Program (IRP)\nfiles. The IRP processes information returns submitted either on magnetic media or electronically from businesses;\nfinancial institutions; and Federal, state, and local governments.\n10\n 26 U.S.C. \xc2\xa7 6103 (2003).\n\x0c 3\n\nstatus should be reported to the Bureau of Immigration and Customs Enforcement\n(BICE). 11 In our opinion, the IRS is able to identify some unauthorized resident aliens by\nusing ITIN records. However, the tax law generally prohibits the IRS from sharing this\ntax return information with other Federal Government agencies. Thus, there is a conflict\nbetween the tax law and immigration law.\nThe second area of Federal Government concern is identity theft through misuse of the\nSSN. Federal Government agencies have reported that hundreds of thousands of\nunauthorized resident aliens have used fraudulent documents to obtain employment.\nWe found unauthorized resident aliens had used approximately 265,000 SSNs 12 that the\nSocial Security Administration (SSA) had assigned to other individuals. Under current\nlaw, the IRS is prohibited from sharing this information with the SSA.\nFrom a tax policy perspective, unauthorized resident aliens benefit from the tax law\nsince they are treated virtually the same as U.S. citizens and lawful resident aliens. An\nunauthorized resident alien is entitled to the same deductions and credits, except for the\nEarned Income Tax Credit (EITC). Therefore, unauthorized resident aliens are eligible\nfor the Additional Child Tax Credit (ACTC), which is one of only two major credits that\ncan result in a Federal Government payment above the tax liability. In TY 2001,\n$160.5 million was given to approximately 203,000 unauthorized resident aliens, with\nabout 190,000 of these filers having no tax liability and receiving $151 million.\nLike the ACTC, the EITC was available to unauthorized resident aliens when it became\nlaw in 1975. In 1996, the law was changed in part to deny the EITC to unauthorized\nworkers. A legislative purpose of the ACTC is similar to the purpose of the EITC. Prior\nto the EITC law change, the General Accounting Office reported that awarding the EITC\nto illegal aliens was at cross-purposes with Federal Government policies that prohibit\nillegal aliens from working in the U.S. Similar to the purpose of the EITC, the Senate\nstated that tax law changes to the Child Tax Credit (CTC) and ACTC were intended for\n\xe2\x80\x9clow income working families to promote work.\xe2\x80\x9d13\nFurthermore, while unauthorized resident aliens are treated virtually the same as U.S.\ncitizens and legal resident aliens, they are not taxed like aliens who do not reside in the\nU.S. but have U.S. source income. If the unauthorized resident aliens were taxed the\nsame as nonresident aliens, they could not take the standard deduction. Unauthorized\nresident aliens claimed the standard deduction on 92.3 percent of the returns filed,\nreducing their AGI by $3.2 billion. Also, if unauthorized resident aliens were taxed the\nsame as nonresident aliens, they could not claim the lower tax rate associated with the\n\n\n11\n Pub. L. No. 104-208, 110 Stat. 3009 (1996). This law refers to the U.S. Immigration and Naturalization Service\n(INS). The Department of Homeland Security\xe2\x80\x99s BICE assumed the INS\xe2\x80\x99 enforcement responsibilities 2003. This\nBureau is now known as the U.S. Immigration and Customs Enforcement.\n12\n Projection based on a statistically valid sample of paper filed TY 2000 Forms 1040 filed with an ITIN as the\nprimary number for resident aliens with Forms W-2 attached, and comparing the SSN on the Form W-2 to IRS\nrecords provided by the SSA to determine to whom the SSA assigned the SSN.\n13\n Restoring Earnings To Lift Individuals and Empower Families Act of 2001, H.R. 1836, as agreed to by the\nSenate. This bill was submitted to the House of Representatives and eventually became the Economic Growth and\nTax Relief Reconciliation Act of 2001, Pub. L. No. 107-16, 115 Stat. 38 (2001).\n\x0c 4\n\nhead of household filing status. Unauthorized resident aliens claimed this status on\nabout 160,000 (30.2 percent) of the approximately 530,000 tax returns filed during\nTY 2001.\nFinally, unauthorized resident aliens using an ITIN as their identification number\nprepared over 6,700 tax returns for U.S. citizens. The IRS\xe2\x80\x99 reliance on unauthorized\nresident aliens for tax return preparation may have an adverse impact on public\nconfidence and satisfaction with the tax system.\nOn July 8, 2003, we issued a memorandum to the IRS (see Appendix VIII) that stated\nunauthorized resident aliens would be eligible for the accelerated CTC and ACTC\ndisbursements under the newly passed 14 and proposed legislation.15 We estimated that\nthese disbursements could be $150 million. We recommended that the IRS\nCommissioner advise the Department of the Treasury concerning the potential conflict\nwith immigration law, delay sending the disbursements until questionable identifications\ncould be resolved, and propose legislation to limit the ACTC, similar to the EITC, for\nunauthorized resident aliens. The IRS provided a reasoned response to the\nmemorandum (see Appendix IX). The Department of the Treasury was advised of our\nconcern about the credits and the process of considering legislation to limit the ACTC\nwas initiated. The IRS stated that it was not authorized to delay the disbursements\nbecause unauthorized resident aliens are entitled to the credit by the current law.\nThe IRS recognizes the need to address the ITIN tax administration challenges. The\nIRS chartered an ITIN Task Force, accepted most of its recommendations, and\nestablished an ITIN Project Office that is implementing the accepted recommendations.\nIn addition, the IRS established an ITIN position in the National Taxpayer Advocate\n(NTA) Service and is initiating procedures to assist taxpayers who might have been\nvictims of identity theft.\nWe recommended that the Commissioner, Wage and Investment (W&I) Division issue\ninstructions to 2d, 2e----------- ---------------------------that have questionable identification\nissues, 2d, 2e-----------------------------------------------------------(Recommendations 1 and 2),\nand communicate this problem to persons providing assistance with return preparation\nand filing (Recommendations 3, 4, and 5). 2d, 2e-----------------------------------------\n2d, 2e-- the Commissioner, W&I Division, should 2d, 2e------------unreported income\nand improve assistance to victims of identity theft (Recommendations 6, 7, and 8). The\nDeputy Commissioner for Services and Enforcement should determine whether any\nactions are warranted against persons preparing or assisting with the preparation of tax\nreturns with questionable identification (Recommendations 9 and 13), coordinate with\nthe Bureau of Citizenship and Immigration Services (BCIS)16 and the SSA to assess the\nbenefits to these agencies of seeking legislation to broaden the IRS\xe2\x80\x99 authority to share\ninformation (Recommendation 10), seek legislation to generally require persons who\n\n\n14\n Jobs and Growth Tax Relief Reconciliation Act of 2003, Pub. L. No. 108-27, 117 Stat. 752.\n15\n Relief for Working Families Tax Act of 2003, H.R. 1308, as amended, and pending in Conference Committee.\n16\n The Department of Homeland Security\xe2\x80\x99s BCIS assumed the INS\xe2\x80\x99 customer service responsibilities in 2003. This\nBureau is now known as the U.S. Citizenship and Immigration Services.\n\x0c 5\n\nare compensated for assisting with preparing or filing tax returns be a U.S. citizen or a\nresident alien authorized to work in the U.S. (Recommendation 11), and define and tax\nunauthorized resident aliens more like nonresident aliens (Recommendation 12).\nManagement\xe2\x80\x99s Response: IRS management expressed agreement with 5 of the\n13 recommendations. They agreed with Recommendation 5 and will work with software\ndevelopers to modify computer programs used by Electronic Return Preparers (ERP).\nThey also agreed with Recommendation 8 and will e xplore using Federal Trade\nCommission data to reduce the tax administration effects of identity theft. In addition,\nmanagement agreed with Recommendations 10, 11, and 12 by initiating the process\nthrough which the legislative proposals would be considered. These proposals included\nbroadening the use of IRS data by other Federal agencies, preventing unauthorized\nresident aliens from working in the tax return preparation industry, and changing the\ntaxation of income reported by unauthorized resident aliens. Management provided\ncorrective actions for each of these issues. Moreover, management is taking additional\nactions on ITIN issues not included in the scope of the review, such as the changes\nrecently announced for the ITIN application process.\nManagement partially agreed with Recommendations 3 and 4 involving tax return\npreparation assistance provided by paid preparers, ERPs, and volunteer groups.\nManagement is taking corrective action on Recommendation 3 and already has\nprograms that address Recommendation 4. However, management indicated that paid\npreparers and volunteers are not required to verify the identification information\nprovided by a taxpayer.\nManagement expressed disagreement with six recommendations. They did not agree\nwith Recommendations 1 and 22d, 2e-----------------------------------------------\n2d, 2e-------------------------------- Management advised that they have seen no evidence\nthat ITIN holders are more or less accurate in calculating their tax liabilities than any\nother taxpayer group. Management also advised that the economic and noneconomic\ncosts (e.g., taxpayer burden) of implementing a new policy would outweigh the potential\nbenefits to tax administration.\nManagement did not agree at this time with Recommendations 6 and 7, 2d,2\n2d, 2 e------------------------------------ -------------------------------------------------to address\nunderreported income and identity theft. Management advised that implementing this\nsystem was currently not feasible 2d, 2e----------------------and that a cost -benefit\nanalysis would be needed. Management also advised that they would continue to study\nwhether the system might become feasible in the future.\nAlso, management disagreed with Recommendations 9 and 13. These\nrecommendations concerned the suitability of administrative or legal actions involving\ntax preparation situations, such as individuals who prepare or assist with preparing or\nfiling tax returns with questionable identification and paid preparers identifying\nthemselves with ITINs. However, management followed the intent of the\nrecommendations by receiving IRS Office of Chief Counsel\xe2\x80\x99s advice. Its Chief Counsel\nindicated that no actions were warranted.\n\x0c 6\n\nRecommendations 1, 2, 6, 7, 10, and 12 included outcome measures. Since\nmanagement did not agree with Recommendations 1, 2, 6 and 7, they did not agree\nwith the outcome measures associated with them. Furthermore, management stated\nthat it was not appropriate to comment on the outcome measures for\nRecommendations 10 and 12 involving tax policy.\nManagement\xe2\x80\x99s complete response to the draft report is included as Appendix X.\nOffice of Audit Comment: Management\xe2\x80\x99s corrective action for Recommendation 10 was\nto initiate the process through which the legislative proposals would be considered by\nsharing our report with the Assistant Secretary for Tax Policy at the Department of the\nTreasury and other Federal agencies. We encourage the IRS to further its coordination,\nand take a more proactive role by offering to these agencies in-depth guidance on the\ntype of information the IRS receives, its privacy concerns, and the potential impact of\nlegislation on tax administration. This approach could assist Federal agencies in\ndetermining whether legislation would help them achieve their missions, understanding\nthe IRS\xe2\x80\x99 interests, and, therefore, deciding whether to coordinate with the Assistant\nSecretary.\nManagement\xe2\x80\x99s corrective action for Recommendation 11 was to initiate the process for\nconsidering this legislative proposal by sharing our report with the Assistant Secretary\nfor Tax Policy and the NTA. However, management did not specifically address the\nrecommendation for the IRS to supplement the NTA\xe2\x80\x99s existing proposal for legislation\nregulating paid preparers.\nLikewise, management\xe2\x80\x99s corrective action for Recommendation 12 was to initiate the\nlegislative process by sharing our report with the Assistant Secretary for Tax Policy.\nHowever, we are unclear whether the IRS agrees or disagrees from a tax administration\nviewpoint since the IRS did not address these tax administration issues to the extent\npermitted by its policy on providing comments on legislation.\nIt appears that the basis of the IRS\xe2\x80\x99 disagreement with a part of Recommendations\n3 and 4 was that paid preparers or volunteers should not verify taxpayer identification\ninformation. However, we made no recommendation to take this action. The intent of\nthese recommendations was not to have a verification performed but simply to have two\ndifferent identification numbers identified. We believe these actions are unrelated. As a\nresult, this issue remains a concern.\nWe are unclear concerning management\xe2\x80\x99s rationale for not implementing\nRecommendations 1 and 2, 2d, 2e-------------------------------------------------------------- The\nintent of the recommendations was not to question the ability to correctly calculate tax\n2d, 2e--------------------, but rather to establish the identity of the filer. The\nrecommendations for paper filed and electronically filed returns follow the IRS\xe2\x80\x99 current\napplication of the Internal Revenue Code provision 2d, 2e------------- ---------------------\n2d, 2e------ 17 The recommendation for paper filed returns follows the methodology\ncurrently used on 2d, 2e-------------------------- Consequently, the recommendations do\n\n17\n 2d, 2e------------------------\n\x0c 7\n\nnot constitute a new policy. By not taking action, the IRS will continue to hold U.S.\ncitizens and resident aliens authorized to work in the U.S. to a different standard than\nthat to which unauthorized resident aliens are held.\nSimilarly, different standards will continue to be applied because management\ndisagreed at this time with Recommendations 6 and 7 regarding unreported income and\nidentity theft. However, while management\xe2\x80\x99s interest in the future feasibility of these\nrecommendations appears to be a corrective action, they did not identify the responsible\nofficials, set completion dates, or describe how any actions taken would be monitored.\nWe believe acting on underreported income is particularly important when the\npercentage of people in America who think that it is acceptable to cheat on their Federal\nincome tax increased from 11 to 17 percent from 1999 to 2003.18 In our opinion, the\nbenefits of providing equal treatment to all taxpayers and of enabling assistance to as\nmany as 265,000 potential victims of identity theft would outweigh the relatively modest\nprocessing cost of an estimated $435,000.19\nManagement disagreed with Recommendations 9 and 13. However, management\xe2\x80\x99s\nresponse showed that they followed our intent by receiving the Office of Chief Counsel\xe2\x80\x99s\nadvice. While the response for Recommendation 9 addressed penalties against tax\nreturn preparers, it did not address sanctions against ERPs, as described in the report.\nFurthermore, the basis of management\xe2\x80\x99s response appears to be similar to their basis\nfor Recommendations 3 and 4, which addressed verification of identification information.\nAs we noted, our interest was in detecting the use of two different identification\nnumbers. Consequently, we cannot be certain that management fully addressed this\nissue and, as a result, it remains a concern.\nManagement\xe2\x80\x99s response to Recommendation 13 indicated that resident aliens who are\nnot authorized to work in the U.S. are permitted to use ITINs to meet the IRS\xe2\x80\x99\nidentification requirement for individuals who work, within the tax system, as paid\npreparers. Furthermore, this issue aligns with the Federal Government\xe2\x80\x99s focus on\ncitizenship issues: unauthorized resident aliens have access to sensitive identification\nand financial information from potentially unsuspecting U.S. citizens. In our opinion,\nthese factors provide management with knowledge of an employment issue that is\ninseparable from tax administration because of its potential impact on the public\xe2\x80\x99s\nconfidence in the tax system. So, while no laws may have been violated, we believe\nthat the risk of continuing this practice outweighs its benefit to tax administration.\nWhile we still believe our recommendations are worthwhile, we do not intend to elevate\nour disagreement concerning them to the Department of the Treasury for resolution.\n\n\n\n\n18\n 2003 IRS Oversight Board Annual Survey on Taxpayer Attitudes, September 2003.\n19\n Estimate based on the most recent cost figures available, as included in the IRS\xe2\x80\x99 FY 2000 cost estimate guidelines.\nOur estimate would increase for FY 2004 due to inflation. This figure does not include programming costs.\n\x0c 8\n\nDue to the nature of some material in this report, we have placed on the public\nTreasury Inspector General for Tax Administration (TIGTA) Internet web site a\nredacted version of the report. If you identify a need to release this report to\nanyone outside of the IRS, please refer them to the redacted version on the TIGTA\nInternet web site.\nCopies of this report are also being sent to the IRS managers who are affected by the\nreport recommendations. Please contact me at (202) 622-6510 if you have questions or\nPhilip Shropshire, Acting Assistant Inspector General for Audit (Small Business and\nCorporate Programs), at (215) 516-2341.\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Table of Contents\n\n\nBackground ...........................................................................................................Page 1\nAttributes of Forms 1040 Filed by Resident Aliens .........................................Page 3\nForms 1040 Filed With an Individual Taxpayer Identification\nNumber Represent a Challenge for Tax Administration ................................Page 7\n Recommendations 1 and 2: ...................................................... Page 16\n Recommendation 3: ................................................................. Page 18\n Recommendation 4: ................................................................. Page 19\n Recommendations 5 through 7: ................................................ Page 20\n Recommendation 8: ................................................................. Page 21\n Recommendation 9: ................................................................. Page 22\n\nOther Federal Government Agencies and Tax Policy Are\nAffected by Individual Taxpayer Identification Number Usage. ....................Page 22\n Recommendation 10: ............................................................... Page 32\n Recommendations 11 and 12: .................................................. Page 33\n Recommendation 13: ............................................................... Page 34\n\nAppendix I \xe2\x80\x93 Detailed Objective, Scope, and Methodology ..........................Page 35\nAppendix II \xe2\x80\x93 Major Contributors to This Report.............................................Page 37\nAppendix III \xe2\x80\x93 Report Distribution List...............................................................Page 38\nAppendix IV \xe2\x80\x93 Outcome Measures....................................................................Page 39\nAppendix V \xe2\x80\x93 Attributes of Forms 1040 Filed With an Individual\nTaxpayer Identification Number in Tax Years 2000 and 2001......................Page 42\nAppendix VI \xe2\x80\x93 Credits Claimed on Forms 1040 Filed With an\nIndividual Taxpayer Identification Number in Tax Years 1998-2001 ...........Page 43\nAppendix VII \xe2\x80\x93 Explanation of the Term \xe2\x80\x9cUnauthorized Resident Alien\xe2\x80\x9d ....Page 44\nAppendix VIII \xe2\x80\x93 Memorandum: Accelerating Scheduled Increases in\nthe Child Tax Credit and the Additional Child Tax Credit to\nUnauthorized Resident Aliens Should Be Reconsidered...............................Page 48\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\nAppendix IX \xe2\x80\x93 Management\xe2\x80\x99s Response to Memorandum ...........................Page 58\nAppendix X \xe2\x80\x93 Management\xe2\x80\x99s Response to the Draft Report ........................Page 60\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n To efficiently and effectively process tax returns, the\nBackground Internal Revenue Service (IRS) uses Taxpayer Identification\n Numbers (TIN). The TIN is a required entry on tax returns\n to facilitate tax administration. For individuals, the required\n TIN is the Social Security Number (SSN).\n The Internal Revenue Code (I.R.C.) also provides that any\n person required to file a return, statement, or other\n document shall include an identifying number for securing\n proper identification of that person. The SSN shall be used\n as the identifying number for such individual for this\n purpose, except as otherwise specified under regulations. 1\n A United States (U.S.) Individual Income Tax Return\n (Form 1040) is the primary tax return filed by individuals.\n In general, the Social Security Administration (SSA) limits\n its assignment of SSNs to individuals who are U.S. citizens\n and alien individuals legally admitted to the U.S. for\n permanent residence or under other immigration categories\n authorizing U.S. employment. Consequently, individuals\n who do not meet these criteria cannot obtain SSNs.\n In past years, alien individuals who could not obtain SSNs,\n and who had income that was taxable by the U.S., would\n file tax returns without identifying numbers. To help these\n taxpayers comply with the identification requirements of the\n I.R.C., Treasury Regulations 2 were issued in 1996 to\n provide for an Internal Revenue Service (IRS) Individual\n Taxpayer Identification Number (ITIN). The purpose of the\n ITIN was to provide alien individuals, whether or not they\n reside in the U.S., an identifying number for use in\n connection with U.S. tax return filing requirements.\n Also, the Treasury Regulation provides that the IRS assign\n ITINs to resident aliens who cannot obtain an SSN. The\n ITIN is intended for tax purposes only and creates no\n inference regarding an alien individual\xe2\x80\x99s right to be legally\n employed in the U.S. and that individual\xe2\x80\x99s immigration\n\n\n\n\n 1\n 26 U.S.C. \xc2\xa7 6109 (2003).\n 2\n Treas. Reg. \xc2\xa7 301.6109.\n Page 1\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n status 3 (i.e., the ITIN does not authorize a foreign individual\n to work or live in the U.S.).\n This audit serves as an in-depth analysis of data that were\n developed in response to a request for information from the\n Honorable Charles E. Grassley, then Ranking Member of\n the Senate\xe2\x80\x99s Committee on Finance. 4 The request concerned\n the IRS programs for identifying illegal aliens 5 and for\n sharing this information with the Bureau of Immigration and\n Customs Enforcement (BICE) 6 and the SSA. This audit also\n serves as a follow- up to our previous report on ITINs. 7\n We performed our audit work between October 2002 and\n March 2003 at the Headquarters of the Wage and\n Investment (W&I) Division in Atlanta, Georgia; the\n Headquarters of the Small Business/Self- Employed (SB/SE)\n Division in New Carrollton, Maryland; and the IRS\n National Headquarters in Washington, D.C. The audit was\n performed in accordance with Government Auditing\n Standards.\n\n\n 3\n Treas. Reg. \xc2\xa7 301.6109-1. 26 U.S.C. \xc2\xa7 7701 (2003) defines a resident\n alien as a resident of the U.S. for any calendar year if that individual\n was lawfully admitted for permanent residence. A resident alien is also\n a foreign person in the U.S. who meets the \xe2\x80\x9csubstantial presence\xe2\x80\x9d test,\n which is based on the number of days that person resides in the U.S. A\n nonresident alien is neither a citizen of the U.S. nor a resident of the\n U.S.\n 4\n Senator Grassley is now the Chairman of the Senate\xe2\x80\x99s Committee on\n Finance.\n 5\n The use of the term illegal alien would convey the same meaning as\n the term unauthorized resident alien, as used later in this report. See\n Appendix VII for an explanation of the term unauthorized resident\n alien.\n 6\n The request refers to the U.S. Immigration and Naturalization Service\n (INS). The Department of Homeland Security assumed the INS\xe2\x80\x99\n responsibilities in 2003. Its BICE is responsible for law enforcement.\n Its Bureau of Citizenship and Immigration Services (BCIS) is\n responsible for customer service. The BICE is now known as the U.S.\n Immigration and Customs Enforcement, and the BCIS is known as the\n U.S. Citizenship and Immigration Services. These functions will be\n referred to throughout this report when the source of the reported\n information cited is the former INS.\n 7\n The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification\n Number Program Was Not Implemented in Accordance with Internal\n Revenue Code Regulations (Reference Number 094505, dated\n September 1999).\n Page 2\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Detailed information on our audit objective, scope, and\n methodology is presented in Appendix I. Major\n contributors to the report are listed in Appendix II.\n We performed extensive analysis of Forms 1040 that had an\nAttributes of Forms 1040 Filed\n ITIN as the identifying number to provide decision makers\nby Resident Aliens and stakeholders with information. This evaluation\n included identifying attributes of these Forms 1040, such as\n income, deductions, credits and refunds, and the related tax\n administration issues that affect compliance with tax laws\n and regulations.\n To perform the analysis, we reviewed tax return documents\n based on a statistical sample for Tax Year (TY) 2000. We\n then projected the sample results. From our sample\n analysis, we observed three attributes of the ITIN tax returns\n filed on a Form 1040. 8 Numbers have been rounded for\n presentation purposes.\n First, the ITIN does not authorize an individual to work in\n the U.S., yet the presence of the Wage and Tax Statement\n (Form W-2) in the filer\xe2\x80\x99s name indicates wages from\n employment. For TY 2000, we determined that\n approximately 353,000 Forms 1040 with an ITIN were filed\n by resident aliens who were not authorized to work in the\n U.S., yet the tax returns showed wages. The analysis also\n showed that 278,000 of these filers received refunds of\n $262 million.\n Second, we estimate that the 353,000 returns included\n 309,0009 paper filed returns with 265,000 10 SSNs that the\n SSA did not assign to the individual who used it as the\n identification number on the Form W-2. These returns also\n included an estimated 89,000 SSNs that the SSA never\n issued. We concluded that these resident aliens used\n incorrect SSNs because, most likely, they could not legally\n\n\n 8\n An analysis of the IRS\xe2\x80\x99 actions to resolve any tax returns with a\n balance due was beyond the scope of this review.\n 9\n The margin of error is +/- 12,385 tax returns.\n 10\n The margin of error is +/- 17,732 SSNs. Projection based on a\n statistically valid sample of paper filed TY 2000 Forms 1040 filed with\n an ITIN as the primary number for resident aliens with Forms W-2\n attached, and comparing the SSN on the Form W-2 to IRS records\n provided by the SSA to determine to whom the SSA assigned the SSN.\n Page 3\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n obtain an SSN. Therefore, these resident aliens were\n apparently employed without authorization. 11\n Finally, unauthorized resident aliens did not report on their\n TY 2000 Forms 1040 income from wages and nonemployee\n compensation of an estimated $324 million. 12 These filers\n represent almost one of every four individuals who filed a\n Form 1040 with an ITIN.\n For TY 2001, we computer analyzed the IRS tax return\n information for the resident aliens filing\n 530,000 Forms 1040. These tax returns:13\n ?? Reported adjusted gross income (AGI) 14 of\n $10.7 billion, which was reduced by $7.5 billion for\n deductions. These deductions included the standard\n deduction, itemized deductions, and exemptions for the\n filers, the filers\xe2\x80\x99 spouses, and their dependents.\n ?? Claimed tax due before credits of $495 million and then\n reduced tax due with credits of $149 million. 15 The\n credits included the Child Tax Credit (CTC), Dependent\n Care Credit, Education Credit, Foreign Tax Credit, and\n Credit for the Elderly.\n ?? Claimed refunds of $522 million.\n ?? Reported no tax liability on 285,000 (54 percent) of the\n 530,000 tax returns filed.\n ?? Received Federal Government payments totaling\n $160.5 million for the Additional Child Tax Credit\n (ACTC), $151 million of which was paid to\n 190,000 individuals who had no tax liability. In\n\n\n\n\n 11\n See Appendix VII for an explanation of the term unauthorized\n resident alien.\n 12\n The margin of error is +/- $122 million. The wide precision is caused\n by the number of returns in the sample with this attribute.\n 13\n See Appendices V and VI for details concerning these attributes.\n 14\n 26 U.S.C. \xc2\xa7 62 (2003) provides that AGI is income from all taxable\n sources reduced by certain deductions, such as business expenses,\n retirement savings, and alimony payments.\n 15\n See Appendix VI for additional information on each credit.\n Page 4\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n addition, $1.5 million was paid for the Earned Income\n Tax Credit (EITC). 16\n ?? After all deductions and credits, reported a total tax\n liability of $184 million, or 1.7 percent of the\n $10.7 billion in AGI.\n We identified an estimated 84,000 electronically filed\n returns reporting wages and having ITINs on both\n Forms 1040 and W-2. However, since the ITIN cannot be\n used for work purposes, it is unlikely that the employer\n provided a Form W-2 with the ITIN as the identifying\n number. 17\n In all likelihood, the number of Forms 1040 with ITINs will\n increase. Resident aliens filing Forms 1040 identified with\n an ITIN have increased from approximately 266,000 in\n TY 1999 to approximately 530,000 in TY 2001, as shown in\n Figure 1.\n\n\n\n\n 16\n The EITC is a refundable tax credit for eligible individuals and\n families who work and have earned income under a specified dollar\n amount. The individual must have an SSN that allows that individual to\n work. SSNs are required for that individual, the individual\xe2\x80\x99s spouse (if\n filing a joint return), and qualifying child.\n 17\n The margin of error is +/- 2,144 tax returns.\n Page 5\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Figure 1: Income Tax Returns Filed by Resident Aliens and\n Nonresident Aliens\n\n\n Resident Aliens vs. Nonresident Aliens\n\n 600000\n\n\n\n\n Number of Returns\n 500000\n\n 400000\n 300000\n Resident Aliens\n 200000\n Nonresident\n 100000 Aliens\n\n 0\n 1999 2000 2001\n Tax Year\n\n Source: IRS ITIN Usage Report, 1999-2001, and Treasury Inspector\n General for Tax Administration (TIGTA) analysis for TY 2001.\n\n In fact, the number of Forms 1040 with an ITIN processed for\n TY 2001 represents a 99 percent increase over a 3- year\n period. During these same years, the number of all\n Forms 1040 processed increased by only 2.8 percent.\n This rapid growth will continue if the number of recently\n issued ITINs can be used as an indication of future filing\n trends. As shown in Figure 2, resident aliens account for a\n significant majority of individuals to whom ITINs were\n issued. The IRS issued almost 6 million ITINs to resident\n and nonresident aliens in Calendar Years (CY) 1996\n through 2002. Resident aliens accounted for 60 percent, and\n nonresident aliens accounted for a little over 33 percent of\n the ITINs issued. 18\n\n\n\n\n 18\n The IRS categorized the remaining 7 percent of the ITINs issued as\n \xe2\x80\x9cOther.\xe2\x80\x9d An analysis of this category was beyond the scope of this\n review.\n Page 6\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Figure 2: ITINs Assigned by the IRS\n\n\n 1000000\n 900000\n 800000\n\n\n\n\n ITINs Assigned\n 700000\n 600000\n 500000\n 400000\n 300000\n 200000\n 100000\n 0\n\n\n\n\n 96\n\n\n\n\n 00\n 99\n 97\n\n\n 98\n\n\n\n\n 01\n\n\n 02\n 19\n\n\n\n\n 20\n 19\n 19\n\n\n 19\n\n\n\n\n 20\n\n\n 20\n Calendar Year\n Nonresident Aliens Resident Aliens\n\n Source: TIGTA analysis of the IRS Database for ITINs.\n\n Moreover, the number of ITINs issued to resident aliens,\n their spouses, and dependents increased from 693,000 in\n CY 2001 to 925,000 in CY 2002, a 1-year increase of\n 33 percent. The IRS Commissioner stated that the IRS\n Taxpayer Assistance Centers (TAC)19 in the Western and\n Southwestern parts of the U.S. help between 100 and\n 150 noncitizens seeking ITINs per day.\n Forms 1040 filed with ITINs represent a challenge for tax\nForms 1040 Filed With an administration. Two tax administration concerns arose from\nIndividual Taxpayer\n these returns:\nIdentification Number Represent\na Challenge for Tax ?? Unauthorized resident aliens with questionable\nAdministration identification benefit 2d, 2e--------------------------------\n 2d, 2e--------------- -------------------------- -\n\n\n\n\n 19\n The TACs primarily serve taxpayers who choose to seek help from\n the IRS in person. The IRS employees who work in the TACs provide\n services such as assisting in interpreting tax laws and regulations,\n preparing some tax returns, and resolving inquiries on taxpayer\n accounts.\n Page 7\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n ?? Unauthorized resident aliens, who did not report in\n TY 2000 an estimated $324 million in income, would\n benefit 2d, 2e-----------------------------------------------\n ------------------------------------------------- -- -\n Unauthorized resident aliens with questionable\n identification benefit 2d, 2e-----------------------------------\n 2d, 2e-----------------------------------------------\n 2d, 2e------------------------------------------------------------------\n 2d, 2e----------------------- even though they filed\n Forms 1040 with incorrect or altered identification\n information on their Forms W-2. Persons preparing tax\n returns for compensation (paid preparers) and, occasionally,\n IRS employees and federally funded volunteers supported\n by the IRS,21 assisted with 81 percent of these returns in\n TY 2000 and 75 percent in TY 2001. The situation is\n different for paper filed and electronically filed returns.\n Paper filed Forms 1040\n 2d, 2e-------------------------------------------------------------\n ------------------------------------------------------------------\n 2d, 2e---- This situation occurs when Forms 1040 are\n identified with an ITIN, but one or more of the attached\n Forms W-2 is identified with an SSN. We estimate 2d, 2e---\n 2d, 2e----------309,000 TY 2000 Forms 1040 with\n questionable identification.\n 2d, 2e-------------------------- ----------------------------------------\n ------------------------- -- -----------------------------------------\n ---------------------------------------------------------------------\n ------------------------------------------------------------------------\n ------------------------------------------------------------------ -----\n ---------------------------------------------------------------------\n ---------------------------------------------------------------------------\n -------------------------- -\n\n\n 20\n The IRS identifies unreported income through its Automated\n Underreporter (AUR) document matching program. The AUR program\n compares income reported on tax returns to income reported by\n third-party sources, such as the Forms W-2 submitted through the SSA\n to the IRS by employers.\n 21\n These volunteers are associated with the Volunteer Income Tax\n Assistance and the Tax Counseling for the Elderly programs.\n 2d\n , 2e-------------------\n Page 8\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n 2d, 2e------------------------------------------- the IRS ITIN\n Task Force recommended in September 2002 that an\n automated system be developed2d, 2e------------------\n 2d, 2e--------------------------------------------------------------\n 2d, 2e----- -3 However, the IRS did not take this action\n pending further study of the issue.\n In August 2002, the IRS Commissioner advised the\n Department of the Treasury 2d, 2e-----------------------\n -------------------------------------------------------------------------\n ----------------------------------------------------------------------\n 2d, 2e---------------------------------------------------------- The\n IRS did not take action because it believed there would be a\n significant cost to developing and implementing the\n required procedures. 24\n 2d, 2e----------------------------------------------------- -\n ------- -----------------------------------------------------------\n ------------------------------------------------------------------------\n - ----------------\n Potential violations of tax statutes and the identity theft\n statute \xe2\x80\x93 2d, 2e------------------------------------------ -\n 2d, 2e------------------------------------------there is concern\n whether potential violations of tax laws may have been\n committed which affect tax administration. In general, the\n tax law provides that the tax return information be true.\n There are three provisions concerning the information on\n the tax return. First, the I.R.C. states, \xe2\x80\x9cthat any return,\n declaration, statement, or other document required to be\n made under any provision of the internal revenue laws or\n regulations shall contain or be verified by a written\n declaration that it is made under the penalties of perjury.\xe2\x80\x9d25\n Individuals convicted of perjury may be subject to fines and\n imprisonment. 26\n\n\n 23\n Internal Revenue Service Individual Taxpayer Identification Number\n (ITIN) National Task Force Final Report (September 2002).\n 24\n The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification\n Number Program Was Not Implemented in Accordance with Internal\n Revenue Code Regulations (Reference Number 094505, dated\n September 1999).\n 25\n 26 U.S.C. \xc2\xa7 6065 (2003).\n 26\n 18 U.S.C. \xc2\xa7 1621 (2003).\n Page 9\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Second, the I.R.C. states that, \xe2\x80\x9cany person who willfully\n aids or assists in the preparation or presentation of a return,\n which is fraudulent or is false as to any material matter shall\n be guilty of a felony and subject to fines and\n imprisonment.\xe2\x80\x9d27\n Finally, \xe2\x80\x9cany person who willfully delivers or discloses to\n the Secretary any list, return, account, statement, or other\n document, known by him to be fraudulent or to be false as\n to any material matter shall be guilty of a felony, and\n subject to fines and imprisonment.\xe2\x80\x9d28\n In the case of the ITIN returns, there is further concern\n whether there were potential violations of the identity theft\n statute. We estimate that the 309,000 TY 2000 Forms 1040\n included 265,000 SSNs that did not belong to the\n individuals who filed the tax returns or to their spouses.\n Seventy-nine percent of these 309,000 tax returns received a\n refund. The SSA had assigned these SSNs to other\n individuals. This indicates the possibility that the SSNs\n were fraudulently used.\n The Identity Theft and Assumption Deterrence Act of\n 199829 provides that a criminal offense is committed if an\n individual knowingly uses, without lawful authority, a\n means of identification of another individual with the intent\n to commit any unlawful activity that constitutes a violation\n of Federal law. This would include using another\n individual\xe2\x80\x99s personal identifying information, such as an\n SSN, and providing that SSN to obtain a tax refund.\n The IRS Criminal Investigation (CI) function is authorized\n to investigate the submission of potential fraudulent or false\n documents in connection with a return and fraudulent claims\n for a refund. The CI function can also investigate potential\n identity theft when one of these tax violations is already\n present. The facts and circumstances of the potential tax\n and identity theft violations, as they pertain to Forms 1040\n identified with an ITIN, may not fall within the guidelines\n for initiating an investigation.\n\n\n 27\n 26 U.S.C. \xc2\xa7 7206 (2003).\n 28\n 26 U.S.C. \xc2\xa7 7207 (2003).\n 29\n Pub. L. No. 105-318, 112 Stat. 3007 (1998).\n Page 10\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Assisting the victims of identity theft \xe2\x80\x93 Law enforcement\n officials have characterized identity theft as the fastest\n growing type of crime in the U.S. 30 Identity theft headed the\n Federal Trade Commission\xe2\x80\x99s (FTC) list of the top\n 10 consumer fraud complaints for 2001 and 2002. 31 The\n FTC stated that, in CY 2001, approximately 1,700 victims\n reported \xe2\x80\x9cfraudulent claims for tax returns in their name.\xe2\x80\x9d\n In CY 2002, almost 3,100 victims reported tax\n return-related fraud. Some of these instances may have\n involved Federal tax. 32\n When the use of a false SSN results in the IRS making an\n unwarranted contact with a taxpayer, the IRS Commissioner\n stated, \xe2\x80\x9cNot only will the innocent taxpayer undergo the\n burden of resolving this issue with the IRS, their social\n security earnings and FICA withholding must be\n corrected.\xe2\x80\x9d33 The IRS is addressing the victims of identity\n theft through its National Taxpayer Advocate (NTA)\n Service and initiating procedures to assist taxpayers in\n response to reports of identity theft.\n We recognize these efforts. However, the IRS does not take\n advantage of all available methods to reduce the\n consequences of identity theft that might affect taxpayers.\n When it processes Forms 1040, the IRS does not2d, 2e----\n 2d, 2e--------------------------------------------------------------\n 2d, 2e--------------------------------------------Nor has the IRS\n determined whether the FTC\xe2\x80\x99s data could be used to assist\n taxpayers.\n\n\n\n 30\n Identity Theft - Greater Awareness and Use of Existing Data Are\n Needed (GAO-02-766, dated June 2002).\n 31\n FTC, Identity Theft Complaint Data \xe2\x80\x93 Figures and Trends on Identity\n Theft, January 2001 through December 2001; FTC, National and State\n Trends in Fraud and Identity Theft, January \xe2\x80\x93 December 2002. The\n FTC is responsible for the Federal Go vernment\xe2\x80\x99s centralized complaint\n and consumer education service for victims of identity theft. The FTC\n does not keep statistics showing the number of reported identity thefts\n affecting Forms 1040.\n 32\n FTC reports for 2001 and 2002.\n 33\n FICA stands for the Federal Insurance Contributions Act. FICA\n payroll withholding finances benefits for retired workers and their\n dependents, as well as for disabled workers and their dependents. The\n FICA tax is also known as the Social Security tax.\n Page 11\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Electronically filed Forms 1040\n 2d, 2e---------------------------------------the IRS has a method\n to identify electronically filed Forms 1040 with two\n different identification numbers. 2 d, 2e------------------------\n 2d, 2e------------------------------------------------------------\n ----------------------------------------------------------------\n 2d, 2e------------------------ However, this process is\n ineffective for two reasons.\n First, 2d, 2e-------------------------------------------------------\n ---------------------------------------------------------------------\n -------------------------------------------------------------------------\n -----------------------------------------------------------------\n --------------------------------------------------------------------------\n -----------------------------------------------------------------------\n -------------------------------------------------------------\n ------------------------------------------------------------------\n ------------------------------------------------------------------------\n ---------------------------------------------------- -------------------\n ---------------------------------------------------------------------\n ---------------------------------------------------------------\n The IRS no longer assists taxpayers with this type of\n 2d, 2e------return. Instead, the IRS employees were\n instructed to direct taxpayers to a volunteer program for\n assistance 2d, 2e------------- In effect, the IRS transferred to\n volunteer organizations any risk of providing return\n preparation assistance 2d, 2e------------------------------------- -\n Second, 2d, 2e---------------------- electronically filed tax\n returns on which the Form W-2 identification number was\n apparently changed from the number appearing on the\n original Form W-2. The IRS processed an estimated\n 84,000 TY 2001 Forms 1040 filed with an ITIN that\n reported wages 34 and refunded $121 million; it rejected only\n 119 of these returns.\n In all likelihood, the Form W-2 identification numbers were\n changed between the time the Forms W-2 were issued by\n the employer and the time the tax returns were electronically\n filed with the IRS. As a result, using ITINs on Forms W-2\n submitted with electronically filed tax returns may raise\n\n 34\n The margin of error is +/- 2,144 tax returns.\n Page 12\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n concerns over potential violations of tax statutes similar to\n concerns that may arise when two different identification\n numbers are used on paper filed tax returns.\n 2d, 2e--------------------------------------------------------\n -------------------------------------------------------------------------\n --------------------------------------------------------------\n -----------------------------------------------------------------------\n -------------------------------------------------------------------\n --------------------------------- -----------------------------------\n ----------------------------------- -\n Why Form W-2 identification is changed \xe2\x80\x93 Not surprisingly,\n electronic filers usually were assisted by IRS-authorized\n Electronic Return Providers (ERP)35 and, on occasion, by\n the IRS\xe2\x80\x99 own employees and volunteers, as shown in\n Table 1.\n Table 1: Electronic Filing Assistance Provided on TY 2001\n Forms 1040 With an ITIN\n\n Tax Return Prepared by Number of Tax Percentage of\n Returns Tax Returns\n\n IRS-Authorized Electronic\n Return Originators 79,125 94.6%\n IRS 1,558 1.9%\n IRS-Supported Volunteer Tax\n Assistance Programs 636 0.8%\n Total Assisted 81,319 97.3%\n Taxpayer Prepared 2,308 2.8%\n\n Total Processed by the IRS 83,627 100%\n\n Source: The IRS Electronic Tax Administration Research and Analysis\n System.36 Percentages do not total to 100 percent due to rounding.\n\n These Forms W-2 were filed with incorrect identification\n numbers for several reasons. The IRS advised the ERPs not\n\n\n 35\n There are four categories of Electronic Return Providers (ERP), each\n of which has a separate role in the electronic return preparation and\n filing process. One type, the Electronic Return Originator, is discussed\n later in this report.\n 36\n This system provides information on tax returns filed electronically.\n This information is used solely for research purposes, such as\n identifying error trends and how errors were resolved.\n Page 13\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n to alter Form W-2 information and to confirm the identity\n and identification number of the taxpayer. The IRS also\n indicated that it would not accept a tax return for electronic\n processing when the identification number on Form W-2\n does not match the identification number on Form 1040.\n However, to file electronically, the Form W-2 identification\n number must be changed or the IRS will not accept the\n return for processing.\n In addition, IRS employees and volunteers did not follow\n instructions to prepare only paper returns. The IRS stated\n that preparing electronic tax returns would involve changing\n the identification number on the Form W-2.\n Computer programs used by the ERPs may automatically\n change the Form W-2 number. We tested four computer\n programs used to prepare electronic tax returns, including\n one used by IRS employees and volunteers. The preparer\n enters the identification number under which the Form 1040\n will be filed. This identification number is automatically\n updated to the Form W-2 information. So, when an ITIN is\n used for the Form 1040, the computer program will\n automatically insert the ITIN as the Form W-2 identification\n number.\n Similar to paper filed returns, taxpayers and preparers may\n be subject to perjury and fraud statutes when information is\n changed. In addition, the ERPs may be subject to income\n tax return preparer penalties. These penalties can be\n considered when an ERP makes changes to a tax return,\n other than a transposition error, misplaced entry, spelling\n error, or arithmetic correction. The IRS can also sanction an\n ERP for violating the requirements of the electronic filing\n program. These sanctions include a written reprimand,\n suspension, or expulsion from the program, depending upon\n the seriousness of the infraction.\n We expect this issue to become more prominent in the\n future. The IRS electronically processed over\n 86,70037 TY 2001 Forms 1040 with an ITIN, almost\n doubling the estimated 44,000 electronic returns with ITINs\n processed in TY 2000. The IRS Restructuring and Reform\n\n 37\n All electronically filed tax returns, including the 84,000 reporting\n wages.\n Page 14\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Act of 1998 (RRA 98) 38 established a goal that 80 percent of\n all tax returns should be filed electronically by 2007.\n Unauthorized resident aliens who did not report in\n TY 2000 an estimated $324 million in income benefit\n 2d, 2e-----------------------------------------------------------------\n ------------------ ----------------------\n 2d, 2e--------------------------------------------------------------\n ------------------------------------------------------------------\n 2d, 2e--- For TY 2000, we estimate that 82,000 39 returns\n filed by unauthorized resident aliens did not report income\n from wages and nonemployee compensation of\n $324 million, 40 an average of almost $4,000 per tax return.\n These 82,000 underreporters represent 23 percent of all\n unauthorized resident aliens who filed tax returns.\n Therefore, almost one of every four filers did not report all\n their income as required by law. Over one- half of these\n underreporters claimed no tax liability on their tax returns.\n One of the IRS\xe2\x80\x99 strategic goals is to provide service to all\n taxpayers by increasing the fairness of compliance and\n increasing overall compliance. To help achieve this goal,\n the IRS identifies unreported income through its Automated\n Underreporter (AUR) document matching program and by\n examining tax returns. However, neither method is fully\n effective for finding and taxing income not reported by\n unauthorized resident aliens.\n 2d, 2e-------------------------------------------------------------------\n -------------------------------------------------------------------\n ----------- ------------------------------------------------------\n -----------------------------------------------------------------\n ------------------------------------------------------------------------\n\n 38\n Pub. L. No. 105-206, 112 Stat. 685 (codified as amended in scattered\n sections of 2 U.S.C., 5 U.S.C. app., 16 U.S.C., 19 U.S.C., 22 U.S.C.,\n 23 U.S.C., 26 U.S.C., 31 U.S.C., 38 U.S.C., and 49 U.S.C.).\n 39\n The margin of error is +/- 15,866 tax returns.\n 40\n Projection based on a statistically valid sample of TY 2000\n Forms 1040 with an ITIN for resident aliens claiming wages and\n nonemployee compensation 2d, 2e--------------------------------------\n 2d, 2e-------------------------------------------The IRP proces ses\n information returns submitted either on magnetic media or electronically\n from businesses; financial institutions; and Federal, state, and local\n governments.\n Page 15\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n 2d, 2 e-------------------------------------------------------------\n ----------------------------------------------------------------------\n --------------------------------------------------- -\n -----------------------------------------------------------------------\n ----------------------------------------------------------------\n ------------------------------------------------------------------------\n ----- -----------------------------------------------------------------\n ------------------------------------------------------------------------\n --------------------------------------------------------------------\n ---------------------------------------------------------------- -------\n ------------------------------------------- -\n The IRS can also identify unreported income through\n examinations. However, of the 353,000 TY 2000\n Forms 1040 filed with an ITIN and reporting wages, 2d, 2e--\n -----------------------------------------------------------------------\n Examinations of returns submitted by these filers may\n become even less frequent because the IRS is redirecting its\n resources to higher- income taxpayers.\n The IRS recognizes the need to address the ITIN tax\n administration challenges. The IRS chartered an ITIN Task\n Force, accepted most of its recommendations, and\n established an ITIN Project Office that is implementing the\n accepted recommendations. In addition, the IRS established\n an ITIN position in the NTA Service and is initiating\n procedures to assist taxpayers who might have been victims\n of identity theft. Our recommendations to supplement these\n actions follow.\n\n Recommendations\n\n The Commissioner, W&I Division, should:\n 1. Identify paper filed Forms 1040 with an ITIN having a\n related Form W-2 with an SSN, 2d, 2e------------------\n -------------------------------------------------------\n ---------------------------------- -\n 2. Identify electronically filed tax returns where both the\n Form 1040 and related electronic Form W-2 are filed\n with an ITIN, 2d, 2e----------------------------------------\n 2d, 2e------------------------------------------------ Since the\n IRS\xe2\x80\x99 electronic control already rejects tax returns when\n Page 16\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n identification numbers do not match, no electronically\n filed return with an ITIN should be accepted.\n Management\xe2\x80\x99s Response: Management did not agree that\n 2d, 2e----------------------------------------------------------------\n 2d, 2e---would improve tax administration. 2d, 2e-------\n 2d, 2e-------------------------------- ------------------------------\n Management has seen no evidence that ITIN holders are\n more or less accurate in calculating their tax liabilities than\n any other taxpayer group. 2d, 2e---------------------------------\n ----------------------------------------------- ----------------- ----\n -----------------------------------------------------------------------\n ------------------------------------------------------------------ -\n 2d, 2e----------------------------------------------------------------\n ---------------------------------------------------------------------------\n ---------------------------------------------- -------------------------\n -----------------------------------------------------------------------\n -----------------------------------------------------------------------\n -------------------------------------------------------------------------\n ------------------- ------------------------- -------------------\n -------------------------------------------------------------------------\n -------------------------------------------------------------------\n -------------------------------------------------------------------\n ----------------------------------------------------------------\n ----------------------- ---------------------------------------------\n Office of Audit Comment: We are unclear concerning the\n IRS\xe2\x80\x99 rationale for not implementing these recommendations.\n The intent was not to question the ability to correctly\n calculate tax 2d, 2e-------------------, but ra ther to establish\n the identity of the filer. The recommendations for paper\n filed and electronically filed returns follow the IRS\xe2\x80\x99 current\n application of the I.R.C. provision 2d, 2e-----------------\n 2d, 2e--------------------- 42 and the recommendation for paper\n filed returns follows the methodology currently used on\n 2d, 2e------------------------- - Consequently, the\n recommendations do not constitute a new policy. In fact,\n the IRS Commissioner advised the Chairman of the U.S.\n Senate Committee on Finance that the IRS routinely uses its\n\n\n 41\n The filing season is the period from January through mid-April when\n most individual income tax returns are filed.\n 2d\n , 2e----------------------------\n Page 17\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n authority 2d, 2e-----------------------------------------------\n -------------------------------------------------------------------------\n 2d, 2e--------------------------------------------------------- --3 In\n FY 2000, the IRS used this authority over 1.2 million\n times 44 2d, 2e--------------------------------------------------------\n 2d, 2e------------------------------- Therefore, the issue is not a\n matter of accurately calculating tax liability but rather the\n consistency of the identification numbers on the tax returns,\n schedules, or statements.\n We disagree with the decision to 2d, 2e----------------\n electronic returns for ITIN filers when the Forms W-2 show\n ITINs. As a result, 2d, 2e---------------------------------------\n 2d, 2e--even though the Form W-2 identification numbers\n were probably changed between the time they were issued\n by the employer and the time the returns were filed.\n By not taking action on paper filed and electronically filed\n returns, the IRS will continue to hold U.S. citizens and\n resident aliens authorized to work in the U.S. to a different\n standard than that to which unauthorized resident aliens are\n held.\n Additionally, management\xe2\x80\x99s response seems to address an\n overall ITIN filer tax compliance issue that these\n recommendations do not address, but which is addressed by\n Recommendation 6. While management states 2d, 2e-----\n 2d, 2e----------------------- ----------------------with\n underreporting tax liability, the report shows that one in four\n of these TY 2000 filers had underreported their income.\n 3. Conduct outreach to advise paid preparers and ERPs that\n the ITIN is not a legal identification number for\n employment and that their customers may be using\n fraudulent or erroneous SSNs on Forms W-2. In\n addition, they should be advised that the electronic\n Form W-2 information must show the identification\n number that appears on the Form W-2 as issued by the\n employer.\n\n\n\n\n 2d\n , 2e------------------------------------------------------------------------------\n --------------------------------------------------------------- -\n 44\n Does not include identification mismatches related to the EITC.\n Page 18\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Management\xe2\x80\x99s Response: Management agreed, in part, with\n this recommendation. The Office of Taxpayer Education\n and Communication, SB/SE Division, will conduct outreach\n and provide advice to paid preparers and ERPs through the\n SB/SE Division Payroll and Practitioner\xe2\x80\x99s Forum, the IRS\n Stakeholder Headliners, and the IRS e-News for Tax\n Practitioners. The Director, Electronic Tax Administration,\n will conduct outreach to alert paid preparers and ERPs to\n the allowable use and application of ITINs and the\n importance of not altering Form W-2 information.\n However, management stated that paid preparers and ERPs\n are not required to verify the identification information\n provided by a taxpayer.\n Office of Audit Comment: The intent of the\n recommendation is not to verify identification information,\n but simply to identify two inconsistent identification\n numbers used on Forms 1040 and Forms W-2. We believe\n the issue of verifying identification information is separate\n from the issue of identifying two different identification\n numbers. We made no recommendation concerning this\n issue and did not include it in the scope of the audit.\n 4. Ensure that IRS employees and volunteer programs do\n not assist with the preparation or filing of tax returns\n with questionable identification.\n Management\xe2\x80\x99s Response: Management agreed with this\n recommendation to the extent that IRS programs already\n address it. Training was provided to volunteers regarding\n identification ve rification, and the existing training advises\n volunteers to refuse return preparation if there are concerns\n regarding the validity of documents. The IRS Field\n Assistance sites stopped preparing returns with mismatched\n TINs during the 2003 Filing Season. However,\n management stated that return preparers are not required to\n verify identification information provided by a taxpayer.\n Office of Audit Comment: Similar to our comments for\n Recommendation 3, the purpose of this recommendation is\n not to put volunteers in the position of performing\n identification information verification. As we reported, the\n IRS does not permit its own employees to assist with these\n returns. 2d, 2e--------------------------------------------------\n ------------------------------------------------------ --------------------\n Page 19\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n 2d, 2e---------------------------------------------------------------\n -------------------------------------------------------------------------\n --------------------------------------------------------------\n -----------------------------------------------------------------------\n 2d, 2e------------------------------------- The fact that there are\n two different identification numbers should preclude the\n volunteers from assisting in return preparation, just as it\n precludes IRS employees from assisting in return\n preparation.\n 5. Advise developers of electronic filing computer\n programs to modify these programs to prevent the\n automatic update of Form W-2 identification\n information when an ITIN is used on Form 1040.\n Management\xe2\x80\x99s Response: The IRS will work with the\n software developers to ensure that their e-file programs\n validate that the information populated on the Form 1040\n agrees with the information contained on the Form W-2.\n This will prevent the automatic update of Forms W-2 when\n an ITIN is used on Form 1040.\n 2d, 2e------------------------------------------------------\n 2d, 2e----------------------------------------------------- the\n Commissioner, W&I Division, should:\n 6. 2d, 2e----------- unreported income from third -party\n records 2d, 2e-- - -------------------------------------\n 2d, 2e-------------------------------------------------\n 7. Identify potential victims of identity theft and minimize\n the possibility of unwarranted IRS contacts 2d, 2e---\n 2d, 2e------------------------------------------- -\n Management\xe2\x80\x99s Response: Management did not agree with\n the recommendations at this time, stating that a cost-benefit\n analysis of implementing 2d, 2e-------- --------------------\n would need to be undertaken. 2d, 2e----------------------\n 2d, 2e-----------------------------------------------------------------\n -----------------------------------------------------------------------\n 2d, 2e-- Management stated that while these actions are\n currently not feasible, they will continue to study whether\n the actions might become feasible in the future.\n Office of Audit Comment: While management\xe2\x80\x99s interest in\n the future feasibility of these recommendations appears to\n\n Page 20\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n be a corrective action, management did not identify the\n responsible officials, set completion dates, or describe how\n any actions taken would be monitored. We determined that\n the corrective action would involve 2d, 2e-------------------\n 2d, 2e---- an estimated 444,000 of the 89 million paper filed\n TY 2001 Forms 1040, or about one- half of 1 percent. The\n processing cost would be approximately $435,000. 45 In\n FY 2003, the IRS had a budget approaching $10 billion. By\n not 2d, 2e---------------------- the IRS continues to hold U.S.\n citizens to a higher standard than that to which it holds\n unauthorized resident aliens.\n As we stated in the report, one in four TY 2000 Forms 1040\n filed with an ITIN by resident aliens had underreported\n income2d, 2e------------------------------------------------ In\n contrast, available statistics show that one in nine tax returns\n 2d, 2e--------------------------------------for potentially\n discrepant income or deductions. While these results may\n not be directly comparable to those in the report, the results\n suggest that the noncompliance rate of Forms 1040 with an\n ITIN could be higher than that for all Forms 1040.\n Furthermore, we believe taking action is of heightened\n importance when the percentage of people in America who\n think that it is acceptable to cheat on their Federal income\n tax returns increased from 11 to 17 percent between 1999\n and 2003. 46 In our opinion, providing equal treatment to all\n taxpayers and enabling the IRS to assist as many as\n 265,000 potential victims of identity theft would outweigh\n the costs.\n 8. Determine whether the FTC\xe2\x80\x99s data on identity theft can\n be used to assist taxpayers who might be victims of this\n violation.\n Management\xe2\x80\x99s Response: The ITIN Program Office will\n contact the FTC to determine whether the data contained in\n\n\n\n 45\n Estimate based on the most recent cost figures available, as included\n in the IRS\xe2\x80\x99 FY 2000 cost estimate guidelines. Our estimate would\n increase for FY 2004 due to inflation. This figure does not include\n programming costs.\n 46\n 2003 IRS Oversight Board Annual Survey on Taxpayer Attitudes,\n September 2003.\n Page 21\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n its database can be used by the IRS to assist victims of\n identity theft.\n The Deputy Commissioner for Services and Enforcement\n should:\n 9. Determine whether any actions are warranted against\n taxpayers, ERPs, IRS employees, and volunteers who\n prepare or assist with preparing or filing of tax returns\n with questionable identification.\n Management\xe2\x80\x99s Response : The IRS Office of Chief Counsel\n advised that a person who prepares or assists with the\n preparation or filing of a tax return is not subject to a\n preparer penalty merely because the taxpayer\xe2\x80\x99s\n identification on the return is questionable. The IRS stated\n that return preparers are not required to verify the\n identification information provided by a taxpayer, and the\n recognition of such questionable identification may be\n beyond their expertise.\n Office of Audit Comment: Management\xe2\x80\x99s response showed\n that they followed the intent of the recommendation by\n obtaining the IRS Office of Chief Counsel\xe2\x80\x99s advice.\n However, while the response addressed penalties against tax\n return preparers, it did not address sanctions against ERPs,\n as described in the report. Furthermore, the basis of\n management\xe2\x80\x99s response appears to be similar to their basis\n for Recommendations 3 and 4, which addressed verification\n of identification information. As we noted, our interest was\n in detecting the use of two different identification numbers.\n Consequently, we cannot be certain that management fully\n addressed this issue. Moreover, we believe that the preparer\n community could recognize the use of two inconsistent\n identification numbers if the IRS includes this information\n as part of its action on Recommendation 3. As a result of\n these factors, this issue remains a concern.\n Other Federal Government agencies and tax policy issues\nOther Federal Government\n are affected by ITIN usage. The two concerns that arose\nAgencies and Tax Policy Are\n from the analysis of these returns are:\nAffected by Individual Taxpayer\nIdentification Number Usage ?? Other Federal Government agencies are affected\n because unauthorized resident aliens benefit from the tax\n law that generally prohibits the disclosure of tax\n information to other Federal Government agencies.\n Page 22\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n ?? From a tax policy perspective, unauthorized resident\n aliens benefit from the tax law when they are treated the\n same as U.S. citizens.\n Other Federal Government agencies are affected\n because unauthorized resident aliens benefit from the\n tax law that generally prohibits the IRS from sharing\n with other Federal Government agencies tax return\n information submitted by taxpayers\n There are at least two Federal Government agencies that\n could benefit from the information that the IRS receives on\n Forms 1040 that use ITINs. The IRS does not share this\n information with the other agencies.\n Available statistics indicate that unauthorized resident aliens\n are increasing in number, despite efforts to prevent unlawful\n entry. The Bureau of Citizenship and Immigration Services\n (BCIS) estimated that the total unauthorized resident alien\n population had doubled in the past decade, from 3.5 million\n in 1990 to 7 million in 2000. On average, this population\n grew by 350,000 annually. 47\n The IRS does have information on some of the unauthorized\n resident aliens. However, the tax law generally prohibits the\n IRS from sharing tax return information submitted by\n taxpayers with other Federal Government agencies unless\n there is a specific legislated exception. 48 Because the IRS is\n unable to share this information, it cannot assist with\n addressing unauthorized immigration or unauthorized work.\n In turn, this creates the need to administer tax laws to an\n increasing number of unauthorized resident aliens.\n The IRS cannot share information with the BICE\n The Illegal Immigration Reform and Immigrant\n Responsibility Act of 1996 (IIRIRA)49 provided that\n information concerning immigration status should be\n reported to the BICE notwithstanding any other law. The\n General Accounting Office (GAO) testified before the\n Congress that the BICE needed to coordinate with other\n\n 47\n Estimates of the Unauthorized Immigrant Population Residing in the\n United States: 1990 to 2000 (2003).\n 48\n 26 U.S.C. \xc2\xa7 6103 (2003).\n 49\n Pub. L. No. 104-208, 110 Stat. 3009 (1996).\n Page 23\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Federal Government agencies to effectively implement its\n strategies for controlling illegal immigration. 50\n In our opinion, the IRS is able to identify some\n unauthorized resident aliens by using its ITIN records but by\n law is unable to share this information with other Federal\n Government agencies. The I.R.C. provides that this\n information is confidential, and it does not include a\n provision for disclosing this information.\n In 1999, we first reported on the apparent conflict between\n immigration and tax laws. 51 We recommended that the ITIN\n program disclosure policy be brought into conformance with\n the immigration law. The IRS advised us that the disclosure\n law would need to be changed to specifically permit the IRS\n to follow the IIRIRA. While the disclosure law was\n amended, it provides only for certain disclosures involving\n terrorism. 52 Therefore, the IRS is unable to assist the BICE\n with information about potential unauthorized resident\n aliens. In light of the events of September 11, 2001, and the\n importance of homeland security, the apparent conflict\n between immigration and tax law remains a concern.\n Unauthorized resident aliens are preparing tax returns\n for U.S. citizens\n Paid preparers are required to show on the tax return their\n SSN or Preparer Tax Identification Number (PTIN). An\n ITIN recipient is not authorized to obtain a PTIN.\n For TY 2001, 290 ITINs were shown as the preparer\xe2\x80\x99s\n identification number on 8,179 tax returns. Of these returns,\n 6,747 (82 percent) were filed by taxpayers with SSNs who,\n therefore, likely were U.S. citizens or foreign individuals\n\n\n\n 50\n Immigration Enforcement - Challenges to Implementing the INS\n Interior Enforcement Strategy (GAO-02-861T, dated June 2002).\n 51\n The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification\n Number Program Was Not Implemented in Accordance with Internal\n Revenue Code Regulations (Reference Number 094505, dated\n September 1999).\n 52\n Victims of Terrorism Relief Act of 2001, Pub. L. No. 107-134,\n 115 Stat. 2427 (2002). This law amended 26 U.S.C. \xc2\xa7 6103 to provide\n for disclosure until December 31, 2003, of certain IRS information in\n the event of a terrorist incident, threat, or activity.\n Page 24\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n legally residing in the U.S. Most of these tax returns were\n prepared by 42 individuals, as shown in Table 2.\n Table 2: Unauthorized Resident Aliens Prepared TY 2001\n Forms 1040 for Taxpayers Filing with SSNs\n\n\n\n Number of Number of\n Number of % of Total Tax\n Tax Returns Tax\n Preparers Returns\n Prepared: Returns\n Strata\n 10 or more 42 6,459 96%\n Less than 10 190 288 4%\n Totals 232 6,747 100%\n\n Source: TIGTA analysis of the IRS Returns Transaction File (RTF).53\n\n Consequently, unauthorized resident aliens would ha ve\n access to sensitive data such as SSNs and financial records,\n which could be used inappropriately. Yet, the IRS cannot\n share this information with other Federal Government\n agencies or the affected taxpayers.\n The IRS NTA reported to the Congress that the re are no\n national standards that a person is required to satisfy before\n presenting himself or herself as a Federal tax preparer and\n selling tax preparation services to the public. To address\n this issue, the NTA recommended that the Congress enact a\n registration, examination, certification, and enforcement\n program for persons who prepare Federal tax returns. 54\n Although there are no overall standards for the preparer\n industry, the IRS has standards for Electronic Returns\n Originators (ERO). 55 Each ERO\xe2\x80\x99s responsible officials must\n be U.S. citizens or legal resident aliens and are subject to a\n screening process as a condition of approval of their\n application. However, individuals who work for those\n\n 53\n The RTF contains all edited, transcribed, and error-corrected data\n from the Form 1040 series of tax returns and related forms for the\n current processing year and 2 prior years.\n 54\n National Taxpayer Advocate FY 2002 Annual Report to Congress.\n The NTA Service is an independent organization within the IRS that\n helps taxpayers resolve problems with the IRS and recommends changes\n that will prevent the problems.\n 55\n An ERO begins the process of transmitting a completed tax return to\n the IRS. The ERO is one of the four categories of ERPs.\n Page 25\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n EROs are not required to meet the same requirements.\n Preparers with ITINs were affiliated with 15 businesses that\n were approved by the IRS as EROs.\n The IRS relies on EROs to confirm identities and\n identification numbers shown on tax returns. The IRS has\n stated that confirmation of identification numbers is \xe2\x80\x9cthe\n cornerstone of any fraud prevention program.\xe2\x80\x9d The IRS\n asks the EROs to look for suspicious or altered Forms W-2\n and fraudulent returns where an individual uses someone\n else\xe2\x80\x99s name or SSN. The IRS\xe2\x80\x99 reliance on unauthorized\n resident aliens to be watchdogs over fraud could cause the\n IRS embarrassment and may have an adverse impact on\n public confidence and satisfaction with the tax system.\n The IRS cannot share information with the SSA\n The second area of Federal Government concern is with\n SSN identity theft. Go vernment agencies reported that\n hundreds of thousands of unauthorized resident aliens have\n used fraudulent documents, including Social Security cards,\n to obtain employment. 56\n The Inspector General of the SSA testified before the\n Congress that identity the ft was already a significant\n problem facing law enforcement, the financial industry, and\n the American public before September 11, 2001. The\n Inspector General stated that improperly obtained SSNs\n were a factor in the terrorists\xe2\x80\x99 ability to assimilate\n themselves into American society while they planned their\n attacks. The events of September 11, 2001, heightened the\n urgency for protecting the integrity of SSNs. 57\n The Social Security Act 58 provides that whoever, with the\n intent to deceive, falsely represents a number to be his or\n her SSN when, in fact, that number was not assigned to that\n person, shall be guilty of a felony and subject to a fine,\n\n\n 56\n Immigration Enforcement - Challenges to Implementing the INS\n Interior Enforcement Strategy (GAO-02-861T, dated June 2002).\n 57\n Statement of the Honorable James G. Huse, Jr., Inspector General,\n SSA, Testimony Before the Subcommittee on Social Security of the\n House Committee on Ways and Means and the Subcommittee on\n Oversight and Investigations of the House Committee on Financial\n Services, November 8, 2001.\n 58\n 42 U.S.C. \xc2\xa7 408 (2003).\n Page 26\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n imprisonment, or both. This includes using a false SSN to\n obtain employment.\n The I.R.C. generally prohibits the IRS from disclosing this\n information to the SSA. Consequently, the SSA would not\n be provided with the opportunity to initiate investigations\n based on the IRS information, and unauthorized resident\n aliens would not be affected by the consequences of\n potentially violating the Social Security statute.\n Unauthorized resident aliens submitted to the IRS an\n estimated 309,000 paper filed tax returns with an estimated\n 354,00059 SSNs on Forms W-2. These Forms W-2 included\n 265,000 SSNs that are assigned by the SSA to other\n individuals.\n As a possible indicator of a growing problem with identity\n theft, the FTC stated that, in CY 2001, approximately\n 7,800 victims reported that the identity thief used the\n victim\xe2\x80\x99s personal information to obtain employment. 60 In\n CY 2002, approximately 15,000 victims reported\n employment-related fraud. 61\n From a tax policy perspective, unauthorized resident\n aliens benefit from the tax law when they are treated the\n same as U.S. citizens\n The I.R.C. defines for tax purposes the terms nonresident\n alien and resident alien. A nonresident alien is neither a\n citizen of the U.S. nor a resident of the U.S. A resident\n alien is a resident of the U.S. for any calendar year if that\n individual was lawfully admitted for permanent residence.\n A resident alien is also a foreign individual in the U.S. who\n meets the \xe2\x80\x9csubstantial presence\xe2\x80\x9d test, which is based on the\n number of days that individual resides in the U.S.62\n Therefore, for tax purposes, an unauthorized alien residing\n in the U.S. is a resident alien.\n As a result, unauthorized resident aliens are taxed the same\n as U.S. citizens and lawful resident aliens. An unauthorized\n\n 59\n The margin of error is +/- 21,348 SSNs.\n 60\n Identity Theft Complaint Data - Figures and Trends on Identity Theft,\n January 2001 through December 2001.\n 61\n National and State Trends in Fraud and Identity Theft,\n January - December 2002.\n 62\n 26 U.S.C. \xc2\xa7 7701.\n Page 27\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n resident alien is entitled to the same deductions and credits\n to reduce income tax, except for the EITC.\n So, the question becomes whether the taxation of\n unauthorized resident aliens should be more closely aligned\n to that of nonresident aliens. Specifically, the ACTC\n provides a tax policy conflict since other Federal\n Government statutes prohibit treating unauthorized resident\n aliens the same as U.S. citizens and lawful resident aliens.\n The ACTC law provides for Federal Government\n payments to unauthorized resident aliens who had no\n income tax liability\n One of the credits that unauthorized resident aliens are\n entitled to is the ACTC. Over 203,000 unauthorized\n resident aliens received $160.5 million in ACTC credits in\n TY 2001. Of these filers, 190,000 had no tax liability and\n received $151 million in Federal Government payments for\n the ACTC.\n The ACTC is one of only two major credits that can result\n in a Federal Government payment above the tax liability;\n the other credit is the EITC, which unauthorized resident\n aliens are prohibited from receiving. 63 Despite the\n difference in tax treatment, there are similarities between the\n ACTC and EITC.\n Like the ACTC, the EITC was available to unauthorized\n resident aliens when it became law in 1975. 64 Subsequently,\n the Congress and IRS expressed concerns about\n noncompliance with EITC requirements, including fraud. 65\n The law was changed in 1996, in part to deny the EITC to\n unauthorized workers; the tax return must be identified by\n\n\n 63\n While unauthorized resident aliens are not permitted to receive the\n EITC, they can attempt to obtain the credit by claiming it on the line\n provided for this purpose on Form 1040. In TY 2001, 17,797 filers\n claimed $31.1 million. However, the IRS allowed only 843 filers\n credits of $1.5 million. Determining the reason that these claims were\n paid was beyond the scope of this review.\n 64\n Tax Reduction Act of 1975, Pub. L. No. 94-12, 89 Stat. 26 (1975).\n 65\n Earned Income Credit - Data on Noncompliance and Illegal Alien\n Recipients (GAO/GGD-95-27, dated October 1994). The term Earned\n Income Credit is interchangeable with the term Earned Income Tax\n Credit that is used throughout this report.\n Page 28\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n an SSN issued to an individual by the SSA for work\n purposes. 66\n One of the legislative purposes for the ACTC is similar to\n the purpose for the EITC. Prior to the EITC law change, the\n GAO reported that awarding the EITC to illegal aliens 67 was\n at cross-purposes with Federal Government policies that\n prohibit illegal aliens from working in the U.S. 68 Similar to\n the purpose of EITC, the Senate stated that tax law changes\n to the CTC and ACTC were intended for \xe2\x80\x9clow income\n working families to promote work.\xe2\x80\x9d69 Like the EITC,\n providing the ACTC to resident aliens who are not\n authorized to work is inconsistent with the immigration law\n that prohibits employing unauthorized resident aliens.\n Moreover, we identified an early indication of a similar\n filing pattern between the ACTC and EITC. Between 1975\n and 1993, the maximum amount of the EITC increased from\n $200 to $2,364. As the amount of the EITC increased:\n ?? The number of Internal Revenue Service Numbers\n (IRSN), the predecessor to the ITIN, increased\n significantly. The IRS assigned approximately\n 1,800 IRSNs in 1975, which increased to 175,000\n assigned in 1993.\n ?? The amount of the EITC claimed on returns assigned an\n IRSN increased from a projected $141,000 in 1986 to a\n projected $197 million in 1993.\n Recent tax return filings show that the ACTC may be\n following a similar pattern. The ACTC first became\n available in TY 1998. Taxpayers needed three or more\n qualifying children to receive the credit. In TY 2001, the\n number of qualifying children was changed to one or more.\n\n 66\n Personal Responsibility and Work Opportunity Reconciliation Act of\n 1996, Pub. L. No. 104-193, 110 Stat. 2105 (1996).\n 67\n The GAO defined an illegal alien as a foreign person who is in the\n U.S. without a lawful immigration status.\n 68\n Earned Income Credit - Targeting to the Working Poor\n (GAO/GGD-95-122BR, dated March 1995).\n 69\n Restoring Earnings To Lift Individuals and Empower Families Act of\n 2001, H.R. 1836, as agreed to by the Senate. This bill was submitted to\n the House of Representatives and eventually became the Economic\n Growth and Tax Relief Reconciliation Act of 2001, Pub. L. No. 107-16,\n 115 Stat. 38 (2001).\n Page 29\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n While this reduction may have accounted for some of the\n increase in the ACTC, it may have also made obtaining an\n ITIN more appealing.\n ?? The IRS assigned 123,000 ITINs to resident aliens in\n CY 1998, the first year that the ACTC could be claimed.\n This rose to 339,000 ITINs in CY 2001 and 538,000 in\n CY 2002.\n ?? In TY 2000, the last year that 3 children were required\n to claim the ACTC, over 62,000 ITIN filers received an\n estimated $62 million in ACTC. In TY 2001, when the\n number of qualifying children was reduced,\n 203,000 ITIN filers received $160.5 million in ACTC.\n On July 8, 2003, we issued a memorandum to the IRS (see\n Appendix VIII) that stated unauthorized resident aliens\n would be eligible for both the accelerated CTC\n disbursements under the newly passed Jobs and Growth Tax\n Relief Reconciliation Act of 2003, 70 and ACTC\n disbursements under the proposed Relief for Working\n Families Tax Act of 2003. 71 We estimated that the\n accelerated disbursements could be $150 million.\n We recommended that the IRS Commissioner advise the\n Department of the Treasury about the apparent conflict with\n the immigration law, delay sending the accelerated\n disbursements until questionable identifications could be\n resolved, and propose legislation to place limitations on the\n ACTC, similar to the EITC, for unauthorized resident aliens.\n In response to the memorandum, the IRS advised the\n Department of the Treasury of our concern about the credits\n and started the process of considering legislation to limit the\n ACTC. The IRS stated that it was not authorized to delay\n the disbursements because unauthorized resident aliens are\n entitled to the credit by law. The response is included as\n Appendix IX.\n\n\n\n\n 70\n Pub. L. No. 108-27, 117 Stat. 752.\n 71\n H.R. 1308, as amended, and pending in Conference Committee.\n Page 30\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n While virtually the same tax treatment is provided to all\n residents, the same treatment is not provided to all aliens\n While unauthorized resident aliens are taxed like other\n residents, they are not taxed like aliens who do not reside in\n the U.S. but have U.S. source income. Thus, as a matter of\n tax law, unauthorized resident aliens are treated virtually the\n same as U.S. citizens and lawful resident aliens.\n Nonresident aliens cannot receive certain benefits from the\n tax law that would reduce their tax bills. For example, for\n TY 2001:\n ?? Nonresident aliens cannot claim the standard deduction.\n Instead, they must itemize deductions. This may lower\n the amount of deductions from income and increase the\n tax liability. In contrast, unauthorized resident aliens\n claimed the standard deduction in 489,000\n (92.3 percent) of the 530,000 tax returns filed,\n decreasing reported AGI by $3.2 billion.\n ?? Nonresident aliens cannot claim the Education Credit.\n In contrast, 10,000 unauthorized resident aliens claimed\n $7.4 million in credits to decrease their tax liabilities.\n ?? Unmarried nonresident aliens cannot claim the lower tax\n rate of the head of household filing status. In contrast,\n resident aliens claimed this status in 160,000\n (30.2 percent) of the 530,000 tax returns filed.\n ?? Nonresident aliens could not receive a rate reduction\n credit. For TY 2001, unauthorized resident aliens\n received $53 million72 in advance payments for the rate\n reduction credit. Those that did not receive an advance\n payment claimed $63 million in credits to reduce their\n tax liabilities when they filed their TY 2001 tax returns.\n The Federal Government has recognized that unauthorized\n resident aliens are not always entitled to benefit from the\n same laws as U.S. citizens. For example, the Social\n Security Act provides that they are not entitled to receive\n benefits from Old-Age, Survivors, and Disability Insurance\n benefits. 73\n\n\n 72\n The margin of error is +/- $7,724,530.\n 73\n 42 U.S.C. \xc2\xa7 202 (2003).\n Page 31\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Similarly, the State of Wisconsin recognized that\n individuals who have not been granted immigrant status by\n the BCIS should be taxed differently from other state\n taxpayers. Wisconsin requires that these individuals be\n taxed like nonresidents of Wisconsin. Consequently, they\n are not eligible for the Working Families Tax Credit or the\n Homestead Credit.\n When unauthorized resident aliens receive the ACTC like\n U.S. citizens and lawful resident aliens, the legislative\n purposes for assisting lawful working taxpayers may be\n compromised. The current tax laws and policy are favoring\n individuals who already may not have complied with\n immigration, Social Security, and identity theft laws.\n\n Recommendations\n\n The Deputy Commissioner for Services and Enforcement\n should:\n 10. Coordinate with the BCIS and the SSA to assess the\n benefits to these agencies of seeking legislation to\n broaden the IRS\xe2\x80\x99 authority to share information with\n them regarding unauthorized resident aliens and seek\n legislation as warranted.\n Management\xe2\x80\x99s Response: Management\xe2\x80\x99s overall response\n to the content of the report stated, \xe2\x80\x9cDespite the distinctly\n undesirable behaviors actually or potentially associated with\n ITINs, the Service remains legally responsible for\n enforcement of the nation\xe2\x80\x99s Federal tax laws with respect to\n ITIN holders\xe2\x80\xa6\xe2\x80\x9d and that it has \xe2\x80\x9cstatutory responsibilities\n and limitations to which the Service is subject that prevent\n or limit the Service from taking actions that might be\n desirable as matters of public policy.\xe2\x80\x9d\n Management\xe2\x80\x99s specific response to the recommendation\n stated that if the BCIS and SSA can demonstrate a need for\n the IRS\xe2\x80\x99 information that clearly outweighs taxpayer\n privacy interests and concerns about the effect such sharing\n has on tax administration, they should coordinate with the\n Office of the Assistant Secretary for Tax Policy at the\n Department of the Treasury to seek a legislative proposal to\n change I.R.C. \xc2\xa7 6103. Management indicated they will\n\n Page 32\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n share a copy of this report with the Office of the Assistant\n Secretary for Tax Policy, the BCIS, and the SSA.\n Office of Audit Comment: While management recognized\n that there are \xe2\x80\x9cdistinctly undesirable behaviors actually or\n potentially associated with ITINs,\xe2\x80\x9d it has limited its\n coordination to sharing the report with the Assistant\n Secretary for Tax Policy and other Federal agencies. We\n encourage the IRS to take a more proactive role with these\n agencies by providing more in-depth guidance on the type\n of information the IRS receives, its privacy concerns, and\n the potential impact of legislation on tax administration.\n This approach could assist Federal agencies in determining\n whether legislation would help them achieve their missions,\n understanding the IRS\xe2\x80\x99 interests, and, therefore, deciding\n whether to coordinate with the Assistant Secretary for Tax\n Policy. In addition, although not included in our\n recommendation, we also encourage the IRS to share a copy\n of the report with the BICE.\n 11. Supplement the NTA\xe2\x80\x99s recommendation for a\n certification program for tax preparers by proposing\n that, in general, (1) preparers must be U.S. citizens or\n resident aliens authorized to work in the U.S. and\n (2) individuals who assist with electronically filed tax\n returns for U.S. residents, and who are affiliated with an\n ERO, must be U.S. citizens or resident aliens authorized\n to work in the U.S.\n Management\xe2\x80\x99s Response: A copy of this report will be\n shared with the NTA and the Office of the Assistant\n Secretary for Tax Policy, which is responsible for proposing\n legislative changes.\n Office of Audit Comment: We are unclear from the\n response whether the IRS plans to supplement the NTA\xe2\x80\x99s\n recommendation for a certification program for tax\n preparers. While the IRS will share a copy of the report\n with the NTA and the Office of the Assistant Secretary for\n Tax Policy, management did not specifically address the\n recommendation for the IRS to supplement the NTA\xe2\x80\x99s\n existing proposal for legislation regulating paid preparers.\n 12. Seek legislation to define and tax individuals who file\n tax returns reporting income from employment, but who\n Page 33\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n are not authorized to be employed in the U.S., more like\n nonresident aliens.\n Management\xe2\x80\x99s Response: A copy of this report will be\n shared with the Office of the Assistant Secretary for Tax\n Policy, which is responsible for proposing legislative\n changes.\n Office of Audit Comment: We are unclear whether the IRS\n agrees or disagrees from a tax administration viewpoint\n since the IRS did not address these tax administration issues\n to the extent permitted by its policy on providing comments\n on legislation.\n 13. Determine whether tax return preparers who use ITINs\n as identification have violated any laws that the IRS is\n authorized to investigate and, if so, determine whether\n these violations warrant any action.\n Management\xe2\x80\x99s Response: The IRS Office of Chief Counsel\n has indicated that inasmuch as the IRS requires a paid return\n preparer to furnish an identifying number, the tax return\n preparers who are not eligible for an SSN are not in\n violation of 26 U.S.C. \xc2\xa7 6109(a)(4) or any revenue laws if\n they enter their ITIN. An individual who is not eligible for\n an SSN generally is expected to use an ITIN whenever such\n person is required to furnish an identifying number for tax\n administration purposes.\n Office of Audit Comment: Management\xe2\x80\x99s response\n indicated that resident aliens who are not authorized to work\n in the U.S. are permitted to use ITINs to meet the IRS\xe2\x80\x99\n identification requirement for individuals who work, within\n the tax system, as paid preparers. Furthermore, this issue\n aligns with the Federal Government\xe2\x80\x99s focus on citizenship\n issues: unauthorized resident aliens have access to sensitive\n identification and financial information from potentially\n unsuspecting U.S. citizens.\n In our opinion, these factors provide management with\n knowledge of an employment issue that is inseparable from\n tax administration because of its potential impact on the\n public\xe2\x80\x99s confidence in the tax system. So, while no laws\n may have been violated, we believe that the risk of\n continuing this practice outweighs its benefit to tax\n administration.\n Page 34\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix I\n\n\n Detailed Objective, Scope, and Methodology\n\nOur overall objective was to analyze United States (U.S.) Individual Income Tax Returns\n(Form 1040) filed with an Internal Revenue Service (IRS) Individual Taxpayer Identification\nNumber (ITIN) by resident aliens for Tax Year (TY) 2001 and, where applicable, TY 2000. This\nevaluation included identifying attributes of these Forms 1040, such as income, deductions,\ncredits and refunds, and the related tax administration issues that affect compliance with tax laws\nand regulations. 1 To accomplish the objective, we:\nI. Determined the filing attributes for Forms 1040.\n A. Obtained a statistically valid sample of Forms 1040 for TY 2000 for review.\n 1. Identified from the Returns Transaction File (RTF) 2 Forms 1040 meeting\n our criteria: filed for TY 2000, identified by an ITIN as the primary\n identification number, and filed by a resident alien.\n 2. Selected from the universe of 353,373 tax returns a statistically valid\n sample of 353 tax returns for review using a confidence level of\n 95 percent, a precision level of +/- 2.5 percent, and an expected rate of\n occurrence not less than 95 percent. We obtained guidance on our\n sampling methodology from the IRS Office of Statistics of Income.\n 3. Obtained the original Forms 1040 and information from the IRS Master\n File 3 and Integrated Data Retrieval System. 4\n B. Quantified selected data from the TY 2000 tax returns involving identification\n numbers, dependents, income, deductions, credits, and refunds.\n 1. Determined whether the identification numbers reported on the\n Forms 1040 and the attached Wage and Tax Statements (Form W-2) were\n both assigned to the same individual. We researched the IRS\xe2\x80\x99 records\n provided by the Social Security Administration to determine the identity\n of the individual for both identification numbers.\n 2. Determined who prepared the Forms 1040.\n\n\n1\n An analysis of the IRS\xe2\x80\x99 actions to resolve any tax returns with a balance due was beyond the scope of this review.\n2\n The RTF contains all edited, transcribed, and error-corrected data from the Form 1040 series returns and related\nforms for the current processing year and 2 prior years.\n3\n The IRS database that stores various types of taxpayer account information. This database includes individual,\nbusiness, and employee plans and exempt organizations data.\n4\n The IRS computer system capable of retrieving or updating stored information; it works in conjunction with a\ntaxpayer\xe2\x80\x99s account records.\n Page 35\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n 3. Identified potential unreported income by reviewing records from the IRS\n Information Returns Program (IRP) and comparing this information to the\n tax return submitted by the taxpayer. 5\n 4. Evaluated refunds by determining the amount of Rate Reduction Credit\n received in advance for TY 2001.\n C. Obtained an extract from the RTF for TY 2001 for Forms 1040 identified by an\n ITIN as the primary identification number and filed by a resident alien. We\n analyzed the data contained on the RTF, which included credits, deductions,\n income, and return preparation.\n D. Determined the number of electronically filed TY 2001 Forms 1040 identified\n with an ITIN and reporting wages that were (1) processed by the IRS and\n (2) rejected by the IRS because the Taxpayer Identification Number (TIN) on the\n Form 1040 did not match the TIN on the Form(s) W-2. We analyzed data from\n the IRS Electronic Tax Administration Research and Analysis System. 6\n E. Evaluated the frequency of the examination of the filers\xe2\x80\x99 books and records by\n reviewing records from the IRS Audit Information Management System (AIMS). 7\nII. Compared the Form 1040 to the U.S. Nonresident Alien Income Tax Return\n (Form 1040NR) to identify differences in benefits such as credits and deductions.\nIII. Analyzed the IRS ITIN Application Database for 1996 through 2002 to determine if each\n applicant was a resident or no nresident alien.\n\n\n\n\n5\n The IRP processes information returns submitted either on magnetic media or electronically from businesses;\nfinancial institutions; and Federal, state, and local governments.\n6\n This system provides information on tax returns filed electronically. This information is used solely for research\npurposes, such as identifying error trends and how errors were resolved.\n7\n The AIMS is designed to give the IRS Compliance function information about tax returns in inventory and closed.\n\n\n\n\n Page 36\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix II\n\n\n Major Contributors to This Report\n\nPhilip Shropshire, Acting Assistant Inspector General for Audit (Small Business and Corporate\nPrograms)\nEdmond Watt, Audit Manager\nCarole Connolly, Senior Auditor\nDonna Saranchak, Senior Auditor\nLisa Stoy, Senior Auditor\nRobert Weiss, Senior Auditor\nRonald Stuckey, Computer Specialist\n\n\n\n\n Page 37\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix III\n\n\n Report Distribution List\n\nCommissioner C\nOffice of the Commissioner \xe2\x80\x93 Attn: Chief of Staff C\nCommissioner, Large and Mid-Size Business Division SE:LM\nCommissioner, Small Business/Self- Employed Division SE:S\nCommissioner, Wage and Investment Division SE:W\nChief, Criminal Investigation CI\nDirector, Compliance, Wage and Investment Division SE:W:CP\nDirector, Customer Assistance, Relationships, and Education, Wage and Investment Division\nSE:W:CAR\nDirector, Electronic Tax Administration OS:CIO:I:ET\nDirector, Taxpayer Education and Communication, Small Business/Self- Employed Division\nSE:S:T\nDirector, Communications and Liaison, Small Business/Self-Employed Division SE:S:M:CL\nDirector, Stakeholder Partnerships, Education, and Communication, Wage and Investment\nDivision SE:W:CAR:SPEC\nDirector, Submission Processing, Wage and Investment Division SE:W:CAS:SP\nChief Counsel CC\nNational Taxpayer Advocate TA\nDirector, Office of Legislative Affairs CL:LA\nDirector, Office of Program Evaluation and Risk Analysis RAS:O\nOffice of Management Controls OS:CFO:AR:M\nAudit Liaisons:\n Commissioner, Large and Mid-Size Business Division SE:LM\n Commissioner, Small Business/Self- Employed Division SE:S\n Commissioner, Wage and Investment Division SE:W\n\n\n\n\n Page 38\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix IV\n\n\n Outcome Measures\n\nThis appendix presents detailed information on the measurable impact that our recommended\ncorrective actions will have on tax administration. We have separated the outcome measures at\nrisk based on Tax Administration and Tax Policy issues. These benefits will be incorporated into\nour Semiannual Report to the Congress.\nWe obtained guidance on our sampling methodology and projections from the Internal Revenue\nService (IRS) Office of Statistics of Income. Unless otherwise annotated, all computations are\nbased on a 5-year period, computed as follows: Year 1 = estimates and actual data for Tax\nYear (TY) 2000, and Years 2 through 5 = actual data for TY 2001 which was used to compute\nthe outcomes for this 4-year period.\nType and Value of Outcome Measure:1\nTax Administration Issues\n?? Revenue Protection \xe2\x80\x93 Potential; approximately 530,000 unauthorized resident aliens received\n approximately $2.4 billion in refunds 2d, 2e------------------------------------(see page 3).\n [TY 2000 $262 million x 1 year] + [TY 2001 $522 million x 4 years] = $2.4 billion\n?? Increased Revenue \xe2\x80\x93 Potential; approximately 82,000 unauthorized resident aliens did not\n report income of $324 million from all sources. Using an effective tax rate of 1.7 percent,\n the tax effect would be approximately $27.5 million (see page 7).\n [TY 2000 $324 million x 1.7 percent in tax due = $5.5 million] x 5 years = $27.5 million\n?? Cost Savings (Funds Put to Better Use) \xe2\x80\x93 Potential; unauthorized resident aliens working in\n the United States (U.S.) without authorization received the refundable Earned Income Tax\n Credit of approximately $7.3 million (see page 3).\n [TY 2000 $1.2 million x 1 year] + [TY 2001 $1.52 million x 4 years] = $7.3 million\n?? Taxpayer Burden \xe2\x80\x93 Potential; over 265,000 taxpayers may have been the victims of identity\n theft by unauthorized resident aliens in TY 2000 (see page 7).\n Tax Policy Issues\n?? Revenue Protection \xe2\x80\x93 Potential; unauthorized resident aliens received an accelerated payment\n of the Child Tax Credit of approximately $150 million in TY 2003 (see page 23).\n\n\n\n\n1\n Figures in this appendix and Appendix V may not match due to rounding.\n Page 39\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n?? Revenue Protection \xe2\x80\x93 Potential; unauthorized resident aliens claimed the standard deduction\n of $3.2 billion. Using an effective tax rate of 1.7 percent, there would be a tax effect of\n $272 million (see page 23).\n [TY 2001 $3.2 billion x 1.7 percent in tax due = $54.4 million] x 5 years = $272 million\n?? Revenue Protection \xe2\x80\x93 Potential; unauthorized resident aliens received the Child Tax Credit of\n $597.3 million (see page 3).\n [TY 2000 $90 million x 1 year] + [TY 2001 $126.83 million x 4 years] = $597.3 million\n?? Revenue Protection \xe2\x80\x93 Potential; unauthorized resident aliens received the Education Credit of\n $33.5 million (see page 23).\n [TY 2000 $4.1 million x 1 year] + [TY 2001 $7.35 million x 4 years] = $33.5 million\n?? Revenue Protection \xe2\x80\x93 Potential; unauthorized resident aliens received the Credit for the\n Elderly of approximately $204,000 (see page 3).\n [TY 2000 $32,000 x 1 year] + [TY 2001 $43,000 x 4 years] = $204,000\n?? Cost Savings (Funds Put to Better Use) \xe2\x80\x93 Potential; unauthorized resident aliens working in\n the U.S. without authorization received the refundable Additional Child Tax Credit of\n approximately $704 million (see page 23).\n [TY 2000 $62 million x 1 year] + [TY 2001 $160.53 million x 4 years] = $704.1 million\n?? Taxpayer Privacy and Security \xe2\x80\x93 Potential; 8,200 returns and financial information were\n available to unauthorized resident aliens who prepared tax returns in TY 2001 (see page 23).\nMethodology Used to Measure the Reported Benefits:\nWe obtained tax return data from the TYs 2000 and 2001 IRS Returns Transaction Files (RTF). 2\nIn addition, we selected a statistically valid sample of 353 TY 2000 Forms 1040 filed with an\nIndividua l Taxpayer Identification Number (ITIN) as the primary identification number from a\nuniverse of 353,373 tax returns. Our sample was selected using a confidence level of 95 percent,\na precision level of +/- 2.5 percent, and an expected rate of occurrence not less than 95 percent.\nWe analyzed the attributes of the tax returns and the associated documents (i.e., Wage and Tax\nStatement [Form W-2]). Our analysis included quantifying income, deductions, tax credits,\nrefunds, etc. We also obtained actual data for TY 2001 for returns filed by resident aliens with\n\n2\n The RTF contains all edited, transcribed, and error-corrected data from the U.S. Individual Income Tax Return\n(Form 1040) series returns and related forms for the current processing year and 2 prior years.\n\n\n\n\n Page 40\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\nan ITIN. In addition, we obtained information from the IRS Master File 3 and Integrated Data\nRetrieval System. 4\n\n\n\n\n3\n The IRS database that stores various types of taxpayer account information. This database includes individual,\nbusiness, and employee plans and exempt organizations data.\n4\n The IRS computer system capable of retrieving or updating stored information; it works in conjunction with a\ntaxpayer\xe2\x80\x99s account records.\n\n\n\n\n Page 41\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix V\n\n\n Attributes of Forms 1040 Filed With an Individual Taxpayer Identification\n Number in Tax Years 2000 and 2001 1\n Category Tax Year TY 2000 TY 2001 Percentage\n (TY) 2000 Estimated Actual Change\n Margin of Error\n +/-\nUnited States Individual Income Tax Returns 353,000 Actual 530,000 50%\n(Form 1040)\nSalaries and Wages Claimed $7,200,000,000 $474,000,000 $10,200,000,000 42%\nForms 1040 With a Tax Liability 162,000 19,000 245,000 51%\nRefunds Paid $262,000,000 Actual $522,000,000 99%\nRate Reduction Credit Allowed 2 $53,000,000 $7,700,000 $63,000,000 19%\nChild Tax Credit Allowed $90,000,000 Actual $127,000,000 41%\nAdditional Child Tax Credit Paid $62,000,000 $16,000,000 $161,000,000 160%\nEarned Income Tax Credit Paid $1,200,000 Actual $1,500,000 25%\nEducation Credit Allowed $4,100,000 Actual $7,400,000 80%\nForeign Tax Credit Allowed $1,300,000 Actual $5,800,000 346%\nChild and Dependent Care Credit Allowed $4,900,000 Actual $6,400,000 31%\nCredit for the Elderly and Disabled Allowed $32,000 Actual $43,000 34%\n 3\nReturns Prepared by Paid Preparers 282,000 15,000 396,000 40%\nReturns Prepared by Taxpayers 66,000 14,000 128,000 94%\n 4\nReturns Prepared by IRS/Volunteers 5,000 5,000 5,000 0%\nPaper Filed Forms 1040 309,000 12,000 444,000 44%\nElectronically Filed Forms 1040 44,000 12,000 86,000 95%\nSocial Security Numbers (SSN) Misused and 354,000 21,000 Not Available\nNot Assigned to the Individual on the Wage\nand Tax Statement (Form W-2)\nSSNs Misused and Assigned to Someone Else 265,000 18,000 Not Available\nUnreported Earned Income $324,000,000 $122,000,000 Not Available\n\n\n\n\n1\n All figures are rounded to nearest thousands.\n2\n The figure for TY 2000 is the estimated amount of advance payments received for TY 2001, and the TY 2001\nfigure is the amount claimed on TY 2001 tax returns by those who did not receive an advance payment of this credit.\n3\n The sum of Returns Prepared by Paid Preparers, Taxpayers, and IRS/Volunteers does not equal 530,000 due to\nrounding.\n4\n The wide precision is caused by the number of returns in the sample with this attribute.\n\n\n\n\n Page 42\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix VI\n\n\n Credits Claimed on Forms 1040 Filed With an Individual Taxpayer Identification\n Number in Tax Years 1998-20011\nTax Year Forms Child Tax Child Tax Additional Additional Child Child Foreign Foreign\n 10402 Credit Credit Child Tax Child Tax Care Care Tax Credit Tax Credit\n filed by Allowed Claims Credit Credit Credit Credit Allowed Claims\n Resident Paid Claims Allowed Claims\n Aliens\n 3 2\n 1998 213,995 $34,959 69,672 $3,163 5,312 $6,567 196\n\n 2 2\n 1999 271,912 $62,036 97,965 $3,521 5,955 $6,269 251\n\n\n 2000 353,373 $89,974 134,097 $61,952 62,434 $4,937 8,290 $1,269 289\n\n\n 2001 529,977 $126,839 194,686 $160,534 203,156 $6,396 11,209 $5,817 302\n\n\n Totals 1,369,257 $313,808 496,420 $222,486 265,590 $18,017 30,766 $19,922 1,038\n\n\n\nTax Year Earned Earned Education Education Credit for Credit for\n Income Income Credit Credit the the\n Tax Credit Tax Allowed Claims Elderly Elderly\n Paid Credit Allowed Claims\n Claims\n 1998 $2,572 1,286 $853 1,451 $16 67\n\n\n 1999 $1,995 1,035 $2,035 3,278 $23 101\n\n\n\n 2000 $1,184 662 $4,060 5,833 $32 129\n\n\n 2001 $1,520 843 $7,354 9,995 $43 193\n\n\n Totals $7,271 3,826 $14,302 20,557 $114 490\n\n\n\n\n1\n Dollars in thousands.\n2\n United States Individual Income Tax Return (Form 1040).\n3\n This information was not developed.\n\n\n\n\n Page 43\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix VII\n\n\n Explanation of the Term \xe2\x80\x9cUnauthorized Resident Alien\xe2\x80\x9d\n\nThis audit report uses the term unauthorized resident alien based on the evidence we found\nduring this and a prior analysis of the Internal Revenue Service (IRS) Individual Taxpayer\nIdentification Number (ITIN) process. Our conclusion is that, generally, the individuals who file\na United States (U.S.) Individual Income Tax Return (Form 1040) with an ITIN as the\nidentification number and receive wages that are identified with a Social Security Number (SSN)\non the attached Wage and Tax Statements (Form W-2) are unauthorized resident aliens. This\nconclusion is based on the following evidence and assumptions.\nForeign individuals who received ITINs were residing in the U.S. without apparent\nauthorization by the U.S. Department of Homeland Security (DHS)\nThe Treasury Regulation providing for the ITIN states that, \xe2\x80\x9cAny individual who is not eligible\nto obtain a social security number and is required to furnish a taxpayer identifying number must\napply for an IRS individual taxpayer identification number on Form W-7, Application for IRS\nIndividual Taxpayer Identification Number.\xe2\x80\xa6\xe2\x80\x9d1 The Form W-7 states, \xe2\x80\x9cDo not submit this form\nif you have, or are eligible to obtain, a U.S. social security number (SSN).\xe2\x80\x9d The Form W-7\nrequires the applicant to provide identity information and support his or her claim of foreign\nstatus (i.e., with passport or visa information).\nDuring our prior audit of the ITIN process, 2 we identified Forms W-7 that were approved by the\nIRS and showed applicants provided U.S. addresses and claimed to be U.S. resident aliens filing\nU.S. tax returns. These Forms W-7 did not have passport information or U.S. visa information.\nThe absence of this information indicates the applicant may not have gained lawful entry into the\nU.S. In fact, Forms W-7 had statements such as, \xe2\x80\x9c... NO LEGAL STATUS WITH INS\xe2\x80\x9d3 and\n\xe2\x80\x9cEntered without a visa\xe2\x80\x9d for an indefinite stay in the U.S.\nIn a related opinion, 4 the IRS Office of the Assistant Commissioner (International) stated, \xe2\x80\x9cthe\nForm W-7 is to be used only by individuals who are not eligible to obtain an SSN, and that\ncitizens of the United States thus will not file a Form W-7.\xe2\x80\x9d The IRS Office of Chief Counsel\ndetermined that, \xe2\x80\x9cthe group of persons with United States federal tax obligations who are not\neligible to obtain an SSN is limited to non-citizens who either do not reside in the United States\nor who reside here illegally.\xe2\x80\x9d\n\n1\n Treas. Reg. \xc2\xa7 301.6109. All references to \xe2\x80\x9cTreasury Regulation\xe2\x80\x9d in this appendix mean Treas. Reg. \xc2\xa7 301.6109.\n2\n The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Program Was Not Implemented in\nAccordance with Internal Revenue Code Regulations (Reference Number 094505, dated September 1999).\n3\n INS refers to the former U.S. Immigration and Naturalization Service. The DHS assumed the INS\xe2\x80\x99 responsibilities\nin 2003.\n4\n Memorandum for Chief Operations Officer, re: Draft Internal Audit Report \xe2\x80\x93 Review of the Individual Taxpayer\nIdentification Number (ITIN) Program, Internal Audit Project # 960084 (May 27, 1999). This opinion was limited\nto issues involving individuals under the Privacy Act of 1974, 5 U.S.C. \xc2\xa7 552a (2000).\n Page 44\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\nThe DHS is responsible for citizenship, asylum, lawful permanent residency, employment\nauthorization, refugee status, intercountry adoptions, replacement immigration documents,\nfamily and employment-related immigration, and foreign student authorization. Foreign\nindividuals who received ITINs and declared themselves as residing in the U.S. were apparently\nnot authorized by the DHS to reside in the U.S.\nForms 1040 were filed by resident aliens\nThe Internal Revenue Code provides that an alien individual shall be treated for tax purposes as a\nresident of the U.S. with respect to any calendar year if such individual is a lawful permanent\nresident of the U.S. at any time during that calendar year, meets the substantial presence test, or\nmakes a first-year election. 5 An individual is a nonresident alien if that individual is neither a\ncitizen of the U.S. nor a resident of the U.S.\nAn individual who does not reside in the U.S., but who must report income, is required to file a\nU.S. Nonresident Alien Income Tax Return (Form 1040NR). A resident alien individual is\nrequired to file a Form 1040. All of the individuals included in our review filed Forms 1040\nidentified by ITINs. By filing Forms 1040 with an ITIN, these individuals are declaring\nthemselves as resident aliens rather than nonresident aliens.\nResident aliens were employed\nThe ITIN is intended for tax purposes only and creates no inference regarding an alien\nindividual\xe2\x80\x99s right to be legally employed in the U.S. (i.e., the ITIN does not authorize a foreign\nindividual to work in the U.S.). We estimate that $7.2 billion6 was claimed in wages and salaries\nin Tax Year (TY) 2000 on Forms 1040 identified by an ITIN. In TY 2001, this amount increased\nto $10.2 billion. The claimed wages and salaries indicated that these resident aliens were\nemployed.\nResident aliens provided SSNs to their employers to obtain employment\nThe ITIN is not valid for work purposes. So, employers are responsible for obtaining from new\nhires their names and SSNs from their Social Security cards. Employers are also responsible for\npreparing Forms W-2 and submitting them to the Social Security Administration (SSA). We\nestimate that the 309,000 7 TY 2000 Forms 1040 that resident aliens filed on paper had\n354,000 SSNs on the attached Forms W-2, indicating that the resident aliens provided to their\nemployers Social Security cards or SSNs for the purpose of obtaining employment.\n\n\n\n\n5\n 26 U.S.C \xc2\xa7 7701 (2003). The \xe2\x80\x9csubstantial presence\xe2\x80\x9d test is based on the number of days that an individual resided\nin the U.S. The \xe2\x80\x9cfirst-year election\xe2\x80\x9d is an option for aliens meeting certain criteria to be treated as U.S. residents.\n6\n The margin of error is +/- $474,000,000.\n7\n The margin of error is +/- 12,385 tax returns.\n Page 45\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\nResident aliens would not have been able to obtain Social Security cards valid for\nemployment in the U.S.\nThe SSA issues three types of Social Security cards. The SSA issues Social Security cards to\nU.S. citizens or individuals lawfully admitted to the U.S. with permanent work authorization\nobtained from the DHS. The second type of card has the legend, \xe2\x80\x9cNot Valid for Employment.\xe2\x80\x9d\nThe SSA issues this type of card to individuals from other countries lawfully admitted to the U.S.\nwithout work authorization from the DHS and who need a number becaus e of a Federal\nGovernment law requiring an SSN to get a benefit or service. The third type of card bears the\nlegend, \xe2\x80\x9cValid for Work only with [DHS] Authorization.\xe2\x80\x9d The SSA issues these cards to\nindividuals who are lawfully admitted to the U.S. on a temporary basis and with DHS\nauthorization to work. We concluded that the SSA should not issue a Social Security card (and\ntherefore an SSN) to an individual who is not authorized by the DHS for admission into the U.S.\nThe Treasury Regulation states that, \xe2\x80\x9cAny individual who is duly assigned a social security\nnumber or who is entitled to a social security number will not be issued an IRS individual\ntaxpayer identification number.\xe2\x80\x9d Since the IRS assigns ITINs to resident aliens, we concluded\nthat these resident aliens were not entitled to an SSN as assigned by the SSA when they applied\nfor an ITIN. We also concluded that if resident aliens were authorized by the DHS to reside in\nthe U.S., and if that authorization permitted those individuals to work in the U.S., then those\nindividuals would be eligible for a Social Security card valid for working purposes, and the IRS\nwould not have assigned an ITIN.\nResident aliens obtained employment using false SSNs\nThe Social Security law states that, \xe2\x80\x9cwhoever\xe2\x80\xa6with intent to deceive, falsely represents a\nnumber to be the social security account number assigned by the Commissioner of Social\nSecurity to him or to another person, when in fact such number is not the social security account\nnumber assigned by the Commissioner of Social Security to him or to such other person\xe2\x80\xa6shall\nbe guilty of a felony\xe2\x80\xa6.\xe2\x80\x9d We estimate that all of the 354,000 SSNs8 on Forms W-2 submitted by\nresident aliens on the 309,000 TY 2000 paper filed Forms 1040 with an ITIN were assigned by\nthe SSA to an individual other that the filer (265,000) 9 or not assigned by the SSA (89,000).\nFurthermore, a joint publication by the IRS and the SSA addresses the use of SSNs by\nindividuals with ITINs. The publication summarized an employer\xe2\x80\x99s responsibilities for\nwithholding and reporting of employment taxes on wages paid to \xe2\x80\x9cillegal aliens.\xe2\x80\x9d Under the title\n\xe2\x80\x9cIllegal Use of Social Security Numbers (SSN),\xe2\x80\x9d the publication states that, \xe2\x80\x9cSince ITINs are for\ntax purposes only and are by no means a legal identification number for employment, individuals\nare utilizing erroneous or stolen SSNs when applying for employment.\xe2\x80\x9d10\nWe concluded that the SSNs shown on the Forms W-2 had not been assigned to the resident\naliens and were therefore false. We further concluded that these fa lse SSNs were used to obtain\n\n8\n The margin of error is +/- 21,348 SSNs.\n9\n The margin of error is +/- 17,732 SSNs.\n10\n SSA/IRS Reporter, A Newsletter for Employers, Summer 2003.\n Page 46\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\nemployment. Additionally, we concluded that if the resident aliens were lawfully admitted to the\nU.S. and were lawfully permitted to work in the U.S., the resident aliens would have provided to\ntheir employers SSNs assigned to them by the SSA.\nAudit Conclusion\nThe Forms 1040 included in our review were filed by resident aliens who were living in the U.S.\nwithout apparent authorization by the DHS. Therefore, these individuals could not legally\nacquire Social Security cards that were valid for obtaining employment. Since they could not\nacquire the necessary Social Security cards, the resident aliens needed, and probably provided to\ntheir employers, SSNs that had not been assigned to them by the SSA. It is our opinion that\nindividuals who are legally entitled to employment in the U.S. would also be legally entitled to\nobtain Social Security cards valid for employment. Consequently, we concluded that the\nForms 1040 included in our review were filed by unauthorized resident aliens: foreign\nindividuals who were working in the U.S. without authorization from the DHS and without a\nSocial Security card valid for employment.\n\n\n\n\n Page 47\n\x0c The Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix VIII\n\n\nMemorandum: Accelerating Scheduled Increases in the Child Tax Credit and the\n Additional Child Tax Credit to Unauthorized Resident Aliens Should Be\n Reconsidered\n\n\n\n\n Page 48\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n\n\n\n\n Page 49\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 50\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 51\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 52\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 53\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 54\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 55\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 56\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 57\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix IX\n\n\n Management\xe2\x80\x99s Response to Memorandum\n\n\n\n\n Page 58\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 59\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n Appendix X\n\n\n Management\xe2\x80\x99s Response to the Draft Report\n\n\n\n\n Page 60\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 61\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n\n\n\n\n Page 62\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n 2d, 2e\n\n 2d, 2e\n\n\n\n\n Page 63\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n 2d, 2e\n\n\n\n\n 2d, 2e\n\n\n\n 2d, 2e\n\n\n\n\n 2d, 2e\n\n 2d, 2e\n 2d, 2e\n\n\n\n\n Page 64\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n 2d, 2e\n\n\n\n\n 2d, 2e\n 2d, 2e\n\n\n\n 2d, 2e\n\n\n\n\n 2d, 2e\n\n\n 2d, 2e\n\n\n\n\n 2d, 2e\n\n\n\n\n Page 65\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n\n\n\n\n Page 66\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 67\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 68\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n 2d, 2e\n 2d, 2e\n\n\n\n 2d, 2e\n 2d, 2e\n 2d, 2e\n\n\n\n\n Page 69\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n 2d, 2e\n\n\n\n 2d, 2e\n 2d, 2e\n 2d, 2e\n\n\n\n\n Page 70\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 71\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 72\n\x0cThe Internal Revenue Service\xe2\x80\x99s Individual Taxpayer Identification Number Creates\n Significant Challenges for Tax Administration\n\n\n\n\n Page 73\n\x0c'