WASHINGTON – The Internal Revenue Service (IRS) has not met all legal requirements to deactivate individual taxpayer identification numbers (ITINs), according to a new audit report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
The IRS issues an ITIN 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. As of August 2017, the IRS had issued more than 23.8 million ITINs.
The Protecting Americans from Tax Hikes Act of 2015 (PATH Act) required the IRS to begin deactivating ITINs for non-use on a tax return, on December 31, 2015. However, the IRS was unable to modify its ongoing deactivation plans to meet the PATH Act requirement date. As such, the IRS did not begin to deactivate ITINs for non-use until December 31, 2016, when the IRS deactivated a total of 12,018,537 ITINs.
The PATH Act also required the IRS to deactivate ITINs issued prior to January 1, 2008, on January 1, 2017. However, the IRS was unable to determine the issuance date of ITINs assigned prior to Calendar Year 2014. The IRS was also concerned with having sufficient resources to meet the demands of the ITIN renewal applications. Therefore, the IRS developed an alternate plan. Based on this alternate schedule, as of January 1, 2017, the IRS deactivated 384,421 ITINs that had not already been deactivated for non-use. The IRS should have deactivated a total of four million ITINs to comply with PATH Act requirements.
TIGTA's analysis of the more than 23 million ITINs issued as of December 2016, found that the IRS accurately identified and deactivated the majority of the 12.4 million ITINs requiring deactivation. Computer programming errors and inaccurate use identification resulted in the IRS not deactivating 89,105 ITINs which filed 1,298 tax returns, as of April 20, 2017. These individuals received $637,181 in refundable tax credits and did not pay an estimated $359,127 in tax as a result of erroneous personal tax exemptions. TIGTA also identified 133,054 ITINs that were erroneously deactivated by the IRS.
Finally, IRS processes did not prevent 11,350 deactivated ITINs from being used on 9,818 tax returns as of May 4, 2017. These individuals erroneously received more than $2.6 million in refundable tax credits and did not pay more than $2.4 million in tax as a result of erroneous personal tax exemptions.
TIGTA made 10 recommendations in its report. The IRS agreed with eight of the 10 recommendations.