ITIN Procedure Seriously Flawed; IRS has Known for 10 Years

Individuals who are working in the United States but are not eligible to obtain a Social Security Number may apply for an Individual Taxpayer Identification Number (ITIN) for IRS / tax purposes.  According to an audit report by the Treasury Inspector General for Tax Administration (TIGTA), a substantial number of “questionable” ITIN applications are not being detected, resulting in ITINs being assigned improperly.  This results in fraudulent tax returns and billions of dollars thrown away in fraudulent refunds.  The ripple effect often results in the IRS having less resources for helping people with innocent tax problems who are seeking some kind of modest tax relief.

Some IRS employees complained to Congress that their supervisors have not been concerned with questionable ITIN applications, only with the volume of applications processed.  Congress asked TIGTA to look into it, and now TIGTA’s report substantiates the employee complaints.  Here is what TIGTA found:

  1. IRS management has created an environment that discourages ITIN application reviewers from identifying questionable/fraudulent applications
  2. Current fraud detection procedures are inadequate
  3. There were processes in place that would have disclosed fraud patterns in ITIN applications, but IRS management eliminated them

It appears that some of the problems with the ITIN application process have gone unfixed for at least 10 years:

Some of the deficiencies we raise in our report have been brought to management’s attention long ago. Some were raised in a September 2002 report issued by an IRS-initiated Task Force. However, management has failed to take sufficient action to address those deficiencies.

Treasury Inspector General, Report #2012-42-081

In response to this report, Rep. Sam Johnson (R-Texas) has asked Doug Shulman to admit he has not been fulfilling his responsibilities and to resign from his position as IRS Commissioner.  The IRS has not responded to Rep. Johnson.