WASHINGTON – Internal Revenue Service (IRS) processes for assigning Individual Taxpayer Identification Numbers (ITINS) do not effectively identify incomplete or fraudulent applications, according to an audit report that the Treasury Inspector General for Tax Administration (TIGTA) issued today.
ITINs are issued by the IRS to individuals who are required to have a Taxpayer Identification Number for tax purposes but do not have and are not eligible to obtain a Social Security Number. TIGTA found that the IRS did not provide the ITIN study to Congress in December 2017 as required by the Protecting Americans from Tax Hikes Act of 2015 (PATH Act). Also, the IRS has not established processes as required by the PATH Act to ensure ITINs issued for tax treaty purposes are only used for that purpose. TIGTA determined that as of March 11, 2017, only 2,869 (5.3 percent) of the 54,294 ITINs that were issued for tax treaty purposes and used on a Tax Year 2014 through 2016 tax return were actually used to claim a tax treaty benefit.
TIGTA estimates that the IRS erroneously issued 8,116 ITINs because tax examiners did not always ensure that required supporting documentation was provided with applications. In addition, TIGTA found that 8,110 ITINs that had been revoked were still valid on the Individual Master File. In addition, another 687 ITINs were assigned to deceased individuals, but the deceased individual's account was not locked to prevent the individual's identity from being used to file a tax return. Furthermore, TIGTA found that processes do not sufficiently reduce the risk associated with Certified Acceptance Agents' verification of identity and foreign status of ITIN applicants.
TIGTA also found that improvements are needed to Real-Time System consistency and validity checks to better identify potentially erroneous or fraudulent applications for review. As a result, TIGTA found that the IRS may have issued 151,384 potentially erroneous or fraudulent ITINs. In addition, IRS management has not made a programming change to the Real-Time System that is needed to effectively identify potentially fraudulent applications. The Real-Time System is used by tax examiners to process, assign, and record applicant submissions.
TIGTA made 17 recommendations in the report; however, because of the passage of the Tax Cuts and Jobs Act of 2017, one recommendation was withdrawn. IRS management did not agree with one recommendation complying with the law on implementing processes to ensure that ITINs are issued solely for claiming tax treaty benefits. The IRS agreed and proposes corrective action for the remaining 15 recommendations.