TIGTA: IRS encourages employees to ignore ITIN fraud

The Treasury Inspector General for Tax Administration (TIGTA) released a report on Wednesday in which it confirmed allegations from IRS employees that their supervisors were urging them to ignore potential fraud in a program that reviews and verifies applications for individual taxpayer identification numbers (ITINs) (TIGTA Rep’t No. 2012-42-081).
 
ITINs allow individuals who are not eligible to obtain Social Security numbers to obtain an identification number for tax purposes. TIGTA reports that in 2011, the IRS processed more than 2.9 million ITIN tax returns resulting in tax refunds of $6.8 billion.

TIGTA audited the ITIN program after members of Congress referred to them complaints from IRS employees regarding the management of the ITIN Program. The complaints alleged that IRS management was not concerned with addressing questionable applications and was interested only in the volume of applications that could be processed, regardless of whether they were potentially fraudulent.
 
TIGTA’s review substantiated many of the allegations set forth in the IRS employees’ complaints. In particular, TIGTA found that IRS management:

• Created an environment that discourages tax examiners from identifying questionable ITIN applications;
• Eliminated successful processes used to identify questionable ITIN application fraud patterns and schemes; and
• Established processes and procedures that are inadequate to verify each applicant’s identity and foreign status.

TIGTA made nine recommendations in its report. These included developing more detailed procedures and delivering adequate training on reviewing documentation supporting ITIN applications to identify questionable documents; expanding the quality review process to include adequate emphasis on whether employees are accurately identifying fraudulent documents; and revising the criteria for identifying questionable applications.
 
The IRS agreed with seven of the recommendations and has announced plans to implement interim changes based on TIGTA’s findings. One recommendation was that the IRS require only original documents or documents certified by the issuing agency to be provided in support of an ITIN application, and the IRS addressed that recommendation in June when it announced it will stop issuing ITINs unless the applicant furnishes original documents or certified copies from the issuing agency (see “IRS Suspends Issuing ITINs Without Original Documentation”).

IRS management is considering the other two recommendations while it conducts its own review. One of those recommendations is that the IRS discontinue the Certifying Acceptance Agent designation and require that all documentation in support of an ITIN application be sent to the IRS for review and verification. The other recommendation they are considering was redacted from the report.

—Alistair M. Nevius (anevius@aicpa.org) is the JofA’s editor-in-chief, tax.