Objectives, Scope, and Methodology

Our objectives were to (1) measure the growth of accounts on the invalid segment of the IMF, (2) assess IRS’ procedures to verify the identities of tax return filers whose returns were posted to the IMF invalid segment, and (3) identify any effects the procedures may have on IRS’ TSM goals and its income-matching program. It does not clearly convey that persons who file with missing or incorrect numbers, including filers who were issued temporary numbers, are required to provide documentation verifying their identities. For example, the current master file structure with its valid and invalid segments allows two or more taxpayers to have accounts under the same SSN, or one taxpayer to have several accounts under different numbers. IRS’ Income-Matching Program Hampered by Posting Returns to the IMF Invalid Segment

Each year, IRS matches the income claimed by taxpayers with the income reported by third parties on information returns. IRS took steps in 1995 that, when fully implemented, could help reduce the number of accounts on the IMF invalid segment. For example, IRS is doing more to verify the identities of taxpayers who file returns with missing or incorrect SSNs, and it plans to issue permanent identification numbers to taxpayers that could be used in IRS’ matching program. GAO Comments

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Why GAO Did This Study

GAO reviewed the Internal Revenue Service's (IRS) procedures for processing and posting tax returns with missing or incorrect social security numbers (SSN), focusing on: (1) the growth in IRS individual master file (IMF) accounts with missing or incorrect SSN; (2) IRS procedures for verifying the identities of tax return filers; and (3) the potential effect of these procedures on IRS plans to modernize the tax system and on the income-matching program.

What GAO Found

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.