Tax Administration

This report discusses Internal Revenue Service (IRS) procedures for processing and posting tax returns in which the primary filer does not provide a Social Security number or provides a name and Social Security number that do not match records at the Social Security Administration. In particular, GAO addresses (1) the growth in accounts with missing or incorrect Social Security numbers of IRS' Individual Master File, (2) IRS procedures for verifying the identities of tax return filers, and (3) the potential effects of the procedures on IRS' plans to modernize the tax system and on IRS' income-matching program.

GAO found that: (1) the average annual growth rate for invalid IMF accounts was significant from 1986 through 1994; (2) IRS has revised its procedures to require taxpayers with missing or incorrect SSN or temporary numbers to provide documentation that verifies their identity; (3) these revised procedures could help reduce the number of invalid IMF accounts when fully implemented; (4) the IRS Tax Modernization System is in jeopardy because the master file structure allows two or more taxpayers to have accounts under the same number, or one taxpayer to have several accounts under different numbers; (5) the IRS income-matching program is hampered by posting returns to IMF invalid accounts; and (6) IRS plans to assign permanent taxpayer identification numbers to filers that are ineligible to obtain SSN and encourage the use of these numbers on information returns.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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