Misuse of tax ID numbers costs at least $380M, IG says

IRS isn't doing enough to prevent child tax exemptions being claimed more than once per child

The Internal Revenue Service isn't doing enough to stop wrong claims of about $380 million yearly when families claim tax benefits for the same child twice or more times, according to a new report today from the Treasury Inspector General for Tax Administration.

The loss stems from wrong and duplicative use of Taxpayer Identification Numbers, the numbers issued by the IRS to people who don't have a Social Security number.

A majority of these cases involves two or more relatives filing separate tax forms that claim an exemption for the same dependent child, the report states. Under law, the dependent child exemption is allowed only once per child per year on a single tax form.

In 2007, people got at least $380 million in personal tax exemptions and tax credits as a result of the multiple use of the taxpayer numbers, the report states. Over five years, that could total $1.9 billion, the IG concluded.

Although the IRS has taken several steps to identify fraudulent and duplicative uses of the taxpayer ID numbers, actions to date haven't been enough, the report indicated.

“Although the IRS has improved its processes to identify multiple [identification number] uses and prevent issuance of erroneous tax benefits, there are still significant limitations," the report states. "As such, multiple Taxpayer Identification Number use that results in erroneous exemptions and credits is still a substantial problem."

The IG made four recommendations. IRS officials agreed with two of them and disputed the other two:

  • The IRS should revise criteria to notify individuals identified by a database for filing of multiple taxpayer ID numbers. IRS officials disagreed, saying further analysis is needed.
  • The service should identify alternative compliance processes for individuals who claim the Earned Income Tax Credit with a multiple-use taxpayer ID number. IRS agreed with the recommendation.
  • The IRS should identify tax filers involved in multiple use of taxpayer ID numbers. IRS officials disputed the recommendation, saying they already have such processes in place.
  • The service should establish a process to recover tax benefits erroneously paid to taxpayers who use a multiple-use taxpayer ID number, and to prevent such use. IRS officials agreed.

About the Author

Alice Lipowicz is a staff writer covering government 2.0, homeland security and other IT policies for Federal Computer Week.

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