To prevent identity theft and filing of fraudulent tax returns, the Internal Revenue Service developed an indicator to lock the accounts of millions of taxpayers whom the agency assumed had died, but for tens of thousands of people, that indicator may have been wrong.
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The IRS had locked 52.5 million taxpayer accounts with a deceased indicatoras of Jan. 20, 2023, but TIGTA's analysis of tax account information through Jan. 1, 2022, found 77,868 taxpayers with potentially erroneous locks.
"In these instances, the Social Security Administration's data did not indicate that the taxpayer was deceased, i.e., there was no date of death present," said the report. "Further analysis determined that the deceased account locks were input because of the filing of a return or other actions taken by the IRS. The IRS confirmed that 20,222 taxpayer accounts were locked in error due to both human and computer programming issues when identifying the appropriate taxpayer accounts to be locked."
Incorrect data from the Social Security Administration may be partly to blame for the problem, which has persisted despite TIGTA's findings. The inspector general's office updated its analysis of deceased account locks for Jan. 2, 2022, through Oct. 29, 2022, and found that thousands of taxpayer accounts appear to still be erroneously locked. TIGTA's analysis identified another 14,193 taxpayer accounts that had been potentially erroneously locked during that time period.
To fix the problem, the IRS made some programming changes in late January to do an annual reconciliation of the date-of-death information between the SSA's records and the IRS's data. The service then confirmed that 6,821 of 9,646 tax accounts for which it issued a CP01H notice, "Tax Return Submitted with Locked Social Security Number," were inappropriately locked. In those cases, the agency couldn't process the tax return because of the incorrect account lock.
TIGTA made seven recommendations in its report, suggesting the IRS should review the taxpayer accounts that the inspector general identified to find out if the deceased account lock was appropriate and, if not, remove any account locks done by mistake. The service should also identify the reason behind the mistakes that led to improperly locking taxpayer accounts, and update its CP01H notice to say that taxpayers can work with the IRS to resolve the erroneous deceased account locks. The service agreed with six recommendations.
The IRS disagreed with the recommendation to update the CP01H notice, however, saying the notice already provides language for taxpayers to contact the agency if they need assistance. TIGTA pointed out that the notice tells taxpayers to first resolve the error with the Social Security Administration, and said that it believes the IRS should clarify the notice so taxpayers know they can work directly with the IRS to fix the problem.
The IRS argued that it needed to implement the account locks to deter fraudsters and identity thieves.
"Early in the last decade, bad actors lured by the increasing availability of refundable tax credits disbursed through the tax system, and using the stolen identities of individual victims, exponentially increased the rate of identity theft-related tax fraud," wrote Kenneth Corbin, commissioner of the IRS's Wage and Investment Division, in response to the report. "Deceased individuals, whose names and Social Security Numbers were improperly obtained by the fraudsters, represented a significant portion of the identity theft victims. In 2012, we implemented programming changes that effectively stopped the payment of refunds on fraudulent claims made using decedent accounts."
He noted that the majority of decedent accounts are identified through information obtained from the Social Security Administration, but if a death has not been reported to the SSA, the account will not show a date of death. Decedents can also be identified when their heirs or estates file a final tax return. Since errors can occur, IRS employees are empowered to remove the account lock when an individual has been authenticated as the legitimate taxpayer.
Each year, the IRS receives a file from the SSA containing a complete list of accounts for which a date of death is available in the records. The IRS updated its programming in January to compare that file with the information in its own systems and generate a report on accounts for which there's no date of death in the SSA records. That list will now be reviewed to identify any accounts that are likely to have been locked erroneously.
