WASHINGTON - An estimated 1.2 million tax returns filed in 2007 reported wages earned by taxpayers who used another taxpayer's Social Security Number, a sign of possible identity theft, according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).

The Internal Revenue Service cannot currently identify identity theft cases when taxpayers file tax returns using an Individual Taxpayer Identification Number (ITIN) and use another person's name and Social Security Number to work, the report found.

TIGTA conducted this review when it learned that individuals using another person's Social Security Number to work had their wages attached by the IRS to satisfy a tax debt associated with the tax accounts of the legitimate holders of the Social Security Number.

ITINs are intended to provide tax identification numbers to resident and nonresident alien individuals who may have U.S. tax reporting or filing obligations but do not qualify for Social Security Numbers, which generally are only issued to U.S. citizens and individuals legally admitted to the U.S. The issuance of an ITIN, however, does not change an individual's immigration status, nor does it entitle the individual to work in the U.S. or receive Social Security benefits.

TIGTA assessed whether the IRS has procedures to effectively handle collection issues related to ITINs. The IRS lacks internal guidelines for its employees to follow to assist either the taxpayer whose wages are being attached or the legitimate holder of the Social Security Number (who may unknowingly be the victim of identity theft).

"This report reveals a very troubling situation. The IRS must take steps to ensure that innocent taxpayers are notified when there is evidence that their identity has been compromised," said J. Russell George, the Treasury Inspector for Tax Administration. "When the IRS is in a position to notify victims of the theft of their identity, it should do so without fail."

TIGTA recommended that the IRS alert taxpayers that their identity may have been compromised, match ITIN returns with their related reporting returns, such as Wage and Tax Statements (Form W-2), and, update guidelines to handle collection issues associated with ITINs. The IRS generally agreed with TIGTA's recommendations.