Internal Revenue Service (IRS) processes are not sufficient to identify all employment identity theft victims, according to a report issued today by the Treasury Inspector General for Tax Administration (TIGTA).
Employment-related identity theft occurs when an identity thief uses another person’s identity to gain employment. Taxpayers may first realize they are victims when they receive an IRS notice of a discrepancy in the income they reported on their tax return. Each year, the IRS receives about 2.4 million tax returns filed using an Individual Taxpayer Identification Number (ITIN) with reported wages.
TIGTA initiated this review to evaluate the IRS’s processes to identify and assist victims of employment identity theft. This includes placing an identity theft marker on victims’ tax accounts and notifying the Social Security Administration to ensure that individuals’ Social Security benefits are not affected by misuse of their Social Security Numbers (SSN).
“Cases of employment identity theft can cause significant burden to innocent taxpayers, including the incorrect computation of taxes based on income that does not belong to them,” said J. Russell George, Treasury Inspector General for Tax Administration.
TIGTA found that the IRS did not identify 497,248 victims, even though identity thieves electronically filed tax returns with evidence that they used the victims’ SSNs to gain employment. These victims did not have an IRS tax account and many were claimed as a dependent on a filed tax return. Without a tax account, the IRS cannot add an employment identify theft marker. Notifying these individuals will require the IRS to develop additional procedures.
For another 60,823 victims, who have an IRS tax account, the IRS did not update the account with the required employment identity theft marker. One reason is attributable to an IRS programming deficiency.
In addition, the IRS has not established a process to identify employment identity theft while processing paper tax returns. Based on its review, TIGTA projects that the IRS did not identify 272,416 victims of employment identity theft for the 685,737 paper tax returns filed by ITIN holders reporting wages in Processing Year 2015. TIGTA also identified 16,597 individuals whose SSNs and full or partial names were used by an ITIN holder to obtain employment, but the IRS did not notify the Social Security Administration that the income earned under the victim’s SSN was not earned by the victim.
TIGTA made ten recommendations in the report; IRS management agreed with five of them.
Read the report
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