An estimated 1.2 million tax returns filed in 2007 reported wages earned by taxpayers who used another taxpayer’s Social Security number, according to a new government report.

J. Russell George

Many tax returns are filed by individuals who have used another person’s name and Social Security number at work, but then filed federal tax returns using their own names and assigned Individual Taxpayer Identification Numbers. This often occurs with illegal immigrants. But when collection actions are taken on the account of the legitimate holder of the Social Security number, tax complications can occur for both the legitimate holder of the Social Security number, and the individual who used another person’s Social Security number at work.

A new report, by the Treasury Department’s Inspector General for Tax Administration, found that the Internal Revenue Service cannot currently identify such identity theft cases.

TIGTA conducted a review when it learned that individuals using another person's Social Security number at 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. It found that 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,” said TIGTA Inspector General J. Russell George in a statement. “The IRS must take steps to ensure that innocent taxpayers are notified when there is evidence that their identity has been compromised. 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.