Billions of dollars in tax credits are being provided toIndividual Taxpayer Identification Number filers without adequate verificationof eligibility, according to the Treasury Inspector General for TaxAdministration.
The Internal Revenue Service provides ITINs toindividuals who are not eligible for a Social Security number to help themcomply with the tax laws. Although ITINs are specifically not to be used inemployment for wages, a TIGTA audit reveals that 292,992 employers filed790,701 W-2s with ITINs reporting wages totaling more than $9.5 billion in2006.
TIGTA says that incomplete or inaccurate information isbeing input into IRS systems when a tax return is filed with an ITIN and theattached Form W-2 contains an SSN that does not belong to the individual filingthe tax return. For electronically filed returns, this is due to some taxsoftware auto-populating the ITIN in place of the SSN.
Verification of eligibility is critical because claimsfor credits are substantial, TIGTA stated. In tax year 2007, more than 1.2million, or 66 percent, of ITIN filers received Additional Child Tax Credits ofalmost $1.8 billion. This is a refundable credit available to individuals withno tax liability.
TIGTA recommended that the commissioner of the Wage andInvestment Division develop processes to identify individuals who areimproperly using ITINs for work purposes and develop outreach efforts with theSocial Security Administration to address their improper use; limit theautomatic population feature for ITIN tax returns; ensure that accurate taxinformation is input into IRS systems from both paper and electronically filedITIN tax returns; and ensure that the requirements for the Child Tax Credit andACTC are met on ITIN returns claiming the credits.
TIGTA also made a legislative recommendation to clarifywhether or not refundable tax credits such as the ACTC may be paid to filerswithout a valid SSN and, if these credits may not be paid, to provide the IRSwith math error authority to disallow the associated claims for the credits.Disallowance of the ACTC to filers without a valid SSN would reduce federaloutlays by $8.9 billion over five years.
IRS officials agreed to continue to work with softwarecompanies to limit the auto-populate feature. They also agreed to work with theTreasury Office of Tax Policy to consider legislation to limit claims for theACTC to taxpayers with an SSN. The IRS disagreed with the otherrecommendations. TIGTA said it does not believe that management providedadequate justification for the recommendations with which the IRS disagreed.
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