The Internal Revenue Service isn’t doing enough to ensure that Electronic Filing Identification Numbers are assigned to qualified applicants or deactivated when needed, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, indicated the IRS isn’t verifying citizenship status for everyone who applies for EFINs. TIGTA found 45 approved applications that listed a principal or responsible official who wasn’t a U.S. citizen or resident alien according to Social Security Administration records at the time they applied. The review also identified 1,494 individuals associated with approved applications despite the fact that Social Security Administration records didn’t show any citizenship status for them.

TIGTA reviewed a statistical sample of 34 approved e-file program partnership applications and identified nine (or 26 percent) that omitted at least one partner with a 5 percent or greater ownership interest in the partnership. TIGTA estimates that 256 of the 969 partnership applications left out the name of one or more partners.

Treasury Inspector General J. Russell George addressing a House subcommittee
Treasury Inspector General J. Russell George addressing a House subcommittee Bloomberg News

In addition, EFINs aren’t deactivated on a timely basis for deceased principals and responsible officials at firms. Of 965 EFINs with dead principals and responsible officials, 349 were still active. For 399 of them, the IRS needed an average of 1,080 days to deactivate their EFIN.

TIGTA also found that referrals of 328 EFINs used to file potentially fraudulent tax returns weren’t consistently evaluated or forwarded to the IRS’s Electronic Products and Services Support organization. The Return Integrity and Compliance Services organization didn’t evaluate the 328 EFINs for potential fraud. Only 104 of them were evaluated for identity theft.

“The IRS must ensure that the integrity of the e-file Program is protected,” said TIGTA Inspector General J. Russell George in a statement. “When the IRS does not implement sufficient controls over Electronic Filing Identification Numbers, or EFINs, ineligible individuals can use the EFINs to file fraudulent tax returns.”

TIGTA recommended the IRS deactivate any EFINs associated with individuals who aren’t U.S. citizens or resident aliens and verify the citizenship status of all prior and current principals and responsible officials for whom Social Security Administration records are blank. The IRS should also develop processes to verify the accuracy of partnership reporting on e-file applications, TIGTA suggested. The report said the IRS should suspend the EFINs associated with the nine partnership applications with omitted partners, and it should ask for revised applications that accurately report partners.

TIGTA also wants the IRS to establish timeframes for deactivating EFINs for deceased principals and responsible officials, and ensure that the 349 EFINs that were still active as of March 24, 2017, are either revised or deactivated, as appropriate. The report recommended the IRS finalize its procedures for identifying and referring EFINs associated with potentially fraudulent return filings to the Electronic Products and Services Support organization. The IRS should also ensure that the 286 suspicious EFINs not referred to the Electronic Products and Services Support organization are reviewed for tax fraud and deactivated if warranted.

The IRS agreed with six of TIGTA’s recommendations and partially agreed with one recommendation. But the IRS disagreed with TIGTA’s recommendations to suspend EFINs for the nine partnership applications with omitted partners and ensure that the 286 suspicious EFINs are reviewed for fraud.

“The report recommends the IRS sanction 286 potentially suspicious PTINs; however, the returns filed by those EFINs went through fraud and IDT [identity theft] filtering when processed and were treated accordingly,” wrote Kenneth Corbin, commissioner of the IRS’s Wage and Investment Division.

TIGTA countered that it believes the lack of corrective action will allow partnerships to circumvent IRS suitability checks and EFINs will continue to be misused.

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Michael Cohn

Michael Cohn

Michael Cohn, editor-in-chief of AccountingToday.com, has been covering business and technology for a variety of publications since 1985.