The Internal Revenue Service lacks effective processes to ensure the authenticity of copies of documents certified by a foreign issuing agency to support an application for an Individual Taxpayer Identification Number, according to a new government report.
The audit was initiated because the Treasury Inspector General for Tax Administration received an IRS employee complaint referred from a member of Congress alleging that the IRS’s ITIN application processes and procedures do not ensure the authenticity of documents certified by a foreign issuing agency.
An ITIN is issued 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. ITINs are issued regardless of an individual’s immigration status, as both resident and nonresident aliens may have a U.S. filing or reporting requirement under the Internal Revenue Code. Last year, the IRS issued 638,000 ITINs.
TIGTA’s review substantiated the IRS employee’s complaint. Tax examiners do not have either the tools or expertise needed to authenticate copies certified by foreign issuing agencies. Apart from lacking tools to verify these documents, the processes and procedures the IRS has developed do not provide reasonable assurance that ITINs are not being issued based on false documentation.
“Authenticating documents certified by foreign issuing agencies is critical to the IRS’s ability to verify the identities and foreign status of individuals before assigning them ITINs, processing associated tax returns, and issuing refunds,” said TIGTA Inspector General J. Russell George in a statement.
TIGTA recommended that the commissioner of the IRS’s Wage and Investment Division provide tax examiners with reference materials that can be used to verify the authenticity of copies of documents certified by a foreign issuing agency. In addition, the IRS should develop detailed procedures and deliver adequate training on verifying the authenticity of copies of documents certified by a foreign issuing agency, said the report.
The IRS agreed with TIGTA’s recommendations. The IRS plans to continue its discussions with the Department of State as it evaluates policy and procedures pertaining to the receipt and acceptance of certified copies of foreign-issued identification documents. The IRS has also clarified instructions for verifying certified copies of documents and plans to use its ongoing communication and dialogue processes to reinforce proper procedures.
“The review and critical analysis of our procedures for processing ITIN applications is ongoing to strengthen the integrity of the program and ensure ITINs are issued only for valid tax administration purposes,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division.
She pointed out that in January 2013, the IRS strengthened its controls over issuing ITINs by eliminating the use of notarized copies of official identification documents, except in limited circumstances. “Going forward, we accepted, and continue to accept, only original documents or copies of documents certified by the original issuing agency to verify applicant identities,” said Holland. “We believe this action contributed in part to the decline in the number of ITINs issued annually, from 1.8 million in 2009, to 638,000 in 2014.”
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