[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]
SOCIAL SECURITY NUMBER AND INDIVIDUAL
TAXPAYER IDENTIFICATION NUMBER MISMATCHES AND MISUSE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON OVERSIGHT
AND
SUBCOMMITTEE ON SOCIAL SECURITY
OF THE
COMMITTEE ON WAYS AND MEANS
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED EIGHTH CONGRESS
SECOND SESSION
__________
MARCH 10, 2004
__________
Serial No. 108-53
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
99-672 WASHINGTON : 2005
_________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government
Printing Office Internet: bookstore.gpo.gov Phone: toll free
(866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2250 Mail:
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COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois
E. CLAY SHAW, JR., Florida
NANCY L. JOHNSON, Connecticut
AMO HOUGHTON, New York
WALLY HERGER, California
JIM MCCRERY, Louisiana
DAVE CAMP, Michigan
JIM RAMSTAD, Minnesota
JIM NUSSLE, Iowa
SAM JOHNSON, Texas
JENNIFER DUNN, Washington
MAC COLLINS, Georgia
ROB PORTMAN, Ohio
PHIL ENGLISH, Pennsylvania
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY C. HULSHOF, Missouri
SCOTT MCINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia CHARLES B. RANGEL, New York
FORTNEY PETE STARK, California
ROBERT T. MATSUI, California
SANDER M. LEVIN, Michigan
BENJAMIN L. CARDIN, Maryland
JIM MCDERMOTT, Washington
GERALD D. KLECZKA, Wisconsin
JOHN LEWIS, Georgia
RICHARD E. NEAL, Massachusetts
MICHAEL R. MCNULTY, New York
WILLIAM J. JEFFERSON, Louisiana
JOHN S. TANNER, Tennessee
XAVIER BECERRA, California
LLOYD DOGGETT, Texas
EARL POMEROY, North Dakota
MAX SANDLIN, Texas
STEPHANIE TUBBS JONES, Ohio
Allison H. Giles, Chief of Staff
Janice Mays, Minority Chief
Counsel
_________________________________________________________________
SUBCOMMITTEE ON OVERSIGHT
AMO HOUGHTON, New York, Chairman
ROB PORTMAN, Ohio
JERRY WELLER, Illinois
SCOTT MCINNIS, Colorado
MARK FOLEY, Florida
SAM JOHNSON, Texas
PAUL RYAN, Wisconsin
ERIC CANTOR, Virginia EARL POMEROY, North Dakota
GERALD D. KLECZKA, Wisconsin
MICHAEL R. MCNULTY, New York
JOHN S. TANNER, Tennessee
MAX SANDLIN, Texas
_________________________________________________________________
SUBCOMMITTEE ON SOCIAL SECURITY
E. CLAY SHAW, JR., Florida,
Chairman
SAM JOHNSON, Texas
MAC COLLINS, Georgia
J.D. HAYWORTH, Arizona
KENNY C. HULSHOF, Missouri
RON LEWIS, Kentucky
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin ROBERT T. MATSUI, California
BENJAMIN L. CARDIN, Maryland
EARL POMEROY, North Dakota
XAVIER BECERRA, California
STEPHANIE TUBBS JONES, Ohio
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisory of March 3, 2004 announcing the hearing................. 2
WITNESSES
Internal Revenue Service, Hon. Mark W. Everson, Commissioner..... 9
Social Security Administration, Hon. James B. Lockhart III,
Deputy Commissioner............................................ 15
__________
Internal Revenue Service, Nina E. Olson, National Taxpayer
Advocate....................................................... 51
Social Security Administration, Patrick P. O'Carroll, Acting
Inspector General.............................................. 61
U.S. Department of the Treasury, Pamela J. Gardiner, Acting
Inspector General for Tax Administration....................... 49
U.S. General Accounting Office, Michael Brostek, Director, Tax
Issues......................................................... 37
__________
SUBMISSIONS FOR THE RECORD
American Association of Motor Vehicle Administrators, Arlington,
VA, Linda R. Lewis, statement.................................. 87
National Council of La Raza, Raul Yzaguirre, statement........... 88
National Immigration Law Center, Los Angeles, CA, Marielena
Hincapie and Linton Joaquin, statement......................... 91
Patriot Tax International, LLC, statement........................ 98
Strategic Services on Unemployment and Workers' Compensation,
Eric J. Oxfeld, statement...................................... 100
Willis, George L., Tustin, CA, letter............................ 101
SOCIAL SECURITY NUMBER AND INDIVIDUAL TAXPAYER IDENTIFICATION NUMBER
MISMATCHES AND MISUSE
----------
WEDNESDAY, MARCH 10, 2004
U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Oversight,
Subcommittee on Social Security
Washington, DC.
The Subcommittees met, pursuant to notice, at 10:07 a.m. in
room 1100 Longworth House Office Building, Hon. Amo Houghton
(Chairman of the Subcommittee on Oversight), and Hon. E. Clay
Shaw, Jr. (Chairman of the Subcommittee on Social Security)
presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON OVERSIGHT
CONTACT: 202-225-7601
FOR IMMEDIATE RELEASE
March 03, 2004
OV-11
Hughton and Shaw Joint Hearing on Social
Security Number and Individual Taxpayer
Identification Number Mismatches and Misuse
Congressman Amo Houghton (R-NY), Chairman of the Subcommittee on
Oversight, and Congressman E. Clay Shaw, Jr. (R-FL), Chairman of the
Subcommittee on Social Security, Committee on Ways and Means, today
announced that the Subcommittees will hold a joint hearing on Social
Security number and Individual Taxpayer Identification Number
mismatches and misuse. The hearing will take place on Wednesday, March
10, 2004, in the main Committee hearing room, 1100 Longworth House
Office Building, beginning at 10:00 a.m.
In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include representatives of the Social Security
Administration (SSA), the Internal Revenue Service (IRS), and the U.S.
General Accounting Office (GAO).
BACKGROUND:
There are two types of taxpayer identification numbers individuals
use for Federal tax purposes: Social Security numbers (SSNs) assigned
by the SSA, and Individual Taxpayer Identification Numbers (ITINs)
issued by the IRS. SSNs were created in 1936 to keep track of the
earnings of people who worked in jobs subject to Social Security taxes,
in order to assure proper payment of taxes and crediting of wages
toward Social Security benefits. The ITIN was created in 1996 to
improve compliance with tax laws and is assigned to certain resident
and nonresident aliens, their spouses, and their dependents who do not
qualify for a SSN but must have a taxpayer identification number for
tax purposes.
Neither number was created to serve as a form of identification.
However, use of the SSN by both government agencies and the private
sector has exploded over the decades as automation of record keeping
and other business processes encouraged use of this unique number that
virtually every American possesses. As a result, many have called it a
de facto national identifier. Likewise, use of ITINs as an identifier
for those who cannot legally obtain a SSN has rapidly increased during
its short period of existence. To date, the IRS has issued more than
7.3 million ITINs.
SSA, the IRS, and U.S. Department of Homeland Security (DHS) all
have responsibilities regarding these numbers, and each agency's
policies are designed to promote its individual goals. This raises
questions regarding whether better coordination across agency
boundaries is needed to promote enforcement of laws and regulations.
One example of an area where better coordination of agency policies
is needed is the growing Earnings Suspense File (ESF) maintained by the
SSA. The ESF houses records of W-2s where the name and SSN do not match
the SSAs records. Cumulative earnings in the ESF covering 1937-2001
total over $420 billion (equaling less than 1 percent of all earnings),
representing 244 million wage reports from employers that could not be
matched to the correct worker. The SSA has taken steps to reduce the
number of mismatched wages, including voluntary SSN verification
services for employers, computer routines to identify typographical
errors, letters to employees and employers regarding mismatches, and
employer education.
However, the SSA cannot enforce accurate reporting of wages. It
must rely on the IRS to penalize employers who submit mismatched wages
and the DHS to enforce immigration laws. The IRS to date has not
enforced its penalty authority for name and SSN mismatches on W-2s, but
intends to begin advising employers of mismatch conditions and their
responsibilities under the law starting in the fall of 2004 for tax
year 2002. In addition, the IRS only requires employers to send
solicitations to the employee asking for the correct SSN information.
There is no mandate for the employer to take other action if the
employee fails to cooperate. Finally, DHS instructions tell employers
to accept documentation of work authorization if it reasonably appears
genuine, and that employers cannot specify which documentation a worker
must provide from a list of acceptable documents. The DHS does not
provide specific written instructions on how employers should respond
to a SSA ``no-match'' letter.
In addition, lack of coordination among agencies potentially aids
use of SSNs and ITINs to commit identity fraud and terrorism. In
responding to issues raised in the National Taxpayer Advocates 2003
Annual Report to Congress, the IRS commented that ``[t]he Service
believes that most ITIN holders whose wages are reflected on valid
Forms W-2 furnished to the service are using stolen or fabricated
SSNs.'' The IRS also stated that ``[t]he Service is also fully
sensitive to the possible dangers that can arise from the misuse of
ITINs for the purpose of creating an identity, including the possible
threat to national security.''
A November 2002 IRS memorandum from the Commissioner of Internal
Revenue stated that banks and other financial institutions are
accepting ITINs as proof of identity, and illegal aliens are
increasingly using ITINs to open bank accounts, which aids their
ability to live in the United States without complying with immigration
laws or quotas. Also, the ability of third parties to secure ITINs and
use them for drivers licenses (which provides them with access to air
travel and other transportation systems) and to access financial
systems raises national security concerns.
To address these concerns, the IRS sent letters to State
departments of motor vehicles and governors warning them of the risks
of using ITINs for identity verification purposes. The IRS indicated
that it does not validate the authenticity of documents submitted to
obtain an ITIN, require applicants to appear in person, or verify
applicants' legal presence in the United States. In order to strengthen
its controls over ITIN issuance, the IRS recently changed its rules to
require more stringent documentation and verification in ITIN
applications, as well as proof the ITIN is needed for tax purposes.
Generally, policy coordination and data-sharing across these
agencies involves tradeoffs between tax compliance and immigration
enforcement. For example, Internal Revenue Code disclosure provisions
do not permit the IRS to share returns and return information with
other agencies like the DHS to identify or locate illegal aliens or
routinely share information with the SSA about likely cases of SSN
misuse by unauthorized immigrants and others.
In announcing the hearing, Chairman Houghton stated, ``We're
holding this hearing to look into what should be the right balance
between cooperating with the IRS and maintaining the highest standards
of taxpayer privacy. The IRS made great improvements in the ITIN
process by making it more secure and reaching out to remind the public
that ITINs are to be used only for tax purposes.''
Chairman Shaw said, ``The Federal Government created SSNs and ITINs
for work and tax purposes and has a responsibility to prevent their
misuse. Effective coordination across Federal agencies is critical to
protecting law-abiding individuals and our nation from identity
thieves, or even terrorists.''
FOCUS OF THE HEARING:
The hearing will focus on the respective responsibilities of the
SSA, IRS, and DHS in ensuring accurate earnings reporting and tax
payments, as well as the degree to which policies and procedures are
coordinated among agencies to prevent misuse of SSNs and ITINs.
DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:
Please Note: Due to the change in House mail policy, any person or
organization wishing to submit a written statement for the printed
record of the hearing should send it electronically to hearing
[email protected], along with a fax copy to (202) 225-
2610, by the close of business,Wednesday, March 24, 2004. Those filing
written statements who wish to have their statements distributed to the
press and interested public at the hearing should deliver their 200
copies to the Subcommittee on Oversight in room 1136 Longworth House
Office Building, in an open and searchable package 48 hours before the
hearing. The U.S. Capitol Police will refuse sealed-packaged deliveries
to all House Office Buildings. Please note that in the immediate
future, the Committee website will allow for electronic submissions to
be included in the printed record. Before submitting your comments,
check to see if this function is available.
FORMATTING REQUIREMENTS:
1. All statements and any accompanying exhibits for printing must
be submitted electronically to
[email protected], along with a fax copy to
(202) 225-2610, in WordPerfect or MS Word format and MUST NOT exceed a
total of 10 pages including attachments. Witnesses are advised that the
Committee will rely on electronic submissions for printing the official
hearing record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. All statements must include a list of all clients, persons, or
organizations on whose behalf the witness appears. A supplemental sheet
must accompany each statement listing the name, company, address,
telephone and fax numbers of each witness.
Note: All Committee advisories and news releases are available on
the World Wide Web at http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
Chairman HOUGHTON. Good morning, everybody. It is great to
have you here, and great to have our witnesses. I would like to
begin our session and welcome my colleagues from the
Subcommittee on Social Security to this joint hearing with the
Subcommittee on Oversight. Today, we are going to explore the
use of two kinds of numbers, Individual Taxpayer Identification
Numbers (ITINs) and Social Security Numbers (SSNs). First, we
will hear from the agencies, the Internal Revenue Service (IRS)
and the Social Security Administration (SSA), to learn how
these numbers are issued and used. We are holding this hearing
to look into what should be the right balance between
cooperating with the IRS and maintaining the highest standards
of taxpayer privacy. The IRS made great improvements in the
ITIN process by making it more secure and reaching out to
remind the public that ITINs are to be used only for tax
purposes.
I would also like to note that we invited the U.S.
Department of Homeland Security (DHS) to testify as part of
this panel. Unfortunately, they are unable to join us. However,
DHS has agreed to provide full answers to any questions that
you may have for the record.
Our second panel, which includes the U.S. General
Accounting Office (GAO), the Inspector General (IG) for the IRS
and the SSA, and the National Taxpayer Advocate (NTA), will
present us with their concerns about problems associated with
these numbers, and what might be done to improve these
programs. While these ITINs and SSNs may assist our government
in doing its job, and taxpayers in being tax compliant, as
Chairman of the Subcommittee on Oversight, my interest also is
in making sure that the programs are secure and that our
government agencies are coordinated. Now, I would like to yield
to a good friend of mine, the Subcommittee on Oversight's
Ranking Member, Mr. Pomeroy from North Dakota, and good
morning.
[The opening statement of Chairman Houghton follows:]
Opening Statement of The Honorable Amo Houghton, Chairman, Subcommittee
on Oversight, and a Representative in Congress from the State of New
York
Good morning. I want to welcome my colleagues from the Subcommittee
on Social Security to this joint hearing with the Subcommittee on
Oversight.
Today, we will explore the use of two kinds of numbers: Individual
Taxpayer Identification Numbers--also known as ITINs--and Social
Security Numbers (SSNs).
First, we will hear from the agencies--the Internal Revenue Service
(IRS) and the Social Security Administration (SSA)--to learn how these
numbers are issued and used. We are holding this hearing to look into
what should be the right balance between cooperating with the IRS and
maintaining the highest standards of taxpayer privacy. The IRS made
great improvements in the ITIN process by making it more secure and
reaching out to remind the public that ITINs are to be used only for
tax purposes.
I also would like to note that we invited the Department of
Homeland Security (DHS) to testify as part of this panel.
Unfortunately, they are unable to join us. However, DHS has agreed to
provide full answers to any questions that we may have for the record.
Our second panel, which includes the General Accounting Office, the
Inspectors General for IRS and the SSA, and the National Taxpayer
Advocate, will present us with their concerns about problems associated
with these numbers, and what might be done to improve these programs.
While these ITINs and Social Security Numbers may assist our
government in doing its job and taxpayers in being tax compliant, as
Chairman of the Oversight Subcommittee, my interest also is making sure
that the programs are secure and that our government agencies are
coordinated.
I would now like to yield to a good friend of mine, the Oversight
Subcommittee's ranking member, Mr. Pomeroy from North Dakota.
Mr. POMEROY. Thank you very much, Mr. Chairman. Thank you
for calling this hearing. We have made some real strides with
the implementation of the ITIN and the SSN, and that brings us
to a new conundrum that we need to wrestle with, balancing the
purpose for which this national identification number is to be
used. Strictly for the taxpayer purposes, as it was designed,
or should it be more broadly used for other purposes,
legitimate purposes, of the Federal Government?
I take the position that it is very, very important that we
maintain the highest standards of taxpayer privacy. I commend
the IRS for being vigilant about making certain its system is
responsive to the very deep concerns of the taxpayers of this
country, and that their taxpaying information submitted to the
Federal Government is strictly private, strictly for the
revenue purposes, and not more broadly used as some kind of
national identification number, national surveillance purposes,
or anything of the sort. There is a bit of debate in this new
period we are in relative to the threats on our National
security in terms of whether we should continue to treat these
numbers in this strictly private and confidential fashion. We
will have some discussion of that this morning. It is a very
important issue, and I really regret that I have a preexisting
conflict that will perhaps keep me from participating in the
discussions on the second panel that will bring this more to
the fore.
I think that those that would urge a more broad application
of these taxpayer private numbers, in my book, have a very
large burden of proof to carry in terms of whether there is
some compelling national interest that would justify a more
broad application of these numbers, because obviously the
privacy interest of the taxpayer is clearly understood by us.
That is a preeminent interest and needs to be protected. I
thank the Chairman for calling this hearing.
[The opening statement of Mr. Pomeroy follows:]
Opening Statement of The Honorable Earl Pomeroy, a Representative in
Congress from the State of North Dakota
The Oversight Subcommittee, jointly with the Social Security
Subcommittee, is holding a hearing today to review various issues
involving the use and misuse of Social Security numbers (SSNs) and
Individual Taxpayer Identification numbers (ITINs).
The scope of our hearing is quite broad. It is my hope that the
testimony we receive today--from the Internal Revenue Service (IRS),
the Social Security Administration (SSA), the IRS Taxpayer Advocate,
the U.S. Department of Treasury, Social Security Inspector General, and
the U.S. General Accounting Office--will help us better understand the
challenges the IRS and the SSA face in administering our tax and Social
Security benefit systems and their respective use of unique identifying
numbers.
Late in 2003, the IRS instituted new procedures governing the
issuance of ITINs. Under the new rules, applicants may apply for a new
ITIN only concurrent with filing a return, rather than applying
independently of filing.
I look forward to our discussion of IRSs new ITIN regulations. I
hope we will discuss: (1) Any problems the IRS has identified in the
use of ITINs; (2) The IRS's intent and goals that led to the changes in
the application process; (3) The IRS's projected impact for the new
rules on tax compliance; and (4) The IRSs outlook of how these changes
will reduce the inappropriate use of ITINs as a personal identifier for
non-tax purposes.
I want to thank Chairmen Houghton and Shaw for scheduling this
joint hearing. As we proceed, I am confident that we will continue to
work together to protect the confidentiality of taxpayer information
which serves as the basis for our voluntary tax system.
Chairman HOUGHTON. Thanks very much, Mr. Pomeroy. Now, I
would like to introduce the Chairman, Subcommittee on Social
Security, Mr. Clay Shaw.
Chairman SHAW. Thank you, Mr. Chairman. This morning, all
of the Ways and Means Subcommittee Members on Social Security
and the Subcommittee on Oversight join together in exploring
the purpose and vulnerabilities involved with the issuance and
use of SSNs and ITINs. The Federal Government created and
required the use of SSNs and Taxpayer Identification numbers to
track earnings and improve tax compliance. However, their use
has grown far beyond their intended purposes. The SSN has
become our personal identifier, the key that unlocks the door
to our personal and financial information. Criminals who get
hold of this key can take advantage of weaknesses in our law,
and proceed to carry out whatever bad acts their unscrupulous
minds can conceive.
Since its creation in 1996, the ITINs are increasingly
filling the gap as personal identifiers for individuals who do
not qualify for SSNs. Though never intended as a personal
identifier, its use beyond tax administration has proliferated
during its short existence. In response to rapidly growing use
and reliance on these numbers, the SSA and the IRS have both
taken steps to strengthen the documentation requirements for
issuing these numbers. In addition, the IRS has taken steps to
warn about dangers of using the ITINs as proof of
identification, including sending letters to State departments
of motor vehicles warning against such practices. The SSA, the
IRS, and the DHS all have responsibility with respect to the
use of these numbers. With such overlapping responsibilities,
effective coordination across Federal agencies is critical to
protecting law-abiding individuals and our Nation by preventing
the SSN and Tax Identification number's misuse committed by
identity thieves, or even terrorists.
To prevent misuse of SSNs and the ITINs, we must achieve an
appropriate balance between voluntary cooperation and our tax
laws, which rely upon the confidence that personal information
will remain private, and immigration and other law enforcement.
Our witnesses today will help explore how best to achieve such
balance. I look forward to hearing their testimony and thank
them in advance for sharing with us their experience and their
recommendations. Mr. Chairman, I now yield to the acting
Ranking Member on the Democrat side, Mr. Becerra.
[The opening statement of Chairman Shaw follows:]
Opening Statement of The Honorable E. Clay Shaw, Jr., Chairman,
Subcommittee on Social Security, and a Representative in Congress from
the State of Florida
This morning, the Ways and Means Subcommittees on Social Security
and Oversight join together in exploring the purpose and
vulnerabilities involved with issuance and use of Social Security
numbers (SSNs) and Individual Tax Identification numbers (ITINs).
The Federal Government created and required the use of SSNs and
ITINs to track earnings and improve tax compliance. However, their use
has grown far beyond their intended purposes.
The Social Security number has become our personal identifier, the
key that unlocks the door to our personal and financial information.
Criminals who get hold of this key can take advantage of weaknesses in
our laws and procedures to carry out whatever bad acts their
unscrupulous minds can conceive.
Since its creation in 1996, ITINs are increasingly filling the gap
as a personal identifier for individuals who do not qualify for a SSN.
Though never intended as a personal identifier, its use beyond tax
administration has proliferated during its short existence.
In response to rapidly growing use and reliance on these numbers,
the Social Security Administration and the Internal Revenue Service
have both taken steps to strengthen the documentation requirements for
issuing these numbers. In addition, the IRS has taken steps to warn
about the dangers of using ITINs as proof of identity, including
sending letters to State Departments of Motor Vehicles warning against
such practices.
The Social Security Administration, the Internal Revenue Service,
and the Department of Homeland Security all have responsibilities with
respect to use of these numbers.
With such overlapping responsibilities, effective coordination
across Federal agencies is critical to protecting law-abiding
individuals and our nation by preventing SSN and ITIN misuse committed
by identity thieves, or even terrorists.
To prevent misuse of SSNs and ITINs we must achieve an appropriate
balance between voluntary cooperation with our tax laws--which relies
upon confidence that personal information will remain private--and
immigration and other law enforcement.
Our witnesses today will help us explore how best to achieve such
balance. I look forward to hearing their testimony, and thank them in
advance for sharing with us their experiences and their
recommendations.
Mr. BECERRA. Thank you, Chairman Shaw and Chairman
Houghton, for this hearing. We are pleased that we have an
opportunity to speak to and focus upon the U.S. Department of
the Treasury and the IRS to help us with this particular
problem. I want to thank in advance all those who will be
testifying on behalf of Ranking Member Matsui, and all those
Members on the Democratic side of the Subcommittee, as well.
The SSNs and the ITIN have become crucial numbers to
Americans throughout this country for any number of reasons.
Principally, we are here to try to do what we can to make sure
that we are protecting the privacy rights of all Americans, and
assuring that the balance that must exist between the various
agencies that utilize these numbers is there. We have to make
sure that we permit our agencies to fulfill their obligations
under the law to make use of the information provided through
the SSA and the U.S. Department of Treasury so that we can all
make sure that the laws are abided by all Americans. I know
that there is a delicate balance that must be considered here,
and we are hoping to hear testimony that will shed some light
on how best to continue to move forward, not only in terms of
tax collection but certainly, of course, in making sure that
the SSA can administer the laws to provide the benefits to
those who have paid into the SSA. So, we are very pleased to
have all the witnesses present and, Mr. Chairman, we look
forward to the testimony.
[The opening statement of Mr. Becerra follows:]
Opening Statement of The Honorable Xavier Becerra, a Representative in
Congress from the State of California
Chairman Houghton, Chairman Shaw, thank you for calling this
hearing to review issues surrounding the use and misuse of taxpayer
numbers, including the Social Security Number--the ``SSN''--and the
Individual Taxpayer Identification Number--the ``ITIN''.
The ITIN is a useful and necessary tool in tax processing. Some
concerns have been raised about Internal Revenue Service (IRS)
procedures for issuing these numbers, and I understand that IRS has
recently tightened up that process. I look forward to learning more
about those changes and what more may need to be done.
The hearing will also look at how employers use the SSN to report
the wages of their employees to SSA. It is vitally important that this
information be correct, since it is used by SSA to determine whether a
worker is eligible for benefits, and to calculate the proper amount.
The ITIN and the SSN are the key to efficient tax processing and
Social Security benefit administration. At the same time, having a
unique 9-digit personal identifier has become so important to our way
of life that these numbers are also used in the crime of identity
theft. We need to make sure that Congress and the Administration are
doing all they can to reduce the potential for these numbers to be used
to commit identity fraud.
Finally, as we are all aware, a variety of agencies--IRS, the
Social Security Administration, and potentially the Department of
Homeland Security--have an interest in taxpayer identification numbers
such as the SSN and the ITIN. Each agency, however, has a separate
mission to pursue and different laws to enforce. And sometimes these
missions can appear to be in conflict.
The question before us today is how to assure the most appropriate
balance--that is, how to accomplish the priorities of each agency
without unduly harming the ability of the others to fulfill their own
missions. This requires thoughtful consideration of sometimes-competing
priorities in order to assure the most appropriate balance.
Thank you again for calling this hearing. I look forward to the
testimony of our distinguished witnesses.
Chairman HOUGHTON. Thanks very much. Does any other Member
wish to make an opening statement? I think we will go right
into our opening statements of the first panel, the Honorable
Mark Everson, the Commissioner of the IRS, and James Lockhart,
Deputy Commissioner of the SSA. We probably have about 7
minutes now, if you want to rush through your statements, that
would be great. If not, we will take them as they come. We are
going to have to go for a vote here in about 7 or 8 minutes.
Thank you very much. Mr. Everson, it is great to have you here.
STATEMENT OF THE HONORABLE MARK W. EVERSON, COMMISSIONER,
INTERNAL REVENUE SERVICE
Mr. EVERSON. Thank you, Chairman Houghton, Chairman Shaw,
Ranking Member Becerra, Members of the Subcommittees. I am
pleased to be here to testify on the IRS's use of ITINs, and
ITIN-Social Security mismatches. I have established a working
equation at the IRS for my tenure: Service plus enforcement
equals compliance. This means that the IRS must continue to
build on the service improvements to taxpayers it has achieved
since the RRA 1998. Just as importantly, the IRS must
demonstrate an enforcement presence that assures the honest
taxpayer that he or she is not being foolish by paying what he
or she owes while others do not. The IRS must carry out its
enforcement mission fairly and based on an underlying
foundation of respect for taxpayer rights. The IRS utilizes
ITINs to help it track the tax identity, tax history, and the
compliance of individuals who do not have SSNs. The ITINs are
useful to the Service because each number is unique and
permanent, allowing the Service to track the ITIN holder's tax
record, and administer the tax laws with respect to the holder.
The ITINs were never intended by the IRS to be used outside
our tax system. They were created solely for purposes of
administering our Federal tax laws. Unfortunately, ITINs can be
and are used for non-tax purposes. The most visible of these
uses is their acceptance in some States as proof of identity
for a driver's license. While we estimate that a relatively
small proportion of ITINs have been issued and never used for
tax administration purposes, it is about one-quarter, the IRS
made changes to its administration of ITINs this past December
in order to tighten up the process and improve tax
administration. Foremost among these is a requirement put in
place for the current filing season that all ITIN applicants
demonstrate a tax need for their ITIN. In the case of
immigrants working in the United States, this means filing a
tax return with their ITIN application.
There is no question that the implications of ITIN
mismatches and ITIN misuse with respect to tax administration,
the SSA, immigration, and national security each merit the
Congress's scrutiny and consideration. I am personally quite
aware of the issues associated with immigration, both legal and
illegal, having served as the Deputy Commissioner of the then
Immigration and Naturalization Service close to two decades
ago. I might add that my three children are all immigrants, and
with me today is our daughter Amrong, and her daughter, my
granddaughter, Erica. Nevertheless, despite the multiplicity of
these issues and their obvious importance, my responsibility as
Commissioner of the IRS is to administer our tax laws and run
our system of tax administration. My comments are thus directed
to the implications of ITINs, and their misuse on our system of
tax administration.
First, there are undoubtedly points of conflict and points
of tension between our tax laws and our immigration laws. What
may be beneficial from the perspective of immigration law or
policy, may not be beneficial from the perspective of tax law
and tax administration. Second, our tax laws make no
distinction, either in the tax payment and reporting
obligations of taxpayers or the tax collection and tax
administration obligations of the IRS, between immigrants who
are legally employed in this country, and those who are not.
The Service must necessarily continue to fulfill its
obligations to administer the tax laws to taxpayers who are not
legally employed in our country, but who owe taxes because
they, in fact, earned income here. Third, the Service must, and
will continue to solicit the participation of such taxpayers in
our system, as it does with other taxpayer groups. The IRS
desires to facilitate these individuals' entry and continuing
participation in our tax system, and to lessening impediments
to their participation. Fourth, the Service continues to be
bound and guided in its sharing of taxpayer information by the
provisions of Internal Revenue Code section 6103. The
provisions of section 6103 protect the confidentiality of
taxpayer information, and broadly restrict the sharing of
taxpayer information by the IRS with employers or with other
government agencies, except under narrow circumstances. I would
urge Congress to carefully balance the competing public
interest at stake before deciding to make any changes to this
provision of the tax law. Again, I appreciate the opportunity
to testify before you on these important questions, and I look
forward to taking your questions.
Chairman HOUGHTON. Thank very much, Mr. Commissioner.
[The prepared statement of Mr. Everson follows:]
Statement of The Honorable Mark W. Everson, Commissioner, Internal
Revenue Service
Introduction
Chairman Houghton, Chairman Shaw, Ranking Member Pomeroy, Ranking
Member Matsui, and honorable Members of the respective subcommittees,
thank you for the opportunity to appear before you today concerning the
Internal Revenue Service's use of Individual Taxpayer Identification
Numbers and Social Security Number mismatches.
Individual Taxpayer Identification Numbers
First, I want to discuss the challenges the IRS has faced in trying
to foster voluntary compliance among non-resident and resident aliens
with a United States income tax obligation. The ITIN program has been
successful in bringing millions of these taxpayers, ineligible for
Social Security Numbers, into the tax system. However, we are concerned
that the ITIN has become an acceptable form of identification similar
to the Social Security Number.
Let me begin by providing some background information on ITINs. An
ITIN is a unique identifying number assigned by the Internal Revenue
Service to an individual who is required to pay tax to the United
States, or who has a reporting requirement to the IRS, but who is
ineligible to receive a Social Security Number (SSN) issued by the
Social Security Administration (SSA). The Service issues ITINs solely
for purposes of tax administration; the appearance of the ITIN is
similar to that of an SSN, but all ITINs begin with the number ``9''
and show a fourth digit as either a ``7'' or an ``8'', e.g., 9xx-7x-
xxxx. Since the inception of the ITIN program, the Service has issued
more than 7,300,000 ITINs.
The Internal Revenue Service began issuing ITINs in July 1996. By
law, all taxpayers must have an identifying number (a Taxpayer
Identifying Number) for themselves, spouses, and dependents required to
be listed on any return, statement, or other document that they must
file under the Internal Revenue Code. Any taxpayer eligible for an SSN
must provide an SSN as this identifying number, however not all
taxpayers who have a U.S. tax or reporting obligation qualify for an
SSN.
The Code also requires that any person with U.S.-source income
equal to, or in excess of, the exemption amount pay tax on that income
to the Federal Government. Some individuals falling into this category
are ineligible for an SSN, such as foreign investors and persons
working in the United States without authorization. Furthermore, while
the Code differentiates between resident and non-resident aliens, it
offers no distinction based upon whether a resident alien is
``legally'' present in the United States. Thus, some individuals who
must pay tax to the United States require an alternate to the SSN for
use as an identifying number on returns, statements, and other
documents related to that obligation.
The use of the ITIN provides benefits to tax administration
accruing both to taxpayers and to the Service. Prior to the ITIN
program, returns filed by taxpayers without SSNs were assigned a
temporary identification number called an IRSN. Each IRSN generally was
valid only for the tax year in which it was assigned. The random
assignment and short life of the IRSN complicated attempts to track
taxpayers and documents related to them from one tax year to the next.
Use of the ITIN remedies both of these difficult aspects of IRSNs. The
Service assigns ITINs from a single center and a single database, thus
each is a unique identifier in the tax system. Moreover, the ITIN
remains a valid number for tax administration beyond the year the
Service assigns it. This allows taxpayers to use and reuse their ITIN
when filing any return, statement, or other document with the Service.
The ITIN program has benefited tax administration but has not been
without its drawbacks. Most significantly, the ITIN is a number issued
by the IRS for tax administration purposes only, and all forms and
guidance disseminated by the Service clearly state this. In August
2003, the IRS sent a letter to all states and the District of Columbia
stating that ITINs are not valid identification outside the tax system.
Despite our efforts to limit the use of the number to its tax
administration purpose, a number of states currently accept it as an
identifying number outside the tax system, and other states are
considering proposals to do so as well. While the Service does not have
the authority to prevent other agencies from using ITINs for non-tax
purposes, we will continue to inform other agencies of the
unsuitability of using ITINs outside of the tax system.
Record Program Enhancements
In order to address these and other concerns, the Service on
December 17, 2003, instituted changes to the ITIN application procedure
and to the issuance of the numbers themselves. The actions we have
taken reflect the results of an extended period of study during which
we critically examined the ITIN program. However, we continue to
monitor the program and have not precluded further alterations.
The ITIN application procedure has been improved to ensure that the
ITIN assigned is used for its proper tax administration purpose. In
most cases, an applicant is now required to file the ITIN application,
Form W-7, attached to a completed tax return for which he or she needs
the ITIN. Associating the issuance of the ITIN with the filing of a tax
return ensures that the number is properly used for tax administration;
an ITIN will no longer be issued solely based upon the statement that
an applicant requires an ITIN in order to file a return, without proof
that the individual in fact needs the number to do so.
Another enhancement to the application process concerns the
documentation the Service will accept from an applicant in order to
establish identity and foreign status. We have decreased the number of
acceptable types of documents, which will allow the IRS to provide
better, more consistent, and faster service to ITIN applicants. Because
the number is intended for tax purposes only, we accept these documents
at face value without validating their authenticity with issuing
agencies or conducting applicant background investigations.
In response to concerns about confusion between ITIN cards and
Social Security cards, we have put a further change into place. We no
longer issue the ITIN on a card, as the Social Security Administration
does when it assigns an SSN. Instead, we send letters to taxpayers that
provide them their number. This will minimize or eliminate confusion
between ITINs and SSNs that might arise based on similar appearances.
The application procedures will not change for certain individuals
who are not required to attach a tax return to their ITIN applications.
Such individuals include those who claim benefits under a tax treaty
and those who have established an account with a financial institution.
These individuals may file an application at any time throughout the
year, provided that the necessary documentation supporting the tax need
is supplied.
We believe that these steps will not pose an undue burden on those
who legitimately require an ITIN in order to comply with their tax
obligations, while at the same time strengthening controls over
issuance to help ensure that the ITIN is used for its intended tax
administration purpose. Although we announced the enhancements to the
ITIN application procedures in December 2003, taxpayers required to
file a 2003 return with an application could not apply until after the
beginning of the filing season.
Considerations
As noted above, the Service implemented changes to the ITIN program
on December 17, 2003, following extensive evaluation and analysis of
our experience with the use of ITINs as identifying numbers. The
conclusions we have made, as embodied in the program enhancements
described above, represent the actions we are able to take in light of
the Service's charge to administer and enforce the revenue laws of the
United States. The Service has no legal authority with respect to the
enforcement of immigration and social security administration laws.
Many considerations informed our determination to pursue these
changes.
Upon review of the number of ITINs that appear on tax returns, as
either a primary or secondary number, or for identification of a
dependent, we have concluded that a substantial majority of ITIN
holders is compliant with Federal tax laws. This is reflected both in
the number of ITINs used in tax filings and in the repetition and
frequency of tax filings by ITIN holders.
Notwithstanding that many ITIN holders may not be authorized to
work in the United States, we are broadly restricted under Section 6103
of the Code from sharing taxpayer information with third parties,
including other government agencies, except in very limited
circumstances. This taxpayer information includes the possibility that
the applicant is not working legally in the United States or is using
an SSN that does not belong to him or her. As noted above, though, we
have no legal authority with respect to the enforcement of immigration
and social security administration laws.
We must also weigh the potential benefits of any changes to the
ITIN program against the cost of those changes to the tax system,
including both direct economic costs and the indirect costs that arise
from discouraging participation in the tax system. As an example, the
Service believes at this time that any sharing of confidential taxpayer
information, directly or indirectly, with immigration authorities would
have a chilling effect on efforts to bring ITIN holders, and potential
ITIN holders, into the U.S. tax system. Such an initiative would
deprive the Federal Government of tax revenue by discouraging illegal
workers in the U.S. from participating in the tax system, when the Code
requires them to pay tax on their U.S. earnings.
Finally, we believe that a number of the ITINs that have been
issued have subsequently not been used for tax reporting and payment.
It is widely believed that some ITINs are procured for the purpose of
creating an identity other than for tax purposes, such as for the
procurement of a driver's license. We are fully sensitive to the
possible dangers that can arise from the misuse of ITINs for the
purpose of creating an identity, including the possible threat to
national security. Regardless of undesirable behaviors actually or
potentially associated with ITINs, the Service remains legally
responsible for enforcement of the nation's Federal tax laws with
respect to ITIN holders, including the responsibility to assess and
impose tax on ITIN holders irrespective of the circumstances of their
employment or the possibility that ITIN applicants may be solely or
collaterally seeking the procurement of an ITIN to establish an
identity for non-tax purposes.
Conclusion on ITNs
The inherent challenges posed by tax laws, immigration statutes,
and the social security law, and their interaction and application to
ITIN holders illegally employed in the United States, require a studied
approach. We believe that, after such a studied approach, we have acted
consistent with our role as the nation's tax administrator. As noted
above, though, we understand that we will need to continue to evaluate
on an ongoing basis our response to the challenges posed by ITINs.
SOCIAL SECURITY NUMBER MATCHING
Let me now turn to Social Security number matching. The IRS agrees
with the importance of accurate W-2 form and Social Security number
reporting. We are committed to improving the accuracy of SSN reporting
and have worked with the Social Security Administration to explore
options and initiatives that might improve accuracy.
I would like to discuss the matching of Social Security numbers
submitted to employers by employees. As you know, a portion of the
numbers does not match Social Security Administration records. In the
case of a mismatch, the SSA cannot give the worker credit for his or
her earnings. In addition, employers can be assessed penalties by the
IRS for not providing accurate numbers.
Obligation of Employers Administering Social Security Numbers--Due
Diligence is Required
Let me briefly explain the responsibilities of an employer in
verifying an employee's Social Security number. Employers are required
to exercise ``due diligence'' in collecting the numbers. The employer
has an obligation to obtain information from an employee on Form W-4,
Employee's Withholding Allowance Certificate. The employer may rely in
good faith on the number provided and use it in filling out the
employer's Form W-2, Wage and Tax Statement.
In addition to securing a signed form W-4 from a new employee,
employers can, but are not required to, ask for proof of the SSN,
remind employees to report name changes due to marriage or divorce to
the SSA and payroll department, and validate the SSN using the SSA
Employee Verification Service prior to issuing Forms W-2. (Although
employers may ask the employee to show his/her SSN card, employees are
not required to show the card if it is not available.)
Each year, after an employer submits the Form W-3, Transmittal of
Wage and Tax Statements, and the Forms W-2 to SSA, SSA will validate
the SSNs. If there are mismatches (which could be marital name changes
or typographical errors), and certain thresholds are met, SSA notifies
the employer and requests the employer to correct the SSN and amend
their Form W-3 and Forms W-2, as appropriate.
If the IRS subsequently notifies the employer of a mismatch and
proposes a penalty for inaccuracies, any employer who has retained the
Form W-4 in its records will be able to document an initial
solicitation of an SSN and thus that they acted in a responsible
manner. For purposes of establishing reasonable cause in connection
with the Form W-2 penalty provisions in the tax code and applicable
regulations, it is the solicitation of the employee's Social Security
number that is important, not the response. An employer who establishes
that it made the proper solicitations will meet the reasonable cause
requirements regardless of whether the employee returned a corrected
Form W-4.
If the IRS notifies an employer that an SSN is incorrect and if the
employer's records contain the incorrect SSN, the employer is required
under the regulations to make an annual solicitation for the correct
SSN. The solicitation for the correct SSN must be made by December 31
of the year in which the penalty notice was received, and may be made
by mail, telephone or in person.
A second annual solicitation is required if the employer receives
an IRS notice of an incorrect SSN for the employee in any subsequent
year. The employer is required by the regulations to make only two
annual solicitations. If the employer receives an IRS notice of an
incorrect SSN after having made two annual solicitations and reporting
the number provided by the employee, the employer would not be required
to make further solicitations. The employer's initial and two annual
solicitations will demonstrate that the employer has acted in a
responsible manner before and after the failure and will establish
reasonable cause for the waiver of a penalty.
Obligation of IRS and SSN in Ensuring Accuracy of Information on Form
W-2
The Internal Revenue Service and the Social Security Administration
(SSA) each have roles in using and ensuring the accuracy of information
provided on Forms W-2. SSA is required by law to maintain records of
wages employers pay to employees. But SSA is given no authority to
enforce the requirement of reporting correctly.
As for the IRS role, Form W-2 is subject to Internal Revenue Code
(IRC) Section 6721 information reporting penalties. The IRS may assess
employers a $50 penalty for each invalid SSN on the Form W-2, up to a
maximum $250,000. It is important to realize that employers with
``mismatch'' problems are, for the most part, trying to comply with the
intent of the tax laws by reporting the wages paid to their workers. An
ideal enforcement program would ensure compliance with both tax laws
and immigration laws. However, the impact of significantly raising
``due diligence'' requirements could have a negative impact on the
participation of employers and employees in the tax system.
Compliance Checks on Employers With Large Number of Mismatches
To assess appropriate steps the IRS might take to improve SSN
reporting accuracy, we have undertaken a number of initiatives.
We have worked with the SSA to determine the best approach to the
SSN mismatch problem. For example, the IRS secured a list of the
employers with the highest volume and/or highest percentage of
mismatched W-2s. Many of America's largest employers are on the list of
those with high numbers of W-2 mismatches yet their accuracy percentage
rate is very high. The 50 largest companies in the United States have
an average mismatch rate of only 1.5 percent.
We also examined a list of the employers with the highest mismatch
error rates. These employers on this list were much smaller than the
companies with high accuracy rates. The businesses generally issued
less than 1,000 Forms W-2 but had error rates of 93 percent and above.
IRS conducted compliance checks on 78 employers on these two lists.
Despite the appearance of a high number of errors, we found that the
employers acted with due diligence required by the law.
The 50 large businesses on whom we conducted compliance
checks all had programs and processes for securing the Forms W-4 and
using the information in preparing Forms W-2. Also, they had in place a
process for re-soliciting the required information upon receipt of a
mismatch letter. No penalty potential was identified.
The compliance checks on 28 of the smaller businesses
identified that these employers frequently use day labor and have high
turnover in employees. However, they all knew to obtain Forms W-4 and
to use the information in the preparation of the Form W-2. To date no
penalty potential has been identified. In addition, they had processes
or procedures in place to resolicit the SSN information when a mismatch
notice was received and the employee was still employed.
Consideration Concerning Changes to Current Penalty Regime
The current penalty regime is not an effective means to address the
problem of SSN mismatches. We would, of course, work to execute any
changes Congress determines to bring into effect. We would point out,
however, that any potential changes would need to address two issues in
particular. First, any significant change to the current regime could
only be implemented following amendment to section 6103 of the Code to
allow for further information sharing, either interagency or with
employers, beyond that which is currently permitted by law.
Second, any requirement to increase our compliance activities in
this area, including assessing penalties, would involve an increased
demand on our resources. These activities would require a significant
rededication of IRS resources to increase compliance in an area that is
already, in general, compliant. Absent added funding for such
activities, this would likely come at the expense of other compliance
activities and with the attendant risk of a decrease in tax revenue
from those other compliance activities.
Thank you for inviting me to testify this morning. I would be happy
to take any questions you might have.
Chairman HOUGHTON. Mr. Lockhart, you have got about 5
minutes here. Can you do it?
Mr. LOCKHART. Yes, sir.
Chairman HOUGHTON. All right. Let's go.
STATEMENT OF JAMES B. LOCKHART, III, DEPUTY COMMISSIONER,
SOCIAL SECURITY ADMINISTRATION
Mr. LOCKHART. Mr. Chairman and Members of the Committee, I
welcome this opportunity to discuss the strong steps Social
Security has taken on two of our key strategic objectives,
strengthening the integrity of the SSN, and increasing the
accuracy of earnings records. As you know, the SSN was created
in 1936 to assure that Social Security kept accurate records to
ensure accurate benefit payments. However, the simplicity and
efficiency of using a unique number encouraged widespread use
of the SSN. It has become the identifying number in many
records systems. It is also prized by criminals who are intent
on stealing another person's identity.
The terrorist attacks of 9/11 reinforced the need for a
concerted long-term effort to address SSN misuse and identity
theft. We formed a high-level team to develop recommendations
to strengthen the process of issuing SSNs, which we call
enumeration. Some of the recommendations implemented include
verifying all immigration documents with the DHS; verifying all
U.S. birth records for applicants age 1 and older; establishing
enumeration at entry; piloting a card center; and limiting non-
work numbers. Non-work numbers are issued to individuals that
need a number for Federal benefits or State public assistance
programs and, until last October, for drivers' licenses. We
only issued 20,000 non-work numbers last year, which is down 96
percent from the peak in the mid-nineties. Still, about 570,000
non-work numbers had earnings reported in 2002.
Now, turning to the reporting of wages, this is a core
business process for our agency. Each year, we process over 240
million W-2s from about 6.5 million employers representing
about 145 million workers. I am pleased to report during the
last 5 years that we have automated this process significantly,
and 53 percent of W-2s are now submitted electronically, up
from less than 10 percent in 1999. About 10 percent of the W-2s
we receive have invalid names and SSN combinations. In our
processing, we use computer systems, which reduces those
mismatches by about 60 percent, and we do further processing
that can reduce it further. The mismatches are put together in
what we call the suspense file. That file has about 244 million
W-2s in it, which represent about 1 percent of the total
reported earnings since the beginning of the system. Less than
two-tenths of 1 percent of that file is represented by ITINs.
Social Security has taken a number of steps to reduce the
suspense file's growth. For example, employers with a
significant number of mismatches are sent ``no match'' letters,
126,000 last year. We also notify employers and employees if we
can't process their W-2s. Last year, we sent 9.5 million
letters to employers and employees. Also, beginning last year,
we implemented new technologies using earnings records patterns
to match earnings. We estimate, out of this process, to remove
at least 30 million W-2s from the suspense file. The important
thing is to help prevent such mismatches from occurring in the
first place. Social Security is helping employers make sure
that they have the information, and can match names and SSNs.
We provide employers with several options to verify names and
numbers. They can call a toll-free number. They can submit
paper listings, walk into a field office, or send reports via
magnetic media.
In addition, we are piloting a more efficient Internet
option known as the SSN Verification System. To date, we have
processed over 4.5 million verifications for the 85
participating employers. I would like to conclude by
emphasizing that we are committed to strengthening the
integrity of the enumeration process. Recent improvements have
made it more difficult for individuals to obtain SSNs through
fraudulent means. We are also committed to improving the
accuracy of our earnings records, and working with both the DHS
and the IRS to do so. I want to thank you, Mr. Chairman and
Members of the Committee, and we look forward to working with
you on this.
Chairman HOUGHTON. Thank you, Mr. Lockhart and thank you,
Mr. Everson.
[The prepared statement of Mr. Lockhart follows:]
Statement of The Honorable James B. Lockhart, III, Deputy Commissioner,
Social Security Administration
Thank you for asking me to be here today to discuss the steps SSA
has taken to improve and strengthen our wage reporting and enumeration
processes, as well as our efforts to reduce the size of the suspense
file. We have taken positive action in all these areas. Enumeration,
which is the issuance of Social Security numbers (SSNs), and wage
reporting are core Agency functions. Commissioner Barnhart's Five Year
Strategic Plan has nine strategic objectives, of which two are:
``Strengthen the integrity of the Social Security number'' and
``Increase the accuracy of the earnings record.''
History of the Social Security Number and Card
First, I would like to describe the history and the original
purpose of the SSN and the Social Security card. Following the
enactment of the Social Security Act in 1935, the SSN was developed to
keep track of the earnings of people who worked in jobs covered under
the new Social Security program. The rules regarding the assignment of
SSNs to workers were first published in Treasury regulations in 1936.
The Social Security card reflects the number that has been assigned
to each individual who applies for an SSN. The card, when shown to an
employer, assists the employer in assuring that earnings are reported
properly. Public information documents issued early in the
administration of the program advised workers to share their SSNs only
with their employers. Initially, the only purpose of the SSN was to
assure that SSA kept accurate records of earnings under Social Security
so that we could pay benefits based on those earnings.
Use of the SSN Expands Over Time
Although the purpose of the SSN was narrowly drawn from the outset
of the program, use of the SSN as a convenient means of identifying
people in large systems of records has increased over the years. In
1943, Executive Order 9397 required Federal agencies to use the SSN in
any new record systems for the purpose of identifying individuals. This
use proved to be an early reflection of what has become an enduring
trend to expand the use of the SSN. The simplicity and efficiency of
using a unique number that most people already possessed encouraged
widespread use of the SSN by both government agencies and private
enterprises, especially as they adapted their record-keeping and
business systems to automated data processing.
In 1961, the Federal Civil Service Commission established a
numerical identification system for all Federal employees using the SSN
as the identification number. The next year, the Internal Revenue
Service (IRS) decided to begin using the SSN as its taxpayer
identification number (TIN) for individuals. In 1967, the Defense
Department adopted the SSN as the service number for military
personnel. At the same time, use of the SSN for computer and other
accounting systems spread throughout State and local governments, to
banks, credit bureaus, hospitals, educational institutions and other
parts of the private sector. During this time, there were no
legislative restrictions on the use of the SSN.
Statutory Provision Relating to the Public Sector
The first explicit statutory authority to issue SSNs was not
enacted until 1972, when Congress required that SSA assign SSNs to all
noncitizens authorized to work in this country and take affirmative
steps to assign SSNs to children and anyone receiving or applying for a
federally funded benefit. Subsequent Congresses have enacted
legislation which requires an SSN in order to receive Supplemental
Security Income (SSI), Temporary Assistance for Needy Families (TANF),
Medicaid, and food stamps. Additional legislation authorized States to
use the SSN in the administration of tax, general public assistance,
driver's license, or motor vehicle registration laws within its
jurisdiction.
The Privacy Act was enacted in 1974 partly in response to concern
about the widespread use of the SSN. It provided that, except when
required by Federal statute or regulation adopted prior to January
1975, no Federal, State, or government agency could withhold benefits
from a person simply because the person refused to furnish his or her
SSN.
In the 1980s and 1990s, new legislation provided for additional
uses of the SSN, including employment eligibility verification,
military draft registration, and for operators of stores that redeem
food stamps. Legislation was also enacted that required taxpayers to
provide the SSN for dependents.
A major expansion of SSN usage was provided in welfare reform
legislation enacted in 1996. Under welfare reform, to improve child
support enforcement, the SSN was required to be recorded in a broad
array of records, including applications for professional licenses,
marriage licenses, divorce decrees, support orders, and paternity
determinations.
Use of the SSN by the Private Sector
Currently, there are no restrictions in Federal law on the use of
the SSN by the private sector. Businesses may ask for a customer's SSN
for such things as renting a video, applying for credit cards,
obtaining medical services, and applying for public utilities.
Customers may refuse to provide the number, however, the business may,
in turn, decline to furnish the product or service. Continuing advances
in computer technology, the ready availability of computerized data,
and rapidly increasing use of the internet have encouraged the growth
of information brokers who amass and sell large volumes of personal
information, including SSNs collected by businesses. When possible,
information brokers store and retrieve information about an individual
by that individual's SSN because it is more likely than any other
identifier to maintain unique records for each specific individual.
Contemporary Challenges Regarding the SSN
As you can see, use of the SSN is widespread in our society. This
usage is the product of numerous decisions made over the years. The
cumulative effect is to make the SSN an important element in
establishing and maintaining an individual's identity in various record
systems, and the ability of individuals to function in our society and
economy. As a result, the SSN is prized by criminals who are intent on
stealing another person's identity, or creating a false identity.
Accomplished identity thieves use a variety of methods to gain
access to personal data. We at the Social Security Administration want
to do whatever we can to help prevent identity theft and assist in the
apprehension and conviction of those who engage in this crime.
Social Security Cards Issuance
The vast majority of new cards are issued to U.S. citizens or to
non-citizens who have been permanently authorized to work in the U.S.
These cards show only the name and SSN of the individual. In 2003 we
issued approximately 5.4 million new cards. Of these 4.2 million were
issued to U.S. citizens, nearly 90 percent of these were issued through
our Enumeration at Birth process, which successfully expedites SSN
issuance for newborns and facilitates their parents' tax return
filings. In addition we issued almost 400,000 new cards to non citizens
who were lawfully admitted for permanent residence.
Non-citizens who are not authorized to work, or who are only
temporarily authorized to work will receive a card bearing one of two
legends. We issued approximately 800,000 of these cards.
We have been issuing cards with the legend ``Valid for Work Only
With INS Authorization'' since 1992 in cases where non-citizens come to
the U.S. with temporary authorization to work. In 2003 about 771,000 of
these cards were issued.
We started issuing cards with the legend ``Not Valid for
Employment'' in 1982 to inform employers that the individual is not
eligible for work. In 2003 we issued less than 20,000 of these cards.
Due to changes we have made, we have had a significant decline in the
number of ``non-work'' SSNs we issue, from a peak level of over half a
million in the mid-90s.
Strengthening the Enumeration Process
In connection with this effort, I'd like to discuss what SSA has
done to strengthen the processes associated with assigning Social
Security Numbers. The terrorist attacks of September 11, 2001
reinforced the need for a concerted long-term effort to address SSN
misuse and identity theft. SSA formed a high-level response team
meeting regularly to develop recommendations on enumeration policy and
procedure. Implementation of many of the team's recommendations has
strengthened our capability of preventing those with criminal intent
from obtaining and using SSNs and SSN cards.
For example, effective October 27, 2003, SSA does not assign an SSN
to noncitizens who are not authorized to work when the only reason for
needing a number is to comply with a state statute requiring an SSN for
the issuance of a driver's license.
SSA changed procedures in February 2002 for verifying a person's
SSN so that additional private information on SSA's records (NUMIDENT)
would not be included on the document that verifies the SSN.
Beginning June 1, 2002, SSA began verifying birth records with the
issuing agency for all U.S. born SSN applicants age one or older.
(Under former rules, we only verified birth records for applicants age
18 and older.)
SSA no longer assigns SSNs to non-citizens who are authorized to
work without first verifying the authenticity of their immigration
documents with United States Citizenship and Immigration Services
(USCIS).
As of mid-December, 2001, new audit trails were put in place for
SSN applications, making the quality checks used under SSA's SSN
verification processes consistent and more robust.
Our online SSN verification system (SSNVS) pilot for employers has
expanded from the original 9 employers to 85. This system holds great
promise, but, we are proceeding carefully to ensure that the system is
secure as well as user friendly.
We have been successful in establishing a process, administered
jointly by SSA and the Department of State, which allows SSA to assign
SSNs and issue SSN cards to non-citizens who choose to apply for an SSN
as part of the process that allows them to enter the country as
permanent residents. (Thus, this process is not available to students
or tourists.) Under this process, known as Enumeration at Entry (EAE),
the data required to assign an SSN, including verification of the
individual's immigration and work authorization status, are provided to
SSA by the Department of State (DOS) and the Department of Homeland
Security, (DHS), (formerly INS). SSA electronically receives the
information needed to enumerate the individual from the INS with no
need for further document review and verification.
SSA has reserved a block of Social Security numbers specifically
for assignment under the EAE process. Therefore, all non-citizens
choosing to use this process to request their SSN receive a number from
this special series. All US consular sites now have the software
necessary to allow non-citizens applying for permanent residence in the
U.S. to participate in EAE.
We also continue to look for other ways to make the enumeration
process more efficient and secure. A pilot Social Security Card Center
opened in Brooklyn, New York in November, 2002. The Center represents a
joint effort of SSA, SSA's Office of the Inspector General and the
Immigration and Naturalization Service (now USCIS). The collaboration
of the parties is intended to strengthen SSN application procedures,
ensuring that applications are processed with a high degree of
integrity, efficiency and expertise.
As of February 2004, the Center has successfully served over
170,000 visitors. While we are waiting to see the final results from
the review of the pilot, initial feedback has been extremely positive.
After considering the final results, we hope to open at least one
additional Card Center this year. We will move slowly and judiciously
in deciding when and where to open it.
The Wage Reporting Process
I would now like to discuss the process of reporting and crediting
wages. SSA's role in the wage reporting process ensuring that all
workers receive credit for the work on which they and their employers
paid FICA taxes is one of SSA's core business processes, and it ensures
that a worker and his or her family receive benefits that accurately
reflect all of the worker's earnings.
Accurate earnings information is important because a worker's
earnings record is the basis for computing retirement, survivors, and
disability benefits. If a worker's earnings are not properly recorded,
he or she may not qualify for benefits, or the benefit amount may be
too low or too high.
Employers report wages to the Social Security Administration on
Forms W-2. Each year, SSA processes about 240 million W-2s from about
6.5 million employers, that are sent to the Social Security
Administration (SSA) either on electronic media or on paper. These W-2s
represent the wages earned by about 145 million workers annually. While
some employers continue to send paper reports, we encourage electronic
filing. We work with the employer community to educate them on the
advantages of this method, and its use continues to grow as technology
improves. I am pleased to report in 2003 over 53% of W-2s were filed
electronically up from less than 10% in 1999.
When a person files for benefits, the SSA employee reviews the
earnings record with the worker and assists the worker to establish any
earnings that are not shown or are not correctly posted. However,
because it may be difficult to accurately recall past earnings or to
obtain evidence of them, it is better to establish and maintain
accurate records at the time the wages are paid.
As you know, SSA mails Social Security Statements to all workers
over age 25 each year. Among other benefit information on the
Statement, it shows the worker's annual earnings for past years. This
gives the worker the opportunity to verify the earnings on SSA's
records and to determine if any earnings are missing. Corrections can
be made on a more timely basis by reviewing the Statement, instead of
waiting until the point that an actual claim is filed.
In addition to using earnings for Social Security benefit purposes,
SSA sends the same data to the IRS, which has the responsibility of
collecting the income taxes due.
The earnings suspense file is an electronic holding file for W-2s
that cannot be matched to the earnings records of individual workers.
This happens when the name and SSN on the W-2s do not match SSA's
records. The suspense file is maintained so that if SSA later obtains
the correct name and/or SSN for a worker, the wages can then be
credited to that person's record. As I mentioned, the suspense file
contains about 244 million W-2s (data through TY 2001--the most recent
year for which complete data is available).
In order for wages to be credited to the correct worker, the
worker's name and SSN on the W-2 must match the name and SSN recorded
on the ``Numident'' file--the master record of SSNs issued. We receive
240 million W-2 reports annually. About 10 percent of the W-2s received
by SSA have invalid name/SSN combinations when they first come to us.
In our initial processing, the computer system manipulates the name and
SSN to try to find a match on our records. A number of separate
processes address discrepancies between the name reported on the W-2
and the name on SSA records. For example, compound surnames sometimes
cause a ``no match''. Other processes assume that the reported name is
correct but that some mistake has been made with the SSN. The reported
SSN is adjusted for a variety of prescribed common mistakes, such as
transposing digits, in an effort to obtain a match. For TY 2001, we
were able to post 6 percent of all W-2s received to the correct SSN
through these computer routines--i.e., 60 percent of the 10 percent of
all W-2s received with invalid name/SSN combinations. The balance, 4
percent of W-2s received for TY 2001, remains in the suspense file.
This represents approximately 9.6 million W-2s representing $56.1
billion in wages and $7.0 billion in social security payroll taxes.
Subsequent processing reduces this percentage further. W-2s are
removed from the suspense file on an ongoing basis and reinstated to
the correct worker's record. These reinstatements can occur for various
reasons for example, because the worker raises a question about his or
her earnings when they receive their Social Security Statement, or
during the benefit application process, or as a result of internal
processing where SSA can subsequently match the W-2 to the correct
worker. As a result of this subsequent processing, over time, there is
a decline in the percentage of W-2s for a given year or period of years
that remain in the suspense file. For example, for tax years beginning
in 1978, when SSA began processing W-2s, through TY 2001, about 2
percent of all W-2s remain in the suspense file.
Individual Tax Identification Numbers
Some W-2s received by SSA have an Individual Tax Identification
Number (ITIN) in the SSN field on the form, instead of a valid SSN. An
ITIN is a 9-digit number issued by IRS to non-citizens who need tax
identification numbers for tax purposes and who otherwise do not meet
the requirements for being assigned an SSN. When employers show an ITIN
on the W-2, this results in the W-2 being posted to the suspense file
because an ITIN is not a valid SSN.
IRS began assigning ITINs effective July 1,1996. Subject to a 1997
Memorandum of Understanding between SSA and IRS, IRS agreed that ITINs
will be nine digits beginning with the number ``9'' and initially will
have either ``7'' or ``8'' in the 4th position.
A one-time review of our records indicated that for the period 1996
(the first year ITINs were issued) through 2002, approximately 342,000
W-2s have been reported under ITINs and remain in the suspense file.
This represents less than two-tenths of 1 percent of the W-2s in the
suspense file since its beginning through the time of the review.
Removing W-2 Items from the Suspense File
SSA is committed to significantly reducing the suspense file's rate
of growth as well as to reducing its current size. This commitment
reflects SSA's concern that, when earnings are not posted to an
individual's earnings record, the individual will not receive proper
credit, a concern that I discussed earlier. As part of this effort, SSA
employees carry out a number of activities to assure that W-2s are
credited to the correct individuals' earnings record.
One activity that SSA has instituted is to notify employers with a
significant number of mismatches of all name and SSN errors on the W-2s
that they reported. SSA also requests corrected W-2s, so that employers
will avoid the same mistakes in future years. These letters are often
called employer ``no-match'' letters, and in 2003, SSA sent 126,250 of
these letters to employers with substantial numbers of mismatched name/
SSN combinations.
We also notify employees that we could not process their W-2s due
to errors on the W-2 and ask them to work with us to resolve the
problem. These notices are often referred to as employee ``no-match''
letters. In 2003, we sent 9.5 million such letters to employees, of
which 1.9 million went to their employers because we did not have a
good address for the employee.
Last year, for TY 2002, the letters were modified to make them
easier to understand and to emphasize the cautionary language that an
employer should not take adverse action against the employee. This
version of the notice was used again for the most recent year.
For those who did not respond to the employee no-match letters, SSA
compares the name and address with the name and address on the IRS'
master file. If there is a match, the person's wages can be credited on
the basis of the SSN reported to the IRS on the person's tax form.
On a cyclical basis, SSA runs an electronic operation to review all
the W-2s in the suspense file in light of improvements that have been
made to the electronic processes I mentioned before. This operation,
known as ``SWEEP,'' is run every year for the suspense file back to
1978 and every two years for the entire suspense file (back to 1937).
While the SWEEP program is most successful in crediting earnings from
recent years, it does identify earnings that can be associated with a
correct SSN for all years. For the 2002 processing year, the SWEEP
operation removed 468,000 W-2s from the suspense file and properly
reinstated them to correct individual's records. This operation
included reinstatements for all past years back to 1937.
Beginning in April 2003, SSA implemented a new process that will
electronically find millions of additional matches of W-2s in the
suspense file and post those W-2s to the earnings records of the
correct individuals. While the previous processes to match the name and
SSN used only the Numident, the new process also uses the worker's
detailed earnings record (that includes employer information) and the
master beneficiary record, for those who are receiving benefits, to
identify the missing earnings with the correct worker. This new process
also employs new techniques with earnings record patterns to match the
earnings to the correct individual.
As a result of this new process, in FY 2003, 2.4 million W-2s were
removed from the suspense file and posted to the correct earnings
records. It is estimated that a total of 30 million W-2s will be
removed from suspense and credited to the records of individual workers
through these new efforts.
Helping Individuals and Employers Find Missing Earnings
As I have mentioned, an individual may contact us at any time in
the event that earnings are missing from his or her earnings record or
not correctly posted. SSA makes a concerted effort to fully resolve any
discrepancy. We review the individual's record, item-by item, including
all earnings and employers, in order to assist the individual in
identifying the earnings that are in question. We request that the
individual provide SSA with as much evidence of the earnings (Forms W-
2, pay stubs, etc.) as may be available. With the individual's
permission, we contact any employers and request that the employer
check all records for possible evidence of earnings.
In addition, we check the suspense file both by the worker's SSN
and by employer identification number in an attempt to locate the
earnings in question. If SSA is satisfied that the earnings in the
suspense file belong to the worker based on the evidence that has been
provided by the worker, the worker's earnings record is credited with
the earnings.
In addition to these processing activities, SSA assists employers
to make sure that the name and SSN provided to them by new employees
match the information on our records.
SSA has successfully provided SSN verification services to the
employer community for many years. In the beginning, this was a manual
process which was highly labor intensive. SSA's verification workloads
have increased as the use of the number has expanded. Now, SSA provides
SSN verification for employers through a special employer 800 number.
In addition, SSA verifies SSNs for employers via the Employer
Verification System (EVS). As of January 2004, approximately 13,500
employers have registered for EVS. In addition, in FY 2003 we responded
to nearly 1.1 million telephone calls at our employer reporting service
center.
EVS is a free, convenient way for employers to verify employee
SSNs. EVS provides several options to employers depending on the number
of SSNs to be verified. For up to five SSNs, employers can call SSA's
toll-free number for employers--1-800-772-6270--weekdays from 7:00 a.m.
to 7:00 p.m. Employers may also use this number to get answers to any
questions they have about EVS, or to request assistance.
Employers also have the option to submit a paper listing to the
local Social Security Office to verify up to 50 names and SSNs. In
addition, they may use a simple registration process to verify requests
of more than 50 names and SSNs or requests submitted on magnetic media
(regardless of how many items are being verified). All these requests,
whether made via phone, paper, or magnetic media, are handled through
the EVS system. However, from an efficiency and accuracy standpoint we
plan to encourage electronic verification via the internet, and hope to
continue rolling out SSNVS, which is being piloted.
The Social Security Number Verification Service (SSNVS), is an
internet option to verify the accuracy of employees' names and SSNs by
matching the employee-provided information with SSA's records. To date,
we have processed over 4.5 million verifications for the85 employers
who are participating in the pilot. SSNVS provides a quicker and more
efficient alternative for employers to obtain verifications than some
of the other methods I have described to verify information. Beginning
in January 2004, we added death file information to the responses
received by participating employers. We are considering modifications
of other automated routines to include death file information. When we
review the pilot results, we will be in the best position to determine
what our next steps should be.
Because correct names and Social Security numbers (SSNs) on W-2
wage reports are the keys to successful processing of employer
submitted annual wage reports, each of our regional offices have
Employer Service Liaison Officers (ESLOs) who work with employers to
prevent and overcome reporting problems. Employers can also visit SSA's
website--www.ssa.gov/employer--for more information.
Report on Non-Work SSNs
Section 414 of Public Law 104-208, the Illegal Immigration Reform
and Immigrant Responsibility Act of 1996, requires SSA to report to
Congress the number of SSNs assigned to non-citizens who are not
authorized to work in the United States for whom we receive W-2s. We
issued the most recent report for 2003. In it, we stated that SSA
credited earnings to 571,193 SSNs which were assigned to non-citizens
who did not have authority to work in the United States when they got
their SSN.
SSA also sends an annual report to DHS about earnings reported to
SSA on a social security number issued to a non-citizen not authorized
to work in the U.S. The information includes the name and address of
the non-citizen, the name and address of the person reporting the
earnings, and the amount of earnings reported.
I need to point out, however, that since non-citizens are not
required to report changes in their work authorization status to SSA,
SSA does not routinely learn of changes in their authority to work in
the U.S. Therefore, an earnings report under a nonwork SSN does not
necessarily mean that unauthorized work was performed.
Given the steps we have taken to limit the assignment of non-work
SSNs, we are confident that the problem of earnings being posted to
non-work numbers will diminish.
Cooperation with DHS and IRS
We have formed an executive level steering committee, together with
DHS, to oversee and direct cooperative activities. The first issues we
will discuss will be 1) tightening the assignment of Social Security
numbers to promote homeland security, and 2) identifying potential data
sharing activities consistent with rules governing the use of SSA's
data that would best assist each organization in carrying out its
mission. The group has already met once and we believe it will be a
successful and productive effort.
SSA also supports the Department of Homeland Security (DHS) in an
ongoing joint initiative, known as the Basic Pilot. The pilot is
designed to assist participating employers in confirming employment
eligibility for newly hired employees. Participating employers use an
automated DHS system to verify SSNs and alien registration numbers
through verification checks of SSA and DHS databases. As of January 1,
2004, there were over 13,000 individual employer sites using the Basic
Pilot. SSA receives over 45,000 Basic Pilot requests each month.
We have established an interagency effort with IRS to work on
issues of mutual concern. This is a high level group that will work to
resolve issues and cooperate on efforts that cross agency lines. We had
our first meeting on March 5, and we anticipate this interagency
coordination will be useful and productive for each agency.
Conclusion
I would like to conclude by emphasizing that we at the Social
Security Administration are committed to strengthening the integrity of
the processes that we use to assign SSNs. We believe the recent
improvements we have implemented have made it more difficult for
individuals to obtain SSNs from us through fraudulent means.
The difficult challenge we face is to balance SSA's commitment to
assigning numbers quickly and accurately to individuals who qualify for
them and need them to work, with the equally important need to maintain
the integrity of the enumeration system to prevent SSN fraud and
misuse.
We are also continuing to explore ways to improve the accuracy of
our earnings report records and to limit the growth of the suspense
file.
I want to thank the Chairmen and members of both subcommittees for
inviting me here today and I look forward to working with you to
continue to improve SSA's processes. I will be happy to answer any
questions you might have.
Chairman HOUGHTON. We are going to suspend the work of the
Committee now for between 20 minutes and half an hour. We have
one 15-minute vote, and have only about 3 minutes left. After
that we have got two 5-minute votes. We will be right back as
soon as we can. Thanks very much.
[Recess.]
Chairman HOUGHTON. Let us continue the hearing. What I
would like to do is to start with questions from Mr. J.D.
Hayworth.
Mr. HAYWORTH. Mr. Chairman, I thank you and Chairman Shaw
of the Subcommittee on Social Security for offering us this
chance to visit today in this joint hearing with our friends
from IRS and the SSA. Commissioner Everson, Deputy Commissioner
Lockhart, thank you gentlemen for your attendance and your
testimony. Commissioner Everson, if an illegal immigrant is
working under a false SSN, when that worker goes to pay his
taxes using the ITIN, how does the IRS verify that the W-2 he
submits with his taxes is really his? In other words, what
keeps him from using someone else's W-2 to save on his tax
liability?
Mr. EVERSON. Congressman, what happens is that we match
through computer data files. We enter all the information, and
we will see that if you or I, for instance, was using Jim's
SSN. All of a sudden down the road, sometimes what happens is
some of these people will be filing very early in the filing
season because they are a sole wage earner with one job, they
will file their return over time, and we actually receive Jim's
statement from his employer, we find that there are two
employees, one maybe in California and one in Virginia, and
that are both earning income with the same number. Many times
we can see what the problem is and who has got the right
income, but this does pollute the recordkeeping from our point
of view.
Mr. HAYWORTH. Thank you, sir. Deputy Commissioner Lockhart,
does the SSA have the statistics of how many workers are using
non-matching SSNs, and how many of those are estimated to be
false, not misprinted, but false numbers?
Mr. LOCKHART. We certainly have numbers in our suspense
file about non-matches. Every year, there are about 9 million
non-matches of names and SSNs. A lot of those can be just
because people change their names because they transposed their
middle name, or they used the wrong digit. We do not have data
to say how many of them are made up of SSNs.
Mr. HAYWORTH. Presumably, you could take a look at that
data and give us those numbers, could you not?
Mr. LOCKHART. Well, it would take a significant amount of
effort, an investigatory effort, to try to figure out that.
Certainly what we do, and I think it is the most important
thing, is we try to do as much matching as we can. We give the
employers all the information that they need to do the matching
before they send the W-2s in, and we also work with them on a
regular basis.
Mr. HAYWORTH. I understand the man hours involved, but as a
matter of public policy to understand just the extent of the
challenge we are facing, it might be good to quantify that, and
I'd appreciate your answer, and would offer that suggestion in
the spirit of sound public policy. Commissioner Everson, does
the IRS have the authority to make employers follow more
extensive checking of current SSNs beyond the current, quote,
``due diligence,'' that is required of them?
Mr. EVERSON. No, sir, we really do not. This gets to the
issue of penalties and the assessment of penalties. We will
send notices to employers when there are these mismatches that
we just spoke of. If we assess a penalty, and the employer can
demonstrate that they proceeded in good faith, then the penalty
will not be sustained. The only answer here really is to
require an employer to check against our database or against
the Social Security database at the time of the hiring. That is
not what the I-9 process is now. That is not how it works. To
do that would require a change in the statute because of these
confidentiality provisions. I would just add, I am concerned
that if we take that step, the real issue here is trying to get
people into the tax system and pay their taxes. Many of these
people, the immigrants for example, are coming from countries
which may not have the same respect for paying taxes, or they
have U.S. citizen children who have the ITINs also. We want to
get them into the system, so that would be a big change.
Mr. HAYWORTH. Commissioner Everson, let me just make sure I
understand. Under 1990 legislation, the IRS was given the
authority to fine employers $50 per non-matching SSN, up to
$250,000 in a year. To your knowledge, were any of those fines
levied last year?
Mr. EVERSON. Some fines have been levied, it is my
understanding, but they have not been sustained when appealed
if the employer shows reasonable cause. What that means is they
say, look, I went through the I-9 process, I went through the
W-4 process, and this is what was represented to me by the
employee. That gets them off the hook, if you will.
Mr. HAYWORTH. I thank you very much. Mr. Chairman, I
appreciate your indulgence. Let me again thank the witnesses,
and let me just inform my colleagues, my friend from North
Dakota spoke of a conundrum and we certainly have one here now
in the challenge of making sure that folks are following the
law, paying their taxes, not abusing the system, and we may
have to take a look at some legislation. Again, thanks to the
witnesses, and thank you, Mr. Chairman.
Chairman HOUGHTON. Thanks very much, Mr. Hayworth.
Mr. Becerra.
Mr. BECERRA. Thank you, Mr. Chairman. Again, thank you for
your testimony. Let me ask a question, Commissioner Everson,
about the changes that you made to the ITIN. My understanding
is that, and I think you mentioned that you can only receive an
ITIN at the time of filing your tax return, that you can no
longer get that ITIN in advance, which used to be the case.
Mr. EVERSON. Well, some people clean up their records. They
haven't filed returns. If you are filing multiple years during
the course of the year and you are catching up, getting into
the system, if you will, of course we would accept an
application at that time. When we studied the data on this, we
found that something like 70 or 80 percent of the ITINs that
were processed that ultimately were used for legitimate
purposes were actually applied for during the filing season
anyway because people wanted to get the ITIN so they could get
into the system and get their refund. Most people get refunds.
Mr. BECERRA. I see. You are now issuing a letter, not a
wallet-size card, is that the case?
Mr. EVERSON. That is correct. We wanted to stop this
confusion between the card that Social Security issues and what
we are doing. As was indicated, we have had outreach to States
that are using the ITIN to get drivers' licenses. We think that
is wrong, and we want to do everything we can to try and get
the controls in there so that it at least doesn't look the
same.
Mr. BECERRA. My understanding is that you are now accepting
fewer types of identification for the purpose of applying for
the ITIN?
Mr. EVERSON. That is correct. There were something about
40-odd pieces of identification that could contribute to a
favorable reading on an application. We have limited it down to
about a dozen. I think it is actually thirteen.
Mr. BECERRA. Are the dozen or so that you have got it down
to in terms of identification, or forms of identification that
can help you get the ITIN, are we looking at the types of
identification or documents of identification that we would
typically think of? There are 12. Among those twelve, give us a
sense of what kind of documents.
Mr. EVERSON. They would tend to be official documents from
the country of origin, like a passport would be a real
indicator, or a birth certificate, that sort of paperwork. I
saw one birth certificate recently when I was inspecting this
process in Philadelphia, and it had a child's drawing on the
back of it. It was pretty authentic, it looked like to me.
[Laughter.]
Mr. BECERRA. Now, I understand that the GAO may testify
that they think you still need to do a few more things when it
comes to tightening up the process for the ITIN. I don't know
if you have had a chance to review the GAO's testimony on that.
Mr. EVERSON. I think we made some pretty significant steps
here. We are going to address those on an ongoing basis. I
think, as indicated in the testimony, we are working with
Social Security. The GAO's input is always important to us. So,
I think we have moved this issue considerably, but that doesn't
mean we are done. We are going to tweak it. We are gaining
experience now with the new process. We have to do a lot of
outreach. We had a little bit of a bumpy start, where some
people--you know how word passes through these communities
about what new requirements are. It passes quickly, but it is
not in a uniform process. We are already seeing changes and
better documentation coming in, from what we are seeing now. We
are going to continue to work with this.
Mr. BECERRA. One final question for the two of you in this
case. My understanding is that--well, I think everybody knows
that you all are processing millions of documents and you are
providing valuable information--some wouldn't say the IRS is
providing valuable information, but in terms of Social
Security, some would say that. I think both of you are
providing valuable information for the country when it comes to
being able to pay your taxes and get taxes back if you paid
more than you should have, and in terms of preparing yourself
for retirement, when you get your Social Security benefits.
If we now are going to ask you to be more aggressive when
it comes to the enforcement and protection of the SSN and the
ITIN number, are you going to be able to do that with the
resources you currently have, to try to manage all of the
different obligations you have, along with increased
enforcement and oversight? Obviously, we want you to do that,
but I am trying to figure out, do you have the budget in place
to be even more aggressive than what you already are now?
Mr. LOCKHART. Well, certainly from a Social Security
standpoint, I think we have been pretty aggressive since 9/11
on issuing Social Security cards and numbers, and we have taken
a whole series of steps to tighten that up and we have done
that within our resource constraints. As you know, the
President has asked for, I think a 6.8-percent increase in the
2005 budget, and that will certainly help us in both our
service and stewardship obligations.
Mr. EVERSON. Beyond what we have done right now, if we were
to significantly step up the enforcement, to do it effectively
and to really get a grip on this whole issue, would require a
major resource reallocation. The reason being that I believe
that your effect would be there are a lot of these businesses
out there that are complying, trying to comply with
verification requirements. They are doing their best to work
within the system and withhold the taxes. If you make it more
burdensome on employers or take actions that will, in fact,
discourage some of the people who are working illegally but
paying their taxes and participating in the system, this will
go more underground from where it is today. If we want to get
at that and capture the tax revenues which the government is
owed, it will take a very significant resource infusion.
Mr. BECERRA. Thank you. Thank you for your testimony. Thank
you, Mr. Chairman.
Chairman HOUGHTON. Mr. Shaw?
Chairman SHAW. Thank you, Mr. Chairman. Mr. Everson, we
discussed in Mr. Houghton's office some weeks ago the effect of
people who pay into Social Security as undocumented workers,
and then later when they became legal, go back and try to claim
those payments. Can either of you gentlemen or Mr. Lockhart,
whomever would be best to aim this toward, give us some idea of
what type of dollars that we are talking about? It would seem
to me that if the work was done illegally, the payment was done
illegally, that people should not have an ability to go back
and claim retirement that was paid in illegally, and usually
from a counterfeit number, which in itself is a crime.
Mr. LOCKHART. Well, certainly from a Social Security
standpoint, we do collect a lot of Federal Insurance
Contributions Act (FICA) taxes every year based on W-2s where
the name and SSN do not match. We estimate that is about $7
billion in payroll taxes a year at this point, and the total
amount in the suspense file is about $50 billion of payroll
taxes that have been credited to the trust funds over the years
that have not matched. As you know, recently, I think it was
last week, the President signed your bill, H.R. 743, the
``Social Security Protection Act of 2004,'' and one of the
provisions will tighten up how we can pay benefits to people in
the future, and as I understand that, it means that we can only
pay benefits to people if they were issued a valid SSN prior to
January 1, 2004, or a valid work-authorized SSN on or after
January 1, 2004. We are looking at how to implement those
provisions, but I think that will tighten that up significantly
from where it was before.
Chairman SHAW. I would hope so. As a matter of fact, I
think we ought to consider legislation that would actually just
simply say that you don't get credit for what was paid in
illegally. I would like to direct both of your attentions to a
series of articles that was run in the Palm Beach Post. This is
quite voluminous, but I would hope that your staff would review
these and summarize them because it shows that modern day
slavery actually exists in the United States, and it is
centered around SSNs. This newspaper went to great lengths to
track these workers all the way from Mexico, riding across the
country with them, saw how they were put to work, saw how some
of them were actually locked up at night, atrocities, things
that just simply you wouldn't believe were existing in this
country.
A lot of this evolved around the fake SSNs, because all of
these workers have to come in, and they have got some kind of a
handler who seems to put some distance between the farmer and
the illegal worker, so that the farmer can simply shrug his
shoulders and say, ``I didn't hire him. It is a contract
thing.'' We ought to have a way to get through that so that
that huge loophole is not there, that workers that come in and
do perform a very valuable resource to this country in doing
jobs, frankly, that you just can't get American citizens to do.
They are very valuable to the agricultural industry. They are
not so valuable that we should let these atrocities continue. I
will make this available to you, and this isn't three copies.
This is the series. This is one set. I think you will be
somewhat shocked to see what is going on in the agricultural
industry. This only deals with a Florida situation, so I am
sure this same thing goes on all across the country.
Mr. LOCKHART. We will certainly look at the articles. I
know our IG has been involved in that case and may be able to
say more about it later, but it is certainly an issue that we
will look at.
Chairman SHAW. We will let him have a copy, too.
[Laughter.]
Chairman SHAW. Getting back mainly to the proper
identifier, all of us want to be sure that there is a certain
amount of secrecy or confidentiality regarding our SSNs. We
don't want them to be handed out willy nilly. When you find all
the people that have access to it, whether you have to write it
on the back of a check in an Army commissary, whether you are
using it as identification for the soldier, which they use it
for in the military. The marketing of the SSN is something that
we are very concerned about in this Committee. The SSN
obviously is a key to your treasure. Once your SSN gets in the
wrong hands, we have found through hearings, that once you are
a victim of identity theft, that it goes on and on and is a
continuing problem that we really need to get at. This is the
fastest growing form of crime in the United States and it is
really getting just totally out of hand. We are finding so many
ways that they get your credit card number and then get your
SSN and your date of birth and they are off to the races. They
actually become you. Would both you gentlemen comment as to
what safeguards we should put in place?
Mr. EVERSON. I think I will mostly leave it to my colleague
here, but we have tried to do things like take individual SSNs
off instructions that we send to people. There used to be a lot
more listing of the number on some of the things we would send
to people, and we have removed the number just so that, even if
inadvertently, things fall into the hands of others, we don't
distribute it. Again, we work very carefully to protect
taxpayer information as to even what vendors or others can use
that information, whatever their role is, and I think we are
trying to be as attentive as we can just for other reasons, but
we are sensitive to this issue, as well.
Mr. LOCKHART. Certainly as to the issue of SSNs, we are
very sensitive to the issue, and to identity theft. Internally,
we have done the same thing. We have taken the SSN off the
Social Security check. We have taken it off of other
correspondence when we can. Then externally, one of the things
that has been helpful is we do a lot of verifications for State
and Federal agencies. We perform about 750 million matches a
year for people that provide--whether it is employers, Federal
agencies, or State agencies--to help them identify these people
to make sure that they are not committing welfare fraud, or
other kinds of fraud. So, we are very actively involved, as is
our IG, and we consider it a very serious issue.
Chairman SHAW. You are telling me what you do, but I would
like to know what we should do to protect the confidentiality.
What type of safeguards do you seek? I know that you don't form
the policy, you just inform the policy. If we could get some
idea as to what is workable, what is reasonable. I had in my
office just last Friday a lady who was a private detective, and
she was concerned that we were going to protect the secrecy of
SSNs, which she relies on to trace people.
Mr. LOCKHART. There is definitely a tension that way, and
it is difficult sometimes to walk down that line. From our
standpoint, we are certainly doing everything we can do to
protect it. When we see another government agency displaying an
SSN where it shouldn't be, we talk to them. We actively work
with other groups to try to discourage them from showing SSNs.
It is a very difficult issue because it has become a national
number, one way or another, and it was not meant to be when it
was started out. We are now working through that issue, and
trying to figure out how best to do it. There is really no easy
answer. In this world of computers, everybody wants a number
for people.
Chairman SHAW. Yes, they do. I know I tried over Christmas,
they had a special, if you opened a charge account at Burdine's
department store down in Florida that you got a big discount. I
said, well, fine, I will open one. They started going through
it and they said, SSN. I said, I don't give out my SSN. They
said, well, you don't get a charge account.
Mr. LOCKHART. Yes.
[Laughter.]
Chairman SHAW. That was the end of that. I advised them
that I was going to do everything I could to see that they
couldn't ask that question.
[Laughter.]
Chairman SHAW. I thank you, and yield back.
Chairman HOUGHTON. Mr. Weller?
Mr. WELLER. Thank you, Mr. Chairman, Commissioner Everson,
and Commissioner Lockhart. Thank you for joining us today to
talk about issues of security to every American worker. I
appreciate your time. Mr. Chairman, if I could take the
liberty, I have a parochial question I would like to direct to
Commissioner Everson. Commissioner, you and I have been in
communication regarding an IRS central distribution facility in
Bloomington, Illinois, a facility whose future is in question
at the moment as you go through the competitive sourcing
process, a process which has some benefits to taxpayers, but
many of these workers--there are 524 workers--reside in the
district that I represent, and I am very concerned about their
jobs. You and I have discussed that.
As you know, Illinois is a very high unemployment State.
The Bloomington facility is the largest of three facilities
that handle the document distribution for the IRS, but it is
also a facility which already has weekend hours and evening
hours in which they serve taxpayers, compared to the other two.
I have urged you to consolidate these three facilities into the
Bloomington-Normal facility. Not only are these good committed
workers, but they have a Central Illinois work ethic. I was
just wondering, can you bring us up to date on the status of
this process, where we are and where you are on your decisions?
Mr. EVERSON. This is going through the established
procedure for competitive sourcing, which, as you indicated, is
designed to bring benefits to the taxpayer by improving
business processes and driving down costs. The sourcing
initiative takes a look at what are called non-inherently
governmental functions, and in this case, it is not work for
tax audits or criminal investigations, it is the support work
to maintain the inventories of the forms and the instructions,
and then to get them in the mail to people who called in and
need the forms. So, we made a determination that the process
and the government, the taxpayer, would benefit by looking at
this according to the competitive sourcing standards. What
happens in that process is that there is a competition and the
government puts together a bid which looks at, in this case,
all three of those operations and says, these operations are
doing less volume of business and they try to project what is
going to happen and they say, how would we configure it? What
would we best do to make the process more efficient and improve
it? The same thing happens when the private sector takes a look
at it.
This is done independently of my office. It is evaluated
independent of my office or my senior people, so that it is
very neutral. Then, the government actually wins if there is a
cost differential that is not considered significant. We are
going through that process right now and the benefits of it
will be, hopefully, improved service to taxpayers and lower
costs. That is typically what happens if you go through the
competition process. I honestly can't tell you where that
will--who will win that competition, whether it will be the
government or the private sector. More often than not, the
government wins that competition and retains the work, but it
might very well be a different model. It might be the model
that you suggest. It might be a different model that would
retain all three operations or consolidates it elsewhere. I am
removed from that process for very valid reasons so as not to
influence it.
Mr. WELLER. So, Commissioner, you confirm that two of the
options, one being maintaining the status quo, or consolidating
facilities. Those are two of the options?
Mr. EVERSON. Maintaining the status quo in the sense that
the work would remain inside the government as opposed to a
contractor taking over this forms distribution process. I would
imagine that even if the government wins, that they will take
decisions to retain the business because the benefit here again
to the taxpayer is that they know they are up against an
external bid, so they are going to look to make it as cost
effective as they can.
Mr. WELLER. Commissioner, you learn things when you
actually visit the facility.
Mr. EVERSON. Yes.
Mr. WELLER. You learn things when you meet with the
workers, which I have done. An issue I want to raise with you,
which I am concerned about from a fairness standpoint as we go
through this process, obviously, the workers are concerned
about the future of their employment. There are 524 families
that are affected by this decision that is waiting to be made
out there, and you certainly know where I am on this. One of
the things I learned is that the employees, the regular Federal
employees who met certain standards, were offered the
opportunity for a buyout, but the deadline to confirm their
participation is 4 weeks prior to the decision on what the
future of their job will be. Now, I would call into question
the fairness of putting someone in a position to say, gee, I
will take this offer, not knowing what the future of my job
will be.
I have urged you to either extend the deadline past the
decisionmaking point, once the workers know the future of their
job, or to give them a second round of buyouts so they would
have another opportunity to participate if their position is to
be eliminated. To me, it is a fairness issue, and I would like
to hear from you what your thoughts are about this, because, do
you agree it is unfair for a worker to be told, you have to
make a decision now whether or not to allow yourself to be
bought out of your position prior to knowing the future of your
position?
Mr. EVERSON. The buyouts, which are worked out according to
standards that the Office of Personnel Management has and
Office of Management and Budget, they are an important tool
because they do help people plan for the future rather than
being up against a short-term decision. We are working with the
unions. This is a matter that has to be negotiated with the
unions. We suggested to them some other considerations, some of
them along the lines of what you are talking about, and that is
a matter of open discussion. I think you raise some very valid
questions. We want to treat anybody who would be impacted by
this fairly, and give them the best possible deal.
Now, what you want to do is make sure that the work can
continue, because frequently if people--if the private sector
picks up the work, frequently individuals will transfer over,
and it is important to the private sector provider of the
service to have that expertise from the individual who was
providing it before. So, you want to do this in a measured way
where there is a maintenance of the expertise.
Mr. WELLER. Recognizing I am running out of time here, I
think there are two things. I am a strong supporter of
collective bargaining. The union has made the request for an
extension of the buyout which you have not yet agreed to, and I
would urge you to extend the deadline or offer a second round
after a decision is made. I would also urge that if a private
contractor is going to pick up this contract to supply these
documents, that they give preference to existing employees at
this IRS facility for employment under the new contract. Those
are two things that I think have great concern for everyone who
is involved.
Mr. EVERSON. Sure.
Mr. WELLER. Both the community on the outside as well as
the workers.
Mr. EVERSON. I don't think, sir, that either one of those
is at variance with where we are. My understanding is, the
state of play with the unions is actually a little bit
different, but I think we have indicated some flexibility on
this issue, and I would say to you that it is a matter of
interest usually to the provider of the services should the
private sector win, to do just what you said, to work with it,
and I think that is a factor that can be considered in the bid,
as well, because we are interested in people who have served
the government well and efficiently to make sure they have that
opportunity.
Mr. WELLER. Commissioner, this is of great concern to me. I
have 524 families, so I hope to continue working with you, and
I appreciate your attention to this.
Mr. EVERSON. Thank you.
Mr. WELLER. Thank you.
Mr. EVERSON. Mr. Dalrymple, my deputy, is going to be, I
think, seeing you later this week.
Mr. WELLER. Yes.
Mr. EVERSON. To go over this in more detail. So, if there
is any follow-up you need from me personally, we will make sure
that happens.
Mr. WELLER. Thank you, Commissioner.
[Letter submitted from Mr. Weller to Mr. Everson follows:]
Washington, D.C. 20515
March 5, 2004
Hon. Mark Everson
Commissioner
Internal Revenue Service
1111 Constitution Avenue,
N.W. Washington, DC 20224
Dear Mr. Commissioner:
My letter serves to update you on my findings after visiting the
IRS service center in Bloomington, Illinois, and to seek your
assistance for the center's employees. I am disturbed and disappointed
to learn that employees have been told that employees must make
decisions on buyouts before the future of the center has been decided.
It was brought to my attention that the employees at this facility
were given a letter and a form on February 29, 2004 for a buyout
package to return no later than March 20, 2004. While this option was
taken advantage of by several employees who found it an attractive time
to leave, there are many more who would rather remain employed at the
facility, and would prefer to wait until the announcement has been made
on what will happen to their jobs.
As the deadline to apply for buyout occurs approximately 1 month
prior to the announcement regarding the fate of this facility and the
people who work there, I ask you to extend the deadline to apply for
buyout, or offer another buyout opportunity after the IRS makes it's
announcement. This will allow employees who have submitted buyout
applications under some duress to rescind them, and reapply later
should they ultimately decide they would like to be bought out.
Additionally, for employees who prefer to wait, but are feeling
pressured to make a decision, this will give them some time and peace
of mind to make a more fully informed choice
I hope you will agree with me that this is a fundamental issue of
fairness. Please extend the deadline to submit an application for
buyout, or offer another opportunity for buyout after the IRS announces
it's decision whether to keep the facility open.
I look forward to working with you to modernize and streamline the
IRS while ensuring it's employees are treated fairly.
Sincerely,
Jerry Weller
Member of Congress
Chairman HOUGHTON. Thank you. Ms. Tubbs Jones?
Ms. TUBBS JONES. Thank you, Mr. Chairman. Commissioner, I
have a question with regard to the obligations of employers to
report or to assure that the SSNs and the ITIN numbers that
they receive from employees are accurate. What is their
obligation?
Mr. EVERSON. Well, they have to make a good faith effort.
It is in the I-9; there are really two steps here. There is the
I-9 process, where someone demonstrates that they are eligible
to work in this country, and they do that, maybe they have a
U.S. passport or maybe they have a foreign passport but a
Social Security card showing that they are eligible to work.
That is one step. Then you have the W-4 process, where someone
comes in, and the individual indicates how many exemptions they
want. If an employer checks, and determines that based on the
documentation that is provided to them that the individual is
eligible to work, which would usually mean they wouldn't be
showing an ITIN in the instances that demonstrate all the
problems, they wouldn't mention their ITIN. They would say, I
have XYZ SSN, then as long as they have shown reasonable
documentation, the employer is okay. If we go back and try and
assert a penalty, we are not going to be able to sustain it.
Ms. TUBBS JONES. When you say the employer checks, what
does the employer check?
Mr. EVERSON. A false Social Security card, perhaps, might
satisfy the employer that the person was eligible to work, but
the employer would not necessarily know that that is a false
card.
Ms. TUBBS JONES. How many people do you know that walk
around with actually a Social Security card when they walk into
some employer? I am not sure that that is something--what I am
trying to understand is, other than a good faith effort, there
is no obligation on an employer to check for the accuracy of a
SSN?
Mr. EVERSON. Well, right now, they don't have to--the only
way you could check it, to get the accuracy, you would have to
put the employer in direct contact with either the SSA or the
IRS, and that is not done. That would be at variance with the
law as to the protection of taxpayer information, as to anybody
checking with us.
Ms. TUBBS JONES. So, then you are saying that in terms of
due diligence for an employer, if due diligence would cause him
to be in variance with the law because the law won't allow him
or her to check the SSN of an employee.
Mr. EVERSON. No, it wouldn't cause them to be at variance
with the law. It would cause me to be at variance with the law
because we can't give out the information.
Chairman SHAW. Would the gentle lady yield?
Ms. TUBBS JONES. Yes, I will.
Chairman SHAW. I have a case in point which would probably
be of great interest to you. If you have a mismatch, and the
SSA advises you that you have a mismatch, they will also advise
you cannot fire that employee because of it, which really puts
you in a catch-22. What do you do?
Ms. TUBBS JONES. So, I guess my question to you is, since
there is a low burden and there is a catch-22 situation, what
do we do about it? Do we just keep moving forward, or do you
have any suggestions on how we handle this dilemma?
Mr. EVERSON. Let me just sort of state the dilemma from my
point of view, administering the tax system. You could ask to
make that check with our database, and you could change the
Internal Revenue Code provision. My concern there would be that
we are trying to get these people into the tax system. Many of
them come from countries where there is not the same respect
for the rule of law that is part of our culture, and we are
trying to get them to participate. My worry is that many of
these businesses that are making decisions to try to
participate, if we go back to them and say, you are going to be
penalized if you don't do this or you don't make this check,
some of them will just end up operating illegally, and they
will get to where Congressman Shaw talked about. It will
further abuses on the one hand, and on the second hand, it will
actually collect fewer dollars into the Treasury.
Ms. TUBBS JONES. Let me be clear that I am not on one side
or the other of this. I am just trying to put on the table the
dilemma that this whole situation presents. Have we ever even
penalized an employer for failing to exercise due diligence
with regard to SSNs?
Mr. EVERSON. We do have penalties, but when challenged, the
penalties have not been sustained because inevitably the
employer says, well, I made this reasonable effort. Even if, as
the Congressman indicated, we will send letters to employers
saying there is a mismatch, they can go out and check again,
but if the employee says the same thing, ``I showed you my I-9
process. I am legally working here and this is what my number
is,'' then the employer is okay.
Ms. TUBBS JONES. Mr. Chairman, just one more question if
you would allow me, please. Is there any industry in which we
find greater challenges to address this particular situation
than in other industries?
Mr. LOCKHART. If you would look at our suspense file, which
is really the mismatches between SSNs and names, and as I said
earlier, we have about 9 million a year. The two top industries
are agriculture and service, and then bars, and restaurants are
the third. So, it is basically transient workers that have the
most mismatches, and it is also the States with the largest
immigration populations, as well.
Ms. TUBBS JONES. We are careful to use the term
``mismatch,'' and not fraudulent use of an SSN or ITIN. Is that
purposeful? That is my last question, Mr. Chairman.
Mr. LOCKHART. Some may be fraudulent, but all are
mismatches, so I am using the larger term, if you will, because
some may be names reversed or one digit missing in an SSN. So,
we can't tell necessarily. Now, we are trying to figure that
out. First of all, I would like to agree with Mark that it is
very important not to have unintended consequences of driving
people underground, because I think that would be bad for both
the IRS and Social Security. We do offer various opportunities
for employers to match Social Security names and numbers, both
through the I-9 process and through the Social Security
process.
Ms. TUBBS JONES. Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you. Mr. Hulshof?
Mr. HULSHOF. Thanks, Mr. Chairman. Commissioner Everson,
Deputy Commissioner Lockhart, welcome. Let me continue along
this path of asking some hard questions because these are
questions that a number of us get back in our respective
districts. Actually, I want to, Deputy Commissioner Lockhart,
follow along what Chairman Shaw asked you, and I want to
restate it, and that is as I understand current law, wages
subject to the FICA tax, the Social Security tax, are credited
toward benefits even if the worker, the immigrant, has
overstayed a visa, has purposely evaded our immigration law,
but basically these wages are credited, and I think you said
that we collect--you collect--the government collects--$7
billion a year in FICA taxes from these unauthorized
immigrants. Is that true?
Mr. LOCKHART. What I said is in our suspense file, there
are approximately $7 billion a year of payroll taxes, if you
will, that we treat as payroll taxes, as if they came from a
legitimate person. Now, the point is that most of those will
never be matched to anybody, at least a major portion of them,
and so they will never be used to pay a benefit from the
system.
Mr. HULSHOF. That is the great follow-up question then. Do
either of you have, because obviously these workers can file
tax returns and receive refunds, what amount of money goes out
per annum, if you know, maybe through the IG, to benefits to
undocumented or unauthorized workers?
Mr. LOCKHART. From the Social Security standpoint, first of
all, a person has to be lawfully present in the United States
when they come in to collect the benefits. So, at that point,
they are legal. Second, with the recent change in law, it means
that the person has to have had a legal work authorized SSN
sometime in his career to collect benefits. Historically, we
have had a relatively minor number, and I don't really have the
numbers on it, of people who do come in and present all their
W-2s, all their monthly payroll stubs, and get some benefits.
Again, they had to be legally in the United States at the time
they were presenting that information to us.
Mr. HULSHOF. Here is the question the Chairman stopped
short of asking that I want to ask. You have referenced the law
that President Bush signed, very bipartisan actually as it went
through the legislative process. This is a policy question, and
I don't want to make you squirm on purpose.
[Laughter.]
What would be the tradeoffs if we decided as a nation that
we were going to stop paying Social Security benefits, or stop
paying tax refunds based on unauthorized work?
Mr. LOCKHART. Well, I will talk from the Social Security
standpoint, and then let Mark talk from the IRS standpoint.
First of all, the key thing is the administrative complexity of
trying to recreate records. Trying to figure out when a person
was legally working, when a person was not legally working, if
they had a temporary visa, they were legally working for a
while, then a period they weren't legally working, would be a
very cumbersome process because, as I understand it, the
Immigration and Naturalization Services or DHS does not keep
records going back that way, and we certainly don't have them
at Social Security. So, there would be an administrative
complexity of some detail.
From a policy standpoint, to answer that, I think there
definitely is the issue of the potential of driving people
further underground. Instead of having these payroll taxes
being paid, they would just stop paying them, and there would
be less chance that these people would be integrated into the
American society.
Mr. HULSHOF. Commissioner Everson, would you like a crack
at that question?
Mr. EVERSON. Sure. I believe that the consequences would be
negative in terms of the amount of money coming into the
government if you look at it from a revenue generation point of
view, and also damaging to the long-term health of our tax
administration system. I say that because already we have many
people who are working in an undocumented manner. They aren't
in the system at all. I think that, as Jim just indicated about
some of the industries that this involves and some of the parts
of the country where this is more prevalent, you would tend to
augment the number of those folks who aren't participating.
They aren't filing at all. Their taxes are not being withheld.
They are in a cash economy. So, they are not--this problem
would get worse. It is true, you wouldn't pay out some small
amount of refunds, but I think you would have a very
discouraging effect on bringing people into the system, which
is our objective, of course.
Mr. HULSHOF. As just a final comment, since the Chair has
been very gracious with all of us when the red light has come
on, I would just simply say, first of all, a small thing. It is
good that each of you refers to each other on a first name
basis for this reason. There are witnesses coming behind that
really encourage data sharing and other information sharing
between the IRS and the SSA. I would encourage you guys to have
a weekly coffee or whatever, and I say that tongue-in-cheek
because there are a lot of challenges, and I recognize the
difficulty and the administrative nightmare, but the ability
for the IRS and the SSA to share some of this information--we
have talked about mismatches, we talked about all these
challenges. It is critical, and I respect that there are
different missions that the IRS has and the SSA has, but
unless, and until, we adopt some of these recommendations that
the IG or the Taxpayer Advocate have suggested, I think we are
going to continue to meet here every year, and we are going to
pound the podium and say, oh, here we are again, and we are not
going to make much progress. Thank you.
Chairman HOUGHTON. Thanks very much. Mr. Brady?
Mr. BRADY. Thank you, Mr. Chairman. Clearly, the mismatch
problem is frustrating for everyone in this room. Clearly, the
way it is being approached isn't working well. The number of
letters sent out, the response to it, the enforcement, issues
like that aren't making much of a dent. Shifting to--could we
be more effective by preventing the problem in the first place?
I know we have taken steps to make it easier for employers to
verify the SSNs up front, which is, I think, where we all want
to be, and when I am in Washington, I hear we have really made
great strides that way. When I am back home and talking to
employers in Texas, they feel like it is a cumbersome process,
and I can't recall if it is whether they need one verified, or
if they need a dozen in a day where it gets to be a problem. My
question is, what are we doing to make the SSN Verification
Service (SSNVS) more user friendly, more immediate in response?
Obviously, if we can match them up correctly at the beginning,
it is going to save us a bunch on the back end. Frankly,
employers have the responsibility to match these numbers. We
have the responsibility to make it, in this day and age of
technology, by sharing information and making it secure, we
ought to be able to do a good job of that. Would you care,
Commissioner Lockhart, to answer?
Mr. LOCKHART. I would be happy to. I think that is a very
important issue, and we have a lot of activities going on. We
do have our ongoing employee verification system that allows
employers the opportunity to call in to a special 800 number
with 5 SSNs, and get them verified then. Also, people can walk
into our field offices with up to fifty SSNs and names, and we
will say whether that is a match or not. That is all we will
say. We won't say if that is the real person or anything, but
we will say it is a match. They can also send magnetic data
tapes for their whole payroll, if they want.
I am very excited about where we are going. It is this new
system called SSNVS.This new system is in the final stage of
piloting, and has been very successful. We now have 85
employers, including some of the largest employers in this
country, using it. It is an Internet system that you can get,
in real time, 10 numbers identified, and overnight, virtually
as many as you want. That system, as we roll it out, and again,
we have to finish the evaluation of the pilot, but I can tell
you that we have satisfaction surveys from the users, and
something like 93 percent are very satisfied. So, I think that
is the way we are going.
Mr. BRADY. How do we accelerate a program like that? How
many employers today use--earlier, you talked about how you can
get five by the phone. You can get more than that if you come
into the office. How many employers, to put it in perspective,
are using what you have already today?
Mr. LOCKHART. It varies. Not as many as we would like. We
are still probably less than 1,000 in some of the various
aspects of the SSNVS, and we are trying to make it known to
people that it is available, and certainly we are sending out
now, I think quarterly newsletters to 6.5 million employers,
which is virtually every American employer. At this point, they
are not using it as actively.
Mr. BRADY. So, put that in perspective. Ten percent are
using it?
Mr. LOCKHART. Probably much less than that.
Mr. BRADY. On the new program, what would you think would
be an acceptable goal for us to set, both Congress and Social
Security, to match these accurately up front?
Mr. LOCKHART. That is a difficult question, and it may be
part of evaluating our pilot to set those kinds of goals. At
this point, I think it is a little premature. We have seen some
of the 85 participating employers use it extremely actively,
and we have seen others just use it occasionally. As part of
the evaluation, we are looking to see why some are using it
much more than others, and I think that will help us set those
kinds of goals.
Mr. BRADY. Thank you, Mr. Chairman.
Chairman HOUGHTON. Thank you very much. I am not going to
ask any questions, but I do look out over the next hill and ask
where we are going here. What are the options? What are we
doing? There is a mismatch. There is confusion here. You
realize it. You have got to make sure that people don't go
underground. Maybe what you could do is to send a one-pager or
a one-paragraph or something to us outlining some of the
specific things you think we ought to be aware of as you are
moving ahead here and trying to make this system work. So,
thank you very much, gentlemen. I appreciate your
participation, and we will go to the second panel.
Chairman HOUGHTON. The second panel is Michael Brostek, the
Director of Tax Issues, GAO; Pamela Gardiner, Acting IG for Tax
Administration, Treasury; Nina Olson, National Taxpayer
Advocate, IRS; and Patrick O'Carroll, Acting IG, SSA. I am
going to try to move this thing along so that we can get
through maybe in one-half hour. Would that be all right with
you? So, gentlemen and ladies, if you could shorten your
testimony as much as possible so that we can get some questions
from the panel, I would appreciate it very much. When you are
ready, Mr. Brostek, you can begin. Please commence, Mr.
Brostek. Thank you very much, everyone, for being here.
STATEMENT OF MICHAEL BROSTEK, DIRECTOR, TAX ISSUES, U.S.
GENERAL ACCOUNTING OFFICE
Mr. BROSTEK. Chairman Houghton, Shaw, and Members of the
Committee, thank you for the opportunity to testify today on
issues related to the Taxpayer Identification number, known by
its acronym as ``ITIN.'' In my summary, I will focus on the
IRS' controls over ITIN issuance, a limited test we did of
those controls, and on some concerns of employers and Federal
agencies that arise when ITINs are issued to illegal resident
aliens. The IRS' controls over the issuance of ITINs are
intended to help ensure that applicants are, in fact, who they
claim to be, and have a tax-related need for an ITIN. Although
the IRS made changes to approve these controls in December,
2003 and earlier, the IRS remains limited in its ability to
thwart improper claims for ITINs. The IRS issues at least 70
percent of ITINs without seeing the applicant, thus impeding
its ability to verify the applicant's identity. The IRS also
does not verify documents supplied by the applicants with third
parties, and has limited capability to translate documents.
We tested the IRS' ITIN issuance process and the graphic
over here shows our results. Before changes in issuance
controls were made, we were able to obtain an ITIN using a
counterfeit driver's license and a matricular card. A
matricular card is a photo identification issued by Mexico. We
then used the ITIN card that we received from the IRS to open a
bank account and obtain an ATM card. We also counterfeited an
ITIN card itself, and used that to obtain a voter registration
card in one State. This limited test shows that ITINs could be
obtained under false pretenses, and then used to help blend
into society. Although the IRS has made changes since we did
our test, in our opinion, the weaknesses that we exploited were
not fully addressed.
The IRS has concluded that most resident aliens who have
ITINs and earn wage income are not legally employed in the
United States. When ITINs are used by individuals who cannot be
legally employed, a number of issues arise. One is how such
issues contribute to the SSA's earnings suspense file. Using
2002 data from the SSA, we roughly estimated that about 119,000
ITINs have shown up in the suspense file from 1996 through
2000, the period we looked at. During that period, there were
38 million records added to the suspense file.
However, ITIN recipients often provide their employers, as
we have heard earlier, an SSN instead of the ITIN number that
they receive from the IRS. According to information provided by
the Treasury IG for Tax Administration, for tax year 2000,
about 265,000 ITIN recipients had W-2s attached to their
returns with SSNs that had not been assigned to the ITIN
holder. Thus, in that year alone, the use of SSNs by ITIN
recipients likely accounted for more of the growth in the
suspense file than the ITINs themselves have for the entire
time they have been in creation. Employers have
responsibilities to the SSA, the IRS, and the DHS related to
identifying employees, those employers have raised concerns
that the DHS--the U.S. DHS--and the IRS might penalize them. In
general, however, based on the IRS' reply to these employers
and our understanding of the IRS' regulations, if employers do
only what they are required to do, those employers appear to
bear fairly little likelihood of being penalized. Under the
IRS' guidance, employers have no direct responsibility to
consider whether the numbers that are provided to them are
valid.
From Federal agencies' perspective, because tax returns for
ITIN holders provide many details about where they live and are
employed, data the IRS possesses has potential to assist the
DHS in enforcing immigration laws. Taxpayer data might help the
DHS identify up to hundreds of thousands of individuals who
appear to be illegally employed. These data are not shared, as
we have heard earlier, for several reasons, including the legal
restrictions on the sharing of taxpayer data, and the potential
that such sharing might cause individuals to move into the
underground economy. In summary, in creating the ITIN, the IRS
had a valid tax administration purpose, but that also opened
another avenue for individuals to use to establish an identity
and blend into society. The IRS' controls over the issuance of
ITINs have been limited, and consequently we had little
difficulty obtaining an ITIN with bogus documents. The IRS'
recent efforts to improve its controls have helped somewhat,
but we believe that some weaknesses remain, the weaknesses that
we exploited in part.
A significant number of ITIN holders are illegal resident
aliens. Cooperation among these agencies might help them in
carrying out their missions. However, given considerations such
as the legal and policy issues that are attendant to that
increased cooperation, the agencies have been somewhat
restrained in doing that. This hearing is one opportunity for
Congress to consider whether to provide new guidance to the
agencies on how they should proceed.
Chairman HOUGHTON. Thank you very much, Mr. Brostek.
[The prepared statement of Mr. Brostek follows:]
Statement of Michael Brostek, Director, Tax Issues, U.S. General
Accounting Office
Messrs. Chairmen and Members of the Subcommittees:
I am pleased to participate in the hearing today on various issues
related to the Individual Taxpayer Identification Number (ITIN) issued
by the Internal Revenue Service (IRS). As you requested, my statement
today describes why IRS created the ITIN, the processes and controls
IRS has in place for issuing ITINs, the results of our limited test of
the controls over issuing an ITIN, and certain concerns and problems
for employers and government agencies that ensue when ITINs are issued
to illegal resident aliens.\1\
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\1\ In this testimony, we use the term alien to mean a foreign-born
individual who has not been naturalized and is still a subject or
citizen of a foreign country. A resident alien is someone meeting this
definition but also considered a resident of the United States for tax
purposes, as described later in this testimony. A nonresident alien
does not reside in the United States, but may have a need to interact
with IRS. For this testimony, we defined an illegal resident alien is a
resident alien who is not legally in the United States and also may
refer to them as illegal aliens, undocumented workers, or unauthorized
resident aliens.
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IRS issues ITINs to individuals who are required to have a United
States taxpayer identification number (TIN) but who are not eligible to
obtain a social security number (SSN) from the Social Security
Administration (SSA). An ITIN has nine digits formatted like an SSN
(NNN-NN-NNNN) but beginning with the number ``9''.\2\ IRS issues ITINs
for tax processing purposes only. Having an ITIN does not affect a
holder's immigration status, or authorize the holder to work or receive
Social Security benefits.
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\2\ SSA officials said that they also receive other identification
numbers that start with ``9''.
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In requesting this testimony, you sought a better understanding of
the vulnerabilities in the ITIN issuance process, including whether
weaknesses allow ITINs to be issued and used for illegal purposes and
possible security breaches. You also expressed interest in the extent
to which employers may be confused by their responsibilities vis-a-vis
IRS, SSA, and the Department of Homeland Security (DHS) in ensuring the
identity of their employees, and whether federal agencies are sharing
information to deal with illegal resident aliens who may be issued
ITINs.
Today's statement is based on interviews, reviews of agency
documents and various publications, and limited tests of the ITIN
issuance controls. Specifically, to address the four areas, we
interviewed officials from IRS including the Taxpayer Advocate Service,
SSA, and the Departments of the Treasury, Homeland Security, and Labor.
We reviewed documents from these agencies as well as other literature.
In addition, our Office of Special Investigations (OSI) did limited
testing of IRS's controls to determine whether it could fraudulently
obtain an ITIN by mailing or presenting bogus identity documents to
IRS. OSI used an IRS-issued ITIN and a fake ITIN it generated for
nontax purposes. We did our work in Washington, D.C. from September
2003 through February 2004 in accordance with generally accepted
government auditing standards and we performed our investigative work
in accordance with standards prescribed by the President's Council on
Integrity and Efficiency.
Our results in these four areas showed that:
IRS created the ITIN in 1996 to improve tax
administration. IRS needed a better way to identify and track the tax
reporting of noncitizens that could not obtain an SSN for use when
filing tax returns. Beyond the filing of tax returns, ITINS have other
legitimate tax uses, such as for filing documents other than tax
returns and for claiming benefits related to a tax treaty. According to
IRS, most ITINs have been used at least once on a tax return and ITINs
also have been used for other legitimate tax purposes.
IRS made changes to improve its processes for issuing
ITINs in December 2003, but continues to have limited controls to
verify the identity of ITIN applicants. For example, the majority of
ITIN applicants apply by mail and IRS cannot be sure the applicant is
the same individual described by the documentation submitted. IRS also
does not verify with third parties the validity of the documents
submitted with the ITIN applications.
Before IRS changed its procedures in December, we
obtained an ITIN by applying with bogus documents through the mail. We
also created a bogus ITIN without applying to IRS. Using the IRS-issued
ITIN, we opened a bank account and obtained an ATM card. We used the
bogus ITIN to obtain a voter registration card. While very limited,
this test illustrates weaknesses in IRS's ITIN controls, which have not
been completely addressed by the changes made in December, and shows
that ITINs can be used for nontax purposes, such as blending into
society under a false identity. Resolving the continuing limitations in
IRS's ITIN issuance controls would be challenging.
Although precise data are not available, hundreds of
thousands of ITINs are issued to aliens who subsequently earn wage
income. IRS and the Treasury Inspector General for Tax Administration
(TIGTA) have concluded that these individuals are illegal resident
aliens. Given this context, employers have raised concerns about
potentially conflicting obligations to IRS, SSA, and DHS when they
identify employees and their work eligibility. These concerns appear to
be largely unfounded if employers do what is specifically required.
Sharing IRS data with DHS may provide enhanced information to target
enforcement of immigration laws, but to differing degrees, officials
cited such factors as legal restrictions and the potential for
employment to be hidden from tax administrators as affecting their
decisions about whether and how to share data.
BACKGROUND
IRS requires a unique TIN to process any tax return or tax-related
document, and associate the return or document with a taxpayer's
history. A TIN allows IRS to better manage a host of tax administration
functions--such as crediting tax payments, and verifying compliance in
filing returns, reporting income, and paying taxes. IRS also needs it
to process information returns filed by employers and financial
institutions to report certain types of payments (e.g., wages or
interest) made to individuals.
One type of TIN is the SSN, which SSA is authorized to issue to
United States citizens, aliens allowed to work in the United States, or
others, in limited cases, for nonwork purposes. For example, according
to SSA, if an applicant only needs an SSN to obtain certain government
benefits as specified in SSA regulations, SSA must issue an SSN and
social security card but the card specifically states that it is not
valid for work purposes. Individuals must use an SSN when filing a
required tax return, unless they cannot legally obtain an SSN.
For those who cannot obtain an SSN but need a TIN for tax purposes,
IRS created the ITIN. IRS's 2003 training manual on ITINs identifies
such individuals, as shown below.
An alien who does not reside in the United States and who
is filing a U.S. tax return to (1) claim a tax treaty benefit, (2)
claim a tax refund, or (3) file a joint tax return with a spouse who is
a U.S. citizen or resident.
An alien who lives in the United States and who is filing
a U.S. tax return.
Individuals claimed on a U.S. tax return as a (1)
dependent, or (2) spouse.
An alien is a resident for tax purposes if the individual (1) is a
lawful permanent resident (green card test \3\) in the United States
for any time during the year, (2) is present in the United States for
31 or more calendar days during the current year and for a substantial
time--183 or more weighted days--during a 3-year period weighted toward
the current year (substantial presence test), or (3) elects to be
treated as a U.S. resident (first-year election test).\4\
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\3\ A green card is an identity document issued to lawful permanent
residents by DHS that attests to the permanent residence status of an
individual in the United States.
\4\ 26 U.S.C. 7701(b)(1)(A).
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IRS does not believe that it has the legal authority to distinguish
between legal and illegal resident aliens for tax purposes. Individuals
who meet the definition of a resident alien are generally taxed in the
same manner as U.S. citizens and holders of green cards, meaning that
they are taxed on their worldwide income. One exception is that
resident aliens who have ITINs are ineligible to claim the refundable
earned income tax credit, which requires a valid SSN issued for work
purposes. A nonresident alien is subject to tax on income from U.S.
sources but generally not on foreign source income.
IRS CREATED THE ITIN TO IMPROVE TAX ADMINISTRATION
IRS created the ITIN in July 1996 to improve tax administration for
individuals who were ineligible to obtain an SSN. IRS needed a better
way to identify and track tax filing and reporting by these individuals
and by employers and financial institutions that file other tax
documents related to the individual's income.
Each individual taxpayer is to use a unique and permanent TIN,
which allows IRS to associate their filed tax returns with their tax
records and with information returns on payments made to them, and to
more effectively use programs to enforce tax filing and reporting
compliance. For individuals who lacked an SSN, IRS did not have a
permanent TIN to use in tracking their tax obligations and history
prior to the ITIN.
Prior to July 1996, IRS used a system of temporary TINs when a
taxpayer did not have an SSN to facilitate one-time processing of a tax
return. The temporary TIN was assigned to a return filed without an SSN
rather than to a taxpayer. However, IRS had to post returns with
temporary TINs to the invalid segment of IRS's masterfile because these
returns could not be associated with a valid taxpayer account.\5\
Posting to the invalid segment created problems for IRS enforcement
programs, such as negating income verification through document
matching. Because the temporary TINs were unique to IRS, IRS could not
easily match the amounts of income and withheld taxes reported on these
tax returns against information returns submitted by third parties to
report such amounts.
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\5\ The masterfile is a record of transactions in a taxpayer's
account. If a taxpayer has a TIN, IRS posts account information to the
valid segment of the masterfile. Otherwise, IRS posts the information
to the invalid segment.
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In 1995, we reported that accounts in the invalid segment had more
than doubled the growth rate compared to those in the valid segment
from 1986 through 1994. We also reported that IRS refunded $1.4 billion
for tax year 1993 returns posted to the invalid segment.\6\ Although no
one knows how much of this $1.4 billion may have been erroneously
refunded, the risk was higher because IRS had less certainty about
these filers' identities absent a valid TIN and about the accuracy of
their returns absent the ability to match a filed return with third-
party data.
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\6\ United States General Accounting Office, Tax Administration:
IRS Could Do More To Verify Taxpayer Identities, GAO/GGD-95-148
(Washington, D.C.: Aug. 30, 1995).
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Also, prior to December 1996, SSA was issuing ``nonwork'' SSNs to
individuals who had tax obligations but were not authorized to work or
were not otherwise part of the social security system. With the growth
in the earnings suspense file--SSA records that could not be associated
with a wage earner, SSA decided to reduce the number of nonwork SSNs.
Starting in December 1996, SSA tightened restrictions on who could
apply for a nonwork SSN.
In response to these events and the needs of tax administration,
IRS created the ITIN as a permanent TIN assigned to individuals who
needed to file a tax return but were ineligible to obtain an SSN. Among
other things, IRS was concerned was that information returns could not
be matched with a tax return. Such returns report third-party payments
made to those such as nonresident aliens who invested in companies or
real estate in the United States, or received rent and royalty
payments.
IRS issued its first ITINs in July 1996. Figure 1 shows that IRS
has issued over 7.2 million ITINs through December 2003 and over 1
million ITINs annually in more recent years.\7\
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\7\ IRS issued 60,682 ITINs in 1996; 1,363,071 in 1997; 566,745 in
1998; 615,413 in 1999; 818,392 in 2000; 1,088,837 in 2001; 1,493,284 in
2002; 1,229,097 in 2003; and 77,759 through Feb. 13, 2004.
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Figure 1: Number of ITINs Issued Annually and Cumulative Totals,
Calendar Years 1996 to 2003
[GRAPHIC] [TIFF OMITTED] 99672A.001
Source: GAO analysis of IRS data.
Note: 1996 does not cover a full calendar year because the ITIN
program began in July 1996.
According to IRS, most of the ITINs issued have been used for
legitimate tax purposes such as on tax returns and other tax-related
documents. IRS analysis in 2003 showed that about 75 percent of the
ITINs issued since its inception through September 2003 have been used
at least once on filed tax returns as a required identification number.
The actual portion of ITINs used for tax purposes would be higher than
75 percent if IRS had computed the frequency of uses beyond return
filing such as to: (1) obtain treaty benefits or exemptions from
withheld tax, and (2) file information returns on payments made, such
as Forms W-2 (Wage and Tax Statement) for wage income. IRS does not
track the frequency of these other uses.
IRS PROVIDES MULTIPLE WAS TO OBTAIN AN ITIN BUT ITS CONTROLS TO VERIFY
THE CORRECTNESS OF ISSUANCE AND USE ARE LIMITED
IRS provides multiple avenues to apply for an ITIN, all of which
result in IRS reviewing the applications and documents to establish an
individual's identity. However, IRS's controls over the issuance and
use of ITINs are limited. IRS made changes to improve its controls in
December 2003, but the changes did not fully address the control
limitations. Among other limitations, IRS does not see most applicants,
documents are not verified with third parties, and few staff can
translate or verify foreign language documents.
ITIN Application Process
Individuals apply for ITINs by filing a Form W-7 (Application for
IRS Individual Taxpayer Identification Number) with IRS. As of December
17, 2003, applicants must provide the tax return for which an ITIN is
needed, and documentation and a photograph to verify their identity and
foreign status, such as a passport, driver's license, or identity card.
The ITIN application can be mailed to IRS, submitted at an IRS
walk-in, taxpayer assistance center, or submitted through an acceptance
agent. Each way has slightly different procedures and requirements.
An applicant can mail Form W-7 and supporting documents
to the Philadelphia Service Center (campus). The documents must be
originals or notarized copies. Under IRS procedures, the documents are
to be examined by an ITIN unit employee and originals are to be
returned to the applicant while IRS is to retain notarized copies.
According to IRS, this mail option historically accounts for about 70
percent of the applications.
An applicant can apply at an IRS taxpayer assistance
center that provides walk-in assistance. An IRS employee is to review
the application and documents submitted. If the employee deems the
documented proof to be satisfactory, the employee is to make an
appropriate notation on Form W-7, copy the documents, and return them
to the applicant. The employee is to transmit Form W-7 and the copied
documents to Philadelphia for final review and issuance of the ITIN. If
the employee deems the documents to be suspect or unsatisfactory, the
employee is to return them to the applicant. According to IRS, about 20
percent of applicants use this walk-in option.
An applicant can use the services of an IRS-approved
acceptance agent.\8\ Agents include colleges, financial institutions,
and accounting firms, and can be located outside of the United States.
Acceptance agents help prepare a Form W-7 and must submit this form and
related documentation to IRS. Certified acceptance agents are
authorized to also certify whether the documented proof is adequate.
They are required to keep copies of the documents for 3 years after
making an appropriate notation on the Form W-7 and forwarding it to
IRS. Less than 5 percent of applicants use an acceptance agent--whether
or not certified.
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\8\ A list of acceptance agents that are available to the general
public is available on the IRS Web site (www.irs.gov).
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Limited Controls Over ITIN Issuance
IRS has limited controls to verify ITIN applicants' identities.
Among the key limitations in the issuance process are that IRS
employees do not have to see the applicant in most cases to verify
their identity, applicants' documents are not verified with third
parties, and IRS has few staff able to translate or verify foreign
language documents.
IRS's ability to establish the applicant's identity is hindered
when IRS employees do not see the applicant as they review identifying
information and photographs submitted. This is the case for
applications that are sent through the mail, which account for 70
percent of applications. A similar problem can arise for ``walk in''
applications because third parties can submit a Form W-7 for ITIN
applicants. As long as the Form W-7 is signed and documentation is
provided, IRS does not require applicants to appear.
IRS employees may have difficulty in determining the validity of an
unfamiliar document submitted with a Form W-7 to verify identity. An
IRS letter to state motor vehicle departments in August 2003 indicated
that IRS generally accepts documents submitted with a Form W-7 at face
value without validating their authenticity with issuing agencies, or,
as discussed above, requiring applicants to appear in person. As of
December 17, 2003, IRS listed 13 types of documents that could be used,
such as a passport, foreign voter registration card, visa, or U.S. or a
foreign driver's license.\9\ Prior to that, IRS had listed 40 types of
documents. IRS reduced the list, in part, because of the difficulty for
IRS employees who see low volumes of Forms W-7 to know all types of
documents.]
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\9\ Other documents include an identification card issued by U.S.
or foreign military agencies, a state, or a national government; a DHS
photo identification; birth certificate; and medical or school records
for dependents.
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Even with this reduction in the number of acceptable types of
documents, IRS employees still can encounter many variations to
consider for each type of document. For example, an IRS research study
completed in October 2003 indicated that 17 countries accounted for 85
percent to 87 percent of the ITIN applicants during 1999 through 2001.
In each of these years, Mexican citizens accounted for 54 percent to 57
percent of the ITIN applications submitted to IRS. The remaining ITIN
applicants can come from many other countries. Each country could have
unique formats for each type of acceptable document, which may be
unfamiliar to IRS employees.
IRS employees have limited capability to interpret documents
submitted in a foreign language. IRS does not track how many documents
are submitted in a foreign language but as noted above, ITIN applicants
can come from many countries. As of October 2003, 10 of the 230
employees at the ITIN Philadelphia site were bilingual--6 in Spanish, 1
in Chinese, 1 in Korean, 1 in Japanese, and 1 in Ukrainian/Polish,
according to IRS.
Nor does IRS generally require ITIN applicants to provide
translated copies of documents submitted in a foreign language.
According to the Form W-7 instructions, the applicant may be required
to provide a certified translation of the foreign language document to
obtain an ITIN. IRS states that it will attempt to translate any
foreign documents provided. If IRS cannot translate it, IRS's procedure
is to ask the applicant for the required translation.
Even if documents can be read, some IRS employees do not have much
experience in judging whether the documents are genuine. According to
IRS officials, much of this knowledge comes from on-the-job
experience--employees that see more documents are more likely to be
able to spot an invalid or bogus document. Each IRS employee that
provides taxpayer assistance receives the standard 8-hour IRS training
on ITIN, including document identification and validation, given to all
employees when hired--whether the employee handles ITIN applications in
Philadelphia or at a walk-in site.
IRS Is Attempting to Improve ITIN Issuance Controls
Knowing of weaknesses in its ITIN processes and controls, IRS has
made some changes to improve its controls and is considering other
improvements. IRS's concern about the large number of ITINs issued
prompted creation of a task force in 2002 to conduct an in-depth review
of ITINs. The task force identified many problems and recommendations
in its September 2002 final report. IRS designated 22 recommendations
as high priority, and created an ITIN office to study their feasibility
and oversee any implementation.
We did not have time to review the implementation status of all 22
recommendations but know that action has been taken on some of the
recommendations. For example, IRS has started a campaign to educate
states, employers, financial institutions, and other government
agencies on the appropriate use of ITINs. To this end, IRS sent letters
in August 2003 to the directors of all state motor vehicle departments
asking them to not accept ITINs for drivers' license purposes. IRS also
has considered legislative proposals to make ITIN use illegal for
nontax purposes, and to assess information return penalties for
improper Form W-7 filings.
IRS announced three other recommendations that took effect on
December 17, 2003. First, to help eliminate the nontax use of ITINs,
the applicant will have to show a federal tax purpose for seeking the
ITIN. A Form W-7 application without proof that an ITIN is needed for
federal tax purposes is to be rejected. IRS is requiring taxpayers to
attach the tax return for which an ITIN is needed to a Form W-7.\10\
Nonresident aliens who need an ITIN for tax purposes other than filing
a tax return, such as to obtain tax treaty benefits, will need to prove
ownership of the asset that is eligible for a benefit when they file
the Form W-7. Second, as mentioned earlier, IRS reduced to 13 from 40
the number of documents that it will accept as proof of identity to
obtain an ITIN. Third, IRS will no longer issue an ITIN card, reasoning
that the card could be mistaken for an SSN card. Rather, it will issue
an authorization letter. Although these changes appear to have the
potential to better ensure that ITINs are issued for valid tax-related
purposes, we do not know how much these changes may improve IRS's
controls over issuance.
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\10\ Applicants who are not authorized to work but report wage
income on the tax return could still qualify for an ITIN, as discussed
elsewhere in this testimony.
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Weaknesses in ITIN Controls Can Contribute to Tax Fraud
Weak controls over the issuance of ITINs can contribute to tax
fraud by individuals seeking to obtain a tax refund that is not truly
owed to them. For example, if an individual uses bogus documentation to
obtain an ITIN under a false identity, that individual could use that
ITIN to file fraudulent tax returns that claim tax refunds. In such
situations, the individual could attach a bogus Form W-2 to the tax
return to create support for any wages claimed on the fraudulent
return, even though ITIN holders generally are not authorized to have
SSNs and earn wages in the United States.\11\
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\11\ By analyzing a sample of tax returns filed in tax years 1999
and 2000 with an ITIN for the primary filer, IRS estimated that more
than 90 percent of the returns also reported wage income.
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IRS has not measured how often such tax fraud schemes related to
ITINs have been used but has some anecdotal data. IRS has found that
ITINs have been used in schemes that resulted in millions of dollars in
fraudulent tax refunds. For 1999 through 2003, IRS found 12,241 tax
returns, that used an ITIN with bogus Form W-2s attached that claimed
refunds in excess of $22.1 million. IRS was able to stop $18 million of
these refunds. One scheme in California over these four years accounted
for 9,664 of these false returns.
IRS's ITIN CONTROLS CAN BE CIRCUMVENTED TO OBTAIN ITINS AND USE THEM
FOR NON-TAX PURPOSES
Before IRS instituted the changes during December 2003, we did a
limited test to assess the security of the ITIN program controls. We
attempted to improperly obtain and use ITINs for nontax purposes during
September through November 2003. We were able to obtain an ITIN from
IRS using fake identity documentation and use this ITIN as well as a
bogus ITIN we created for nontax purposes. Although IRS changed its
procedures after we obtained and used the ITINs, the changes made do
not fully address the weaknesses we exploited, such as IRS's limited
ability to verify the validity of documents. Overcoming these
weaknesses would be challenging.
We applied for an ITIN using two methods. First, we mailed an ITIN
application to IRS's Philadelphia Service Center using a bogus foreign
birth certificate as proof of identity. Second, we submitted bogus
foreign documentation as proof of identity at an IRS taxpayer
assistance site. After we obtained an ITIN through the mailed
application, we used it to open a bank account and obtain an ATM card.
We did not receive the ITIN from the application submitted at the walk-
in site because we already received an ITIN for that individual through
the mailed application; IRS apparently followed its procedure to not
issue multiple ITINs to the same individual.
We also created a bogus ITIN displayed on a fake ITIN card. We used
the bogus ITIN in lieu of a required SSN to obtain a Virginia voter
registration card. Virginia requires an SSN to register to vote but
presumably voter registration officials did not verify the number we
put on the application.\12\ Only U.S. citizens are eligible to obtain a
voter registration card. We were twice unsuccessful in using the bogus
ITIN to open a bank account in the District of Columbia. Officials at
both banks told our staff that they could not validate this ITIN based
on their access to a credit reporting agency database.
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\12\ Given the limited time to do our work, our test only included
Virginia. We do not know whether other states also would have issued us
a voter registration card in this manner. Since we did our test,
Virginia has announced changes to strengthen its checks of
identification documentation such as for a driver's license.
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Our test of IRS's ITIN issuance controls and whether an individual
can use an ITIN for nontax purposes was too limited to show the extent
to which ITIN issuance controls prevent improperly-issued ITINs. Nor
does the test show the magnitude of any abuse, in either receiving
ITINs under false pretenses or using them for nontax purposes. Rather,
the test indicates that IRS's ITIN process and controls could be
circumvented, and that a person who obtains an ITIN using bogus
documentation may have little difficulty in using the ITIN for certain
nontax purposes.
Although IRS revised its procedures for issuing ITINs subsequent to
our test, the changes made do not completely address the control
weaknesses we exploited. On one hand, IRS staff will need to review
fewer types of documents and will be further trained in 2004 on
document validation and document inspection equipment to help identify
questionable documents. Also, because IRS switched to a letter from an
SSN-like card to help clarify that the issued ITIN is not an SSN, using
an ITIN to obtain other documents may be more difficult. On the other
hand, IRS will neither require applicants to appear in person nor
verify documents with third parties such as the country issuing them.
Thus, IRS remains limited in its ability to ensure that the documents
submitted with an ITIN application are valid and that the applicant is
the same individual described by those documents.
IRS officials said that requiring ITIN applicants to apply in-
person and verifying documents with third parties would pose
challenges, such as significantly delaying the issuance of ITINs and
processing of returns that are now to be attached to ITIN applications.
According to IRS, requiring in-person appearances would significantly
burden IRS and applicants for various reasons. First, IRS locations
that accept applications do not have the capacity, space or staffing to
handle the increased ITIN traffic. Second, not all ITIN applicants live
near such IRS locations and those in foreign countries would have
virtually no place to go. Third, assistance to customers with other tax
issues would be diminished, particularly when the ITIN workload now
only represents about 7 percent of the customers assisted. IRS also
noted that verifying identification documents would be burdensome on
customers and costly for IRS, particularly when a significant
proportion of the documents come from foreign sources.
DIFFICULT ISSUES ARISE WHEN ILLEGAL RESIDENT ALIENS RECEIVE ITINS,
BECOME EMPLOYED, AND RECEIVE WAGE INCOME
Because many ITINs are provided to aliens who are not authorized to
work but who nevertheless do, employers and government agencies face
many difficult issues. Often, these issues center on what role
employers and agencies have, or should have, in furthering the federal
policy that immigrants should only be in the United States legally.
Employees who are illegal resident aliens likely provide employers
inaccurate TINs, which could be either SSNs or ITINs. In this context,
employers' concerns that they might be penalized if they provide
inaccurate wage reports to IRS and SSA appear largely unfounded if they
do what they are required to do. Employers also appear to have been
concerned about what they are expected to do under the government's
broader policies on illegal immigration. However, if employers do what
is required in verifying the identity and work eligibility of
employees, they appear to limit the likelihood of needing to take
additional actions under DHS guidance related to possible illegal
resident aliens.
When illegal resident aliens obtain employment and earn wages, IRS
has data that could provide DHS enhanced information to use in
targeting its enforcement efforts. However, to differing degrees,
officials cite limited resources, other data sources available to them,
legal restrictions, and potential impact on voluntary compliance as
factors affecting their decisions about whether and how to share data.
Tax Returns Using ITINs Often Involve Illegal Resident Aliens and Their
Associated Wage Statements Likely Show Up in SSA's Earnings
Suspense File
IRS and TIGTA have concluded that many of the taxpayers who file
tax returns with ITINs are illegal resident aliens. Although estimates
are not precise, according to TIGTA, hundreds of thousands of the tax
returns filed with ITINs each year likely involve employed illegal
resident aliens. Because a substantial portion of these returns have
forms W-2 attached with SSNs as the identifying number, they likely
lead to hundreds of thousands of new records being added annually to
SSA's earnings suspense file--a large and growing file of wage earnings
for which SSA cannot identify the owner.
In a December 2003 letter that responded to a TIGTA report,\13\ IRS
concluded that most resident aliens who have ITINs and also report wage
income were not legally employed in the United States because they used
an ITIN instead of a valid SSN on their tax returns. If these
individuals had qualified for an SSN, they would not need to file with
an ITIN. Further, IRS said that it believes that most ITIN holders
whose wages are reported on Forms W-2 are using stolen or fabricated
SSNs.
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\13\ Internal Revenue Service's Individual Taxpayer Identification
Number Creates Significant Challenges for Tax Administration, Treasury
Inspector General for Tax Administration, Jan. 2004, Reference Number
2004-30-023.
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In this report, TIGTA had estimated for tax year 2000 that 353,000
resident aliens who were not authorized to work in the United States
filed a tax return with an ITIN and also reported wages. TIGTA
concluded that these individuals likely were unauthorized resident
aliens (i.e., illegal resident aliens) since they did not use an SSN as
their identifying number on the tax return. TIGTA estimated that at
least 265,000 of these returns had Forms W-2 attached that did not use
valid SSNs.
These illegal resident aliens can contribute to the size of SSA's
earnings suspense file when they work and provide their employers an
incorrect identification number and/or name. New employees are supposed
to fill out an IRS Form W-4 (Employee's Withholding Allowance
Certificate) when they begin employment to identify how many, if any,
exemptions to claim for income tax withholding, and must provide their
name and SSN. The employer uses the W-4 information to help complete a
Form W-2 to report wages the employee earned and the amount withheld
for income tax purposes for the calendar year. The Form W-2 is sent to
SSA, which uses the form to record the employee's earnings for use in
determining future benefits. After recording the wages, SSA forwards
the Form W-2 information to IRS so that IRS can match the wages
reported on the W-2 to those reported by the taxpayer on a tax return.
If an illegal resident alien provides an ITIN or an SSN (someone
else's or an SSN-like number that was made up) on the W-4 and the
employer records the name and number on a W-2 form, those numbers will
show up as ``mismatches'' when SSA attempts to validate that the
employee's name and number match those in SSA's records. In these
cases, SSA posts a record of the wage earnings into its suspense file.
Although it is difficult to compute their precise impact, ITIN
mismatches represent a very small portion of the postings to the
earnings suspense file since it was created and since the ITIN was
created. Based on a preliminary analysis in 2002 of SSA data for 1996
(when the ITIN was created) through 2000 (the most recent year of
available data then), the suspense file contained roughly 119,000
numbers that looked like ITINs \14\ and wages of about $936 million.
The entire file contained over 230 million postings and more than $365
billion in uncredited wages through 2000. For those same years (1996
through 2000), about 38 million additional postings (with about $166
billion in wages) entered the suspense file.\15\ Thus, the initial
computation of about 119,000 numbers with wages reported under likely
ITINs represented about 0.3 percent of new postings and about 0.6
percent of new wages added to the suspense file between 1996 and 2000.
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\14\ We did not confirm that each Form W-2 actually reported an
ITIN because we did not cross match the SSA records with an IRS file of
issued ITINs. Rather, we counted all numbers in the suspense file that
appeared to be an ITIN due to their ITIN-like format.
\15\ For a number of reasons, the number of suspense file accounts
fluctuates daily, making a precise count difficult. While new accounts
enter the suspense file, others are withdrawn. SSA has the ability to
resolve certain types of identification problems for some of the
accounts. Also, individuals come to SSA to report errors in their
earnings records. These numbers on the accounts in the suspense file
cover through tax year 2000, as of November 2003.
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Illegal resident aliens' use of SSNs that are not valid for
employment purposes likely accounts for more of the growth in SSA's
suspense file than does their use of ITINs. We did not attempt to
compute the growth in the suspense file that may be due to illegal
resident aliens improperly using an SSN. However, as discussed earlier,
for tax year 2000, TIGTA estimated that at least 265,000 tax returns
\16\ had W-2s attached that used invalid SSNs, which is higher than the
119,000 likely ITINs in the suspense file since 1996.
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\16\ In its report, TIGTA stated that computed the margin of error
for this estimate was plus or minus 17,732.
If Employers Do What Is Required, They Appear to Face Little Likelihood
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of Being Penalized
Employers' concerns about potentially being penalized by IRS if
they submit inaccurate wage reports--which can occur when illegal
resident aliens provide them ITINs or SSNs upon obtaining employment--
appear to be largely unfounded if employers do what is required.
Further, if employers do what is required of them, they also appear to
minimize their responsibilities to take additional actions under DHS
regulations related to possible illegal resident aliens.
Employers have responsibilities to IRS, SSA, and DHS when they hire
employees. In addition to the Forms W-4 and W-2 responsibilities,
employers are responsible under DHS regulations for verifying
employees' identity and employment eligibility. Employers must ensure
that employees fill out a DHS Form I-9 (Employment Eligibility
Verification Form) when they start work. Employers must review
documents provided by employees establishing their identity and
eligibility to work and retain the Form I-9 for 3 years after a person
begins work or 1 year after a person's employment is terminated.
Pursuant to your interest, we contacted two groups that represent
employers to better understand what concerns, if any, they may have
about their responsibilities to these agencies. Officials from those
groups did not provide us any examples where the guidance of IRS, SSA,
and DHS were directly in conflict.
However, based on our review of two IRS letters,\17\ it appeared
that some employers may have believed that (1) they had greater
responsibilities than they actually do under IRS guidance and those
perceived responsibilities might lead to penalties, and (2) following
one agency's advice may put them at risk with another agency.
Representatives of one of the employer groups we spoke with said that
IRS's responses, as partially described below, allayed their concerns
by clarifying actions employers are required to undertake.
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\17\ On July 24, 2002, the American Society for Payroll Management
sent a letter and IRS responded to their concerns on January 13, 2003.
A set of follow-up questions produced another IRS response on September
23, 2003.
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The Information Reporting Program Advisory Committee (IRPAC), which
represents those (such as employers) who have interests in IRS's
information returns programs, asked IRS about any advantage or
disadvantage to using IRS's TIN matching program or SSA's SSN
verification systems \18\ for purposes of information reporting
accuracy penalties.\19\ The inference from this question appeared to be
that some employers believed they were required or expected to use
these systems to verify that the SSN provided by an employee was
correct. IRS's response clarified that (1) the TIN-matching program was
not available to employers for this purpose due to statutory
restrictions and (2) employers only have to ask an employee fill out a
Form W-4 and then can rely on the SSN as provided on that form. IRS
clarified that under its rules employers have no responsibility to
verify the accuracy of the SSN provided by the employee.
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\18\ TIN Matching is an IRS program that allows payers who submit
certain information returns subject to backup withholding taxes when
the payee does not provide a TIN to match payee TIN and name
combinations against IRS records prior to submitting information
returns. SSA's verification system is a system that employers may
choose to use in an effort to verify that an SSN matches a given
individual's name.
\19\ 26 U.S.C. 6721 provides for a penalty for failure to file a
complete and accurate information return, including a failure to
include the correct TIN (or SSN). The penalty is $50 per return up to
$250,000 per year.
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In general, IRS informed employers that they must solicit an SSN
from the employee when the employee is hired by having the employee
fill out a Form W-4. The employer should retain the Form W-4 in its
records and use the SSN provided on the Form W-4 when completing a W-2
to report wages paid to the employee. If IRS subsequently notifies the
employer that the SSN is invalid, the employer may need to solicit an
SSN from the employee once or twice more. The employer may rely on the
SSN provided by the employee with no further verification.
The employers' questions to IRS also implied that they were
concerned that fulfilling their responsibilities to IRS might create
the need to take action to comply with DHS requirements. In its letter
to IRS, IRPAC noted that federal immigration representatives had told
some employers that if an employer used SSA's SSN verification system
or IRS's TIN matching program, a mismatch notice would constitute
constructive notice of a possible work authorization issue. In general,
if questions arise about an employee's work authorization, DHS guidance
provides that an employer might need to take certain actions, such as
providing the employee another opportunity to provide proper Form I-9
documentation. We did not verify whether a mismatch could be
constructive notice of a work authorization issue. However, because
employers cannot use the TIN matching program for this purpose and are
not required to use SSA's SSN verification system, employers can avoid
possibly having constructive notice of a work authorization issue by
simply not verifying an employee's identity.
Greater Data Sharing Regarding ITIN Taxpayers Might Help DHS Identify
Illegal Immigrants, But Several Issues Affect Any Decision to
Increase Data Sharing
Enhanced sharing of IRS data might help DHS in addressing illegal
immigration, but whether and how to share data is a complex policy
issue. Such data sharing could provide DHS additional information to
use in targeting its enforcement efforts. However, to differing
degrees, officials cite limited resources, other data sources available
to them, legal restrictions, and potential impact on voluntary
compliance as factors affecting their decisions about whether and how
to share data.
Among IRS's principal responsibilities, IRS is to ensure that all
taxpayers meet their tax obligations, including illegal resident aliens
who are not authorized to work in the United States but who have a tax
obligation. Among SSA's responsibilities is ensuring that individuals
who have paid social security taxes on their covered earnings receive
credit. Such credit is important so that workers will receive the
benefits to which they are entitled based on their work, even persons
with such earnings from unauthorized work. In addition to other
responsibilities, DHS is responsible for enforcing the nation's
immigration laws, including deterring illegal immigration and locating
and deporting illegal resident aliens.
As discussed earlier, IRS data may identify hundreds of thousands
of individuals who are likely to be illegal resident aliens.
Individuals who obtain ITINs and report wage income on a tax return may
be illegal resident aliens. IRS has data that could be used to identify
illegal resident aliens and/or their employers. The data would include
such specifics as an individual's name, address, and place(s) of
employment in the last calendar year.
Although DHS officials we spoke with said that IRS data might be
useful in carrying out their responsibilities, they noted that they
have other sources of data on illegal immigrants and have limited
resources to pursue all potential leads on illegal immigration.
Further, they recognized that current statutory restrictions on sharing
tax data would need to be modified to permit sharing of IRS data with
them.\20\
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\20\ Section 6103 of the Internal Revenue Code allows IRS to
disclose taxpayer information to federal agencies and authorized
employees of those agencies, but only under specific conditions.
Section 6103 does not currently authorize data sharing between IRS and
DHS specifically for immigration enforcement.
---------------------------------------------------------------------------
IRS officials similarly noted a number of issues that relate to
increasing data sharing among the agencies. IRS officials said that
they cannot share these data with DHS under current statutory
restrictions on the sharing of tax data. IRS officials also said that
any consideration of additional sharing of tax data with federal
agencies requires substantial justification and should be considered in
rare circumstances because the confidentiality of tax data is
considered to be fundamental to taxpayers' willingness to voluntarily
and accurately report their tax obligations. Finally, IRS officials
also noted a potential adverse effect of increased data sharing. To the
extent that illegal resident aliens become aware of greater sharing of
information by IRS with other agencies, some of the individuals may
move into ``underground'' jobs and avoid their tax obligations. Thus,
IRS faces a fundamental tension in considering steps that might further
other agencies' achievement of their missions but that potentially
undercut IRS's ability to ensure that all taxpayers, regardless of
their legal immigration status, meet their tax obligations.
CONCLUDING OBSERVATIONS
IRS's creation of the ITIN helped it resolve several tax
administration challenges. However, in creating the ITIN, IRS opened an
avenue for individuals to use to establish an identity and to blend
into society. IRS's controls over the issuance of ITINs have been
limited and consequently, we had little difficulty obtaining an ITIN
with bogus documents and then using that ITIN, as well as a completely
made up ITIN, to take additional steps to blend into society. IRS's
recent efforts to improve its ITIN issuance process--which changed the
application procedures from those we tested--might make it somewhat
more difficult to obtain an ITIN with bogus information but do not
fully address the weaknesses we exploited.
Because a significant but not precisely known number of ITIN
holders are illegal resident aliens, tax return data that IRS receives
could potentially assist DHS in carrying out enforcement of immigration
laws. However, agency officials have not aggressively sought to enhance
data sharing, citing limited resources, legal restrictions, and
possible voluntary compliance impacts. Changing the current statutory
provisions that limit the sharing of tax-related data with agencies or
emphasizing enhanced efforts by IRS, SSA, and DHS to address the
presence of illegal resident aliens are difficult policy issues. For
instance, to what extent would increased data sharing undermine the
willingness of taxpayers to voluntarily and accurately report
information IRS needs to administer tax laws? What priority should
these agencies place on addressing illegal resident aliens versus their
other responsibilities? Given the legal, budgetary, and policy issues
attendant to increased data sharing, this hearing is one opportunity
for Congress to consider whether to provide new guidance to the
agencies on how to proceed.
Messrs. Chairman, this concludes my prepared statement. I would be
happy to respond to any questions you or other Members of the
Subcommittees may have at this time.
For further information on this testimony, please contact Michael
Brostek at (202 512-9110 or. Individuals making key contributions to
this testimony include George Guttman, Jay Pelkofer, and Tom Short.
Chairman HOUGHTON. Ms. Gardiner.
STATEMENT OF PAMELA J. GARDINER, ACTING INSPECTOR GENERAL FOR
TAX ADMINISTRATION, U.S. DEPARTMENT OF THE TREASURY
Ms. GARDINER. Chairman Houghton, Chairman Shaw, I
appreciate the opportunity to appear before you today to
discuss issues related to individuals who file tax returns
using the ITIN, and its impact on tax administration. The vast
majority of the individual tax returns are filed using an SSN
as identification. However, there are instances where alien
individuals have a need to file a U.S. tax return. For example,
a professional golfer who is a citizen of another country but
tours in the United States would need to report taxes on
tournament winnings. To enable these individuals to file,
Treasury regulations were issued in 1996 to provide them with
ITINs. The number of ITINs issued in the last few years has
increased dramatically, climbing from 1.1 million in 2001 to
1.5 million in 2002, a 1-year increase of about 36 percent.
Normally, ITINs would be used to file a 1040-NR, U.S. non-
resident alien income tax return. However, many ITINs are used
to file Forms 1040, which creates challenges for tax
administration. Our analysis of Forms 1040 filed in tax year
2001 with ITINs, found that approximately 530,000 Forms 1040
were filed with ITINs as the primary number by aliens who
resided in the United States, but who were not authorized to
work and, in general, to reside in the United States These
returns reported adjusted gross income of $10.7 billion. After
tax deductions and credits, these tax returns reported a total
liability of $184 million. Tax returns filed with ITINs present
two significant challenges for IRS' administration of the tax
system. First, resident aliens filing tax returns with ITINs do
so because they typically are not eligible for a valid SSN for
employment purposes. As a result, the tax returns filed by
these individuals and the corresponding Forms W-2 often have
two different identification numbers. We estimate that 309,000
tax year 2000 Forms 1040 filed with ITINs included W-2s with
SSNs that did not belong to the individuals who filed the tax
returns. Instead, many of the SSNs were assigned to other
individuals.
Second, individuals filing returns with ITINs often fail to
fully report income from wages and employee compensation. For
tax year 2000, we estimate that one in four individuals filing
with ITINs failed to report wages and employee compensation
totalling $324 million. However, the mismatches between the
ITINs and the SSNs limits the IRS' ability to identify this
particular type of under-reporting. Beyond the tax
administration challenges, other government agencies are
affected by ITIN usage because the tax law generally prohibits
the disclosure of tax information to other Federal Government
agencies. For example, immigration law contemplates an
unrestricted exchange of information regarding immigration
status between Immigration and Customs Enforcement, and other
government entities and officials. However, there is no current
exception within the Internal Revenue Code that would permit
this. In addition, identity theft is the fastest growing finan-
cial crime in the country. The SSA has expressed ongoing
concerns about the significant problems caused by the misuse
and sometimes fraudulent use of the SSN. As I indicated
earlier, tax returns with ITINs have often included W-2s with
SSNs assigned to other individuals.
In December 2000, the IRS announced that it was taking a
number of steps to enhance the ITIN program, as outlined in
Commissioner Everson's testimony. This ITIN initiative is a
laudable effort and may reduce the number of ITINs issued for
non-tax purposes. However, it does not address the issues
resulting from individuals with ITINs and their employers using
erroneous or improper SSNs for wage reporting. It is also
unlikely that it would deter an individual with criminal
intent, and it might be an impediment to those who seek to
voluntarily comply with the tax laws. We will monitor the
impact these initiatives have on the integrity of the ITIN
program. I would like to close by responding to press reports
suggesting that Treasury Inspector General for Tax
Administration has compiled a list of people who we suspect are
illegal aliens, and that we intend to prosecute them. I can
assure you that this is completely false. We do not have any
such list, initiative, or program designed to identify persons
who are not authorized to work in the United States, and I
would be happy to answer any questions.
Chairman HOUGHTON. Thank you very much, Ms. Gardiner.
[The prepared statement of Ms. Gardiner follows:]
Statement of Pamela J. Gardiner, Acting Inspector General for Tax
Administration, U.S. Department of the Treasury
Chairman Houghton, Chairman Shaw, Ranking Member Pomeroy, Ranking
Member Matsui, and distinguished Members of the subcommittees, I
appreciate the opportunity to appear before you today to discuss issues
related to individuals who file tax returns using an Individual
Taxpayer Identification Number (ITIN), and its impact on tax
administration.
The vast majority of individual tax returns are filed using a
Social Security Number (SSN) as identification. However, there are
instances where alien individuals have a need to file a U.S. tax
return. For example, a professional golfer who is a citizen of another
country but tours in the U.S. would need to report taxes on tournament
winnings. To enable these individuals to file, Treasury Regulations
were issued in 1996 to provide them with ITINs. An ITIN is intended for
tax purposes only and creates no inference regarding an alien
individual's right to live in the U.S. or be legally employed here.
The number of ITINs issued in the last few years has increased
dramatically, climbing from 1.1 million in 2001 to 1.5 million in
2002--a one-year increase of about 36 percent. Normally, ITINs would be
used to file a Form 1040NR--U.S. Nonresident Alien Income Tax Return.
However, many ITINs are used to file Forms 1040, which creates
challenges for tax administration. Our analysis of Forms 1040 filed in
Tax Year 2001 with ITINs found that approximately 530,000 Forms 1040
were filed with ITINs as the primary number by aliens who resided in
the U.S., but who were not authorized to work and, in general, to
reside in the U.S.
These returns reported adjusted gross income of $10.7
billion. After tax deductions and credits, these tax returns reported a
total liability of $184 million.
Over half of the tax returns reported no tax liability,
and $522 million in tax refunds were claimed on these returns.
Tax returns filed with ITINs present two significant challenges for
IRS' administration of the tax system. First, resident aliens filing
tax returns with ITINs do so because they typically are not eligible
for a valid SSN for employment purposes. As a result, the tax returns
filed by these individuals and the corresponding Forms W-2 often have
two different identification numbers. We estimate that 309,000 Tax Year
2000 Forms 1040 filed with ITINs included W-2s with SSNs that did not
belong to the individuals who filed the tax returns. Instead, many of
the SSNs were assigned to other individuals. Second, individuals filing
returns with ITINs often fail to fully report income from wages and
nonemployee compensation. For Tax Year 2000, we estimate that one in
four individuals filing with an ITIN failed to report on their tax
returns wages and nonemployee compensation totaling $324 million.
However, the mismatches between the ITINs and the SSNs limit the IRS'
ability to identify this underreporting.
Beyond the tax administration challenges, other government agencies
are affected by ITIN usage because the tax law generally prohibits the
disclosure of tax information to other Federal Government agencies. For
example, immigration law \1\ contemplates an unrestricted exchange of
information regarding immigration status between Immigration and
Customs Enforcement and other government entities and officials.
However, there is no current exception within the Internal Revenue Code
that would permit this. In addition, identity theft is the fastest
growing financial crime in the country. The Social Security
Administration has expressed ongoing concerns about the significant
problems caused by the misuse and sometimes fraudulent use of the SSN.
As I indicated earlier, tax returns with ITINs have often included W-2s
with SSNs assigned to other individuals.
---------------------------------------------------------------------------
\1\ 8 U.S.C. 1373 (2003).
---------------------------------------------------------------------------
In December 2003, the IRS announced that it was taking a number of
steps to enhance the ITIN program, including the following:
An applicant is now required to show a federal tax
purpose for obtaining an ITIN, and typically must attach a completed
tax return to the ITIN application.
The number of acceptable documents to establish proof of
identity to obtain an ITIN has been reduced from 40 to 13.
The appearance of the ITIN has been changed from a card
to a letter.
This ITIN initiative is a laudable effort and may reduce the number
of ITINs issued for non-tax purposes; however, it does not address the
issues resulting from individuals with ITINs and their employers using
erroneous or improper SSNs for wage reporting. It is also unlikely that
it will deter an individual with criminal intent, and it might be an
impediment to those who seek to voluntarily comply with the tax laws.
We will monitor the impact these initiatives have on the integrity of
the ITIN program.
I would like to close by responding to press reports suggesting
that TIGTA has compiled a list of people whom we suspect are illegal
aliens and that we intended to prosecute them. I can assure you that
this is completely false. We do not have any such list, initiative, or
program designed to identify persons who are not authorized to work in
the United States.
I would be happy to answer any question you may have at this time.
TIGTA's audit report on ITINs is available at: http://
www.treas.gov/tigta/2004reports/200430023fr-redacted.pdf
Chairman HOUGHTON. Ms. Olson, nice to have you back with
us.
STATEMENT OF NINA E. OLSON, NATIONAL TAXPAYER ADVOCATE,
INTERNAL REVENUE SERVICE
Ms. OLSON. Thank you, sir. Mr. Chairman, Ranking Members,
and Members of the Subcommittees, thank you for inviting me
here today to discuss ITINs, and what some view as a conflict
between the laws and procedures governing the U.S. tax, Social
Security, and immigration systems. Although the IRS ITIN
administration is not without its problems, I believe that the
current law and policies of these three systems reflect a
delicate balance between them that enables each to meet its
unique requirements effectively without harming the mission of
the others. It is true that tax law defines the term ``resident
alien'' differently from immigration law. In 1984, Congress
explicitly determined that providing a bright line objective
test of resident alien for tax purposes based on actual
presence in the United States, regardless of immigration
status, outweighed other considerations. Both non-resident and
resident U.S. aliens need some sort of number in order to file
and report income and pay tax. In 1996, the IRS created ITINs
for just this purpose. The ITINs, then, are an important tool
for increased tax compliance.
The IRS ITIN data demonstrates a strong tendency for
compliance among ITIN holders. Nearly 75 percent of the 3.1
million ITINs issued in calendar years 1998 through 2001 have
appeared on a tax return. Individuals who work in the United
States without immigration authorization, undocumented workers,
also have a strong incentive to comply with the tax laws
because to adjust their immigration status, they must show good
moral character by paying and filing their taxes. If an
undocumented worker works for a legitimate business, one that
is not part of the underground cash economy, the worker must
have an SSN. He will steal, borrow, or fabricate an SSN and
obtain false identification documents. Employers use this
number on the employee's W-2 forms. This identity theft and
income reporting results in an innocent taxpayer, the identity
theft victim, being audited and potentially collected against
for income and tax that are not his. It can take years for the
victim to get this mess straightened out.
Let me be very clear here. Identity theft is a crime that
has lasting effects on its victims. It also causes problems for
the government. Filing a tax return with an ITIN on the return
and an SSN on the W-2 form is not a crime in and of itself. In
fact, these returns enable the IRS to protect identity theft
victims from needless audits and tax collection. They tell us
who actually earned the income. Moreover, the ITIN return
fulfills the taxpayer's legal duty to file. Any proposal that
addresses misuse of SSNs or immigration issues must demonstrate
that it enhances tax compliance and protects identity theft
victims better than the IRS' current procedures. The most
frequently discussed reform proposals, including authorizing
the IRS to disclose tax information to Social Security and DHS
about ITIN holders with earnings, do not stop identity theft or
prevent undocumented workers from working in the United States.
These proposals will instead drive the undocumented worker
underground, where he will continue to use the stolen SSN. They
will also drive the undocumented worker out of compliance with
the tax laws.
Instead, I suggest maintaining status quo plus. Let us
build upon the IRS' recent improvements to the ITIN process
that address national security concerns. Let us bring these
taxpayers into the system through education and outreach,
working with low-income taxpayer clinics and Volunteer Income
Tax Assistance sites. Let us accept ITIN-SSN mismatch returns
electronically and assist these taxpayers at the IRS walk-in
sites, and let us protect identity theft victims from
unwarranted compliance actions by fencing off the income that
is reported under a stolen or fabricated SSN on our tax
systems. This proposal actually improves tax administration
while remaining neutral to the administration of Social
Security and immigration laws. It acknowledges that taxpayers
filing SSN-ITIN mismatch returns are generally trying to comply
with the tax laws, even at risk of having their immigration
status detected. It implements Congress's definition of
resident alien for tax purposes. It permits the disclosure of
tax information to Federal agencies only as currently
authorized by the Tax Code, and does not weaken the important
privacy protections that are a foundation of our voluntary tax
system. It helps identity theft victims, and it maintains the
delicate balancing act between the interests of tax
administration and the interests of taxpayers without harming
government's other legitimate interests. In short, it defuses
the problem. Thank you.
[The prepared statement of Ms. Olson follows:]
Statement of Nina E. Olson, National Taxpayer Advocate,
Internal Revenue Service
Chairman Houghton, Chairman Shaw, Ranking Member Pomeroy, Ranking
Member Matsui, and Members of the respective subcommittees, thank you
for inviting me to appear before you today to discuss Individual
Taxpayer Identification Numbers and their impact on tax administration.
In announcing this hearing, Chairmen Houghton and Shaw noted that the
Social Security Administration, the Internal Revenue Service, and the
U.S. Department of Homeland Security all have responsibilities with
respect to Social Security Numbers and Individual Taxpayer
Identification Numbers, and that ``each agency's policies are designed
to promote its individual goals.'' This hearing today is intended, in
part, to help them determine whether ``better coordination across
agency boundaries is needed to promote enforcement of laws and
regulations.''
Some parties--both inside and outside government--believe that an
apparent conflict between the laws governing the U.S tax, social
security, and immigration systems hampers the effective administration
of these programs. I intend to show in my testimony that there is, in
fact, no actual conflict between these systems but instead a delicate
balance between these three systems that enables each to fulfill its
individual mission effectively without harming the mission of the
others. I will also discuss why certain proposed solutions to this
perceived conflict will have a serious impact on tax administration
without resolving the problems for the other agencies.
Tax Administration Considerations
Since its earliest incarnation in 1862, the Internal Revenue
Service (IRS) has been charged with administering and enforcing this
nation's internal revenue laws. As part of its mission, the IRS must
create systems that enable taxpayers who wish to comply with the tax
laws to do so with minimal burden or obstacles. It must also ensure
that taxpayers who do not wish to fully comply with the tax laws, or
who actively attempt to evade or undermine these laws, face the
appropriate level of enforcement actions, including prosecution where
necessary. The IRS's systems--on both the customer service and
compliance/enforcement sides of the house--must incorporate protections
of fundamental taxpayer rights. Accordingly, and perhaps most
importantly, the IRS must zealously protect the confidentiality of the
tax information required for making the determination of the correct
amount of tax that each U.S. taxpayer should pay.\1\
---------------------------------------------------------------------------
\1\ IRC 6103(b)(1) and (2) refer to this information as
``return'' and ``return information.''
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These four essential elements--confidentiality, customer service,
enforcement, and taxpayer rights--are all implicated as the IRS
attempts to fulfill its mission with respect to a particular group of
taxpayers--those who are not eligible for SSNs and thus must obtain an
ITIN to meet their tax obligations--and a subset population within that
group, namely, taxpayers who are working inside the United States
without legal authorization to do so. It is particularly challenging to
reconcile these elements when faced with problems such as identity
theft and domestic and international terrorism, which clearly create
innocent victims. But reconcile them we must.
Treatment of Aliens for Tax Purposes
In general, alien persons (that is, individuals who are not U.S.
citizens) are classified as either nonresident aliens or resident
aliens. Prior to 1984, the Internal Revenue Code (IRC) did not provide
a definition for the terms ``resident alien'' or ``nonresident alien.''
Treasury regulations under IRC 871 generally required the IRS to
apply a subjective, facts-and-circumstances test that turned, in part,
on the alien's intentions as to the length and nature of his stay in
the United States.\2\
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\2\ Staff of Joint Committee on Taxation, 98th Cong., 2d Sess.,
General Explanation of H.R. 4170 at 463 (Dec. 31, 1984)(hereinafter,
``JCT''). See Treas. Reg. 1.871-2 to -5 (as amended by T.D. 6500, 25
Fed. Reg. 11910 (Nov. 26, 1960)).
---------------------------------------------------------------------------
The regulations defined a ``nonresident alien individual'' as one
``whose residence is not within the United States and who is not a
citizen of the United States.''\3\ On the other hand, an individual was
considered a U.S. resident for tax purposes if he (1) had intent to
make residence in the United States and (2) was physically present in
the United States. Physical presence alone, however, was not sufficient
to obtain resident status. The regulations provided that an alien's
residence depended on whether he was ``a mere transient or sojourner''
in the United States.\4\ Thus, an alien could be a resident for tax
purposes despite his not being a resident for immigration purposes or
present in the United States for half the tax year.\5\
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\3\ Treas. Reg. 1.871-2(a) (as amended by T.D. 6500, 25 Fed. Reg.
11910 (Nov. 26, 1960)).
\4\ Treas. Reg. 1.871-2(b); JCT, supra note 2.
\5\ JCT, supra note 2 (citing Tongsun Park v. Comm'r, 79 T.C. 252,
aff'd without published opinion, 755 F.2d 181 (D.C. Cir. 1985)). For a
detailed discussion of pre-1984 law, see Joel D. Kuntz & Robert J.
Peroni, U.S. International Taxation B1.02[2][b] (2002).
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The regulations also created an ``evidentiary'' presumption that an
alien was presumed to be a nonresident alien, regardless of presence
(legal or illegal) in the United States. This presumption could be
rebutted by evidence that the alien had made a declaration of intent to
become a U.S. citizen \6\ or by proof of the alien's definite intent to
obtain U.S. residence, or by evidence that the length and nature of the
alien's stay in the U.S. made him a resident.\7\ This regulatory
presumption created some confusion in application.\8\
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\6\ Treas. Reg. 1.871-4(c)(2).
\7\ Id.
\8\ See Kuntz & Peroni, supra note 5, at B1-B25.
---------------------------------------------------------------------------
It was this subjective and confusing state of the law that led
Congress in 1984 to distinguish more clearly between resident and
nonresident aliens in the Internal Revenue Code.\9\ The Joint Committee
on Taxation described the rationale for the changes as follows:
---------------------------------------------------------------------------
\9\ Deficit Reduction Act of 1984, Pub. L. No. 98-369, 138.
Congress believed that the tax law should provide a more objective
definition of residence for income tax purposes. Congress believed that
prior law did not provide adequate guidance with respect to residence
status. Congress understood that an objective definition might allow
some aliens who should be taxable as residents to avoid resident
status, and would impose resident status on some aliens who are not
residents under the current rules. On balance, however, Congress found
that the certainty provided by the Act's objective definition
outweighed other considerations.\10\
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\10\ JCT, supra note 2, at 463-464.
Thus, Congress enacted IRC 7701(b), which defines the terms
``resident alien'' and ``nonresident alien.'' An alien individual is
considered a resident alien if he or she satisfies either the ``lawful
permanent resident'' (or ``green card'') test \11\ or the ``substantial
presence'' test.\12\ A nonresident alien is an alien individual who is
neither a citizen of the United States nor a resident of the United
States, as defined above.\13\
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\11\ IRC 7701(b)(1)(A)(i). ``A lawful permanent resident is an
individual who has been lawfully granted the privilege of residing
permanently in the United States as an immigrant in accordance with the
immigration laws.'' Treas. Reg. 301.7701(b)-1(b)(1).
\12\ IRC 7701(b)(1)(A)(ii). An individual meets the substantial
presence test if he or she has been present in the United States on at
least 183 days during a 3-year period including the current year. The
183-day period is computed as follows:
Current Year: Each day of presence counts as a full day. First
Preceding Year: Each day of presence counts as \1/3\ of a day. Second
Preceding Year: Each day of presence counts as \1/6\ of a day.
IRC 7701(b)(3). See also Treas. Reg. 301.7701(b)-1(c).
\13\ IRC 7701(b)(1)(B).
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Nonresident aliens are generally subject to U.S. income taxation on
their U.S.-source income and on certain foreign-source income that is
effectively connected with the conduct of a trade or business within
the United States.\14\ Resident aliens, on the other hand, are subject
to U.S. taxation on their worldwide income under the same rules as U.S.
citizens.\15\
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\14\ IRC 864(c)(1)-(4). A flat 30 percent tax rate (or lower
treaty rate) is imposed on a nonresident alien's gross U.S. income that
is not effectively connected with a U.S. trade or business. U.S. source
net income that is effectively connected with a U.S. trade or business
is subject to income taxation under the same rules that apply to U.S.
residents. However, certain treaty exceptions may apply and thereby
limit taxation or prevent double taxation. See IRC 871.
\15\ Treas. Reg. 1.1-1(b).
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In creating this statutory scheme, Congress acknowledged that it
was creating an imperfect system but that it had struck the right
balance between the goals of tax administration and the issues of
alienage and immigration status. That is, Congress essentially decided
that U.S. immigration status was not solely determinative of a
taxpayer's status as a resident alien or nonresident alien for tax
purposes. In order to distribute the tax burden fairly, Congress
consciously deviated from the immigration classification system.\16\
The Joint Committee on Taxation provided the following explanation:
---------------------------------------------------------------------------
\16\ There are recent examples where Congress chose to disregard
immigration status as a matter of tax policy and effective tax
administration. In 1998, Congress enacted IRC 7526, which creates a
grant program for funding Low Income Taxpayer Clinics that provide, in
part, outreach and education to taxpayers who speak English as a Second
Language. This legislation makes no distinction as to the immigration
status of these taxpayers. The program was enacted after testimony
before the National Commission on Restructuring the Internal Revenue
Service and both houses of Congress that ESL taxpayers, including
undocumented workers, needed assistance in complying with the tax laws.
Congress believed that aliens who have entered the United States
as permanent residents and who have not officially lost or surrendered
the right to permanent U.S residence should be taxable as U.S.
residents. These persons have rights in the United States that are
similar to those afforded U.S. citizens . . . equity demands that they
contribute to the cost of running the government on the same basis as
---------------------------------------------------------------------------
citizens.
Congress similarly decided that it was appropriate to treat as
residents individuals who spend significant time in the United States.
Recognizing that there is no single system that is perfect, Congress
believed that a regime that depends on length of stay meets the
criteria of objectivity and establishing nexus with the United States
and is appropriate.\17\
---------------------------------------------------------------------------
\17\ JCT, supra note 2, at 464.
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Individual Taxpayer Identification Number (ITINs)
Individual Taxpayer Identification Numbers (ITINs) were created to
improve the administration of the tax system with respect to
individuals who are unable to obtain Social Security Numbers (SSNs) but
have some nexus with the United States tax system. These individuals
are a diverse group, including nonresident alien investors in U.S.
financial instruments, nonresident alien sellers of U.S. real property,
nonresident alien persons claiming benefits under a tax treaty, and
resident aliens who are working in the United States without legal
authorization under U.S. immigration laws (``undocumented workers''
\18\). ITINs are available to resident and nonresident aliens, their
spouses, and their dependents who are not eligible to receive SSNs and
who have a need for a number for tax administration purposes.
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\18\ For purposes of this testimony, the term ``undocumented
workers'' includes (1) workers who legally reside in the U.S. but do
not have authorization to work in the U.S. and (2) workers who reside
in the U.S. without authorization to either work or reside in the U.S.
---------------------------------------------------------------------------
An ITIN does not authorize an alien to work in the United States,
grant an immigration status, or qualify the alien for benefits, such as
the Earned Income Tax Credit (EITC) or Social Security. To receive an
ITIN, individuals must complete Form W-7, Application for IRS
Individual Taxpayer Identification Number, and attach documentation
validating his or her identity and foreign alien status.\19\ Form W-7
applications are processed at the IRS's Philadelphia campus.
---------------------------------------------------------------------------
\19\ Internal Revenue Service, Understanding Your IRS Individual
Taxpayer Identification Number, Publication 1915 (Rev. 02/2004), at 2.
---------------------------------------------------------------------------
From a purely tax administration perspective, ITINs are a process
improvement. They enable taxpayers who have an obligation to report
income or pay taxes under the United States tax system to comply with
that requirement. ITINs also enable the IRS to track taxpayer
compliance with those requirements and take appropriate enforcement
actions where compliance is lax or lacking.\20\
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\20\ I have commented extensively, elsewhere, on the problems with
the IRS's implementation of the ITIN application process. See National
Taxpayer Advocate, 2003 Annual Report to Congress, Publication 2104
(Rev. 12/2003), at 60-86.
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The creation of ITINs, then, is a positive step in tax
administration--a system improvement. ITINs are, however, associated
with problems, including some that impact tax administration. These
problems arise from the legitimate application of U.S. immigration and
Social Security laws as well as our legitimate concerns about
international and national terrorism.
Problems Associated with ITINs
As discussed above, Congress determined in 1984 that alien
individuals who meet either the green card test or the substantial
presence test under the Code are considered resident aliens for U.S.
tax purposes. Although the green card test keys off U.S. immigration
status, the substantial presence test, by definition, acknowledges that
a resident for tax purposes may not be a resident for immigration
purposes. It is this divergence from immigration law that places the
IRS and taxpayers alike in a difficult position. It is this divergence
that creates enormous, and in most instances undue, pressure on the IRS
to share data with agencies that will, in fact, impair tax
administration. And it is this divergence that creates obstacles for
taxpayers who have strong incentives to comply with the tax laws and
leads to instances of identity theft within the tax system.
Undocumented Workers and the Tax System
There are approximately 9.3 million individuals whose presence in
the United States is not authorized by U.S. Citizenship and Immigration
Services (USCIS) within the Department of Homeland Security (DHS).
About 6 million of this group are working in the United States,
including virtually all undocumented males (96 percent) and 60 percent
of undocumented females.\21\ Approximately, 130 million individual
income tax returns are now filed each year. Therefore, the
approximately 6 million undocumented workers constitute a significant
portion of persons with a potential income tax obligation.
---------------------------------------------------------------------------
\21\ This estimate of the number of undocumented workers is derived
by subtracting legal foreign-born residents from the total foreign-born
population based on the March 2002 Current Population Survey (CPS) with
an allowance for immigrants not included in the CPS. Data provided by
Department of Homeland Security and other government agencies are used
to estimate the number of legal residents. See Urban Institute
Immigration Studies Program Paper: Undocumented Immigrants: Facts and
Figures (Jan. 12, 2004).
---------------------------------------------------------------------------
While more than 4 million undocumented immigrants have resided in
the United States for less than 5 years, many have been here for a long
time. Approximately 4 million undocumented immigrants arrived in the
United States prior to 1995.\22\ More than 4 million adults are in
approximately 2 million undocumented families. These families include
more than 1.5 million children who are undocumented immigrants and
another 3 million children who are citizens by virtue of being born in
the United States.\23\
---------------------------------------------------------------------------
\22\ Urban Institute, Crossing Borders: Impact of Immigration (Feb.
3, 2004), at 3.
\23\ Id.
---------------------------------------------------------------------------
Taxpayers who are undocumented workers have a strong incentive to
comply with the federal tax laws. Recently, for the first time in
decades, the number of naturalized immigrants has grown, from 6.5
million in 1990 to over 11 million in 2002.\24\ U.S. immigration
procedures require applicants for visa status adjustment and
naturalization to provide tax information and demonstrate tax
compliance as an indicator of the applicant's ethical conduct and his
or her willingness and ability to meet legal obligations.\25\
---------------------------------------------------------------------------
\24\ Urban Institute, Trends in Naturalization (Sept. 2003), at 2.
\25\ Robert C. Divine, Immigration Practice, 59-61 (3rd ed. 1998).
It is not necessary for the applicant to have paid his or her tax in
full; the applicant may demonstrate that he or she has entered into an
installment agreement or made other arrangements to pay federal taxes
owing.
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IRS ITIN data demonstrates this strong tendency for compliance
among ITIN holders.\26\ Nearly 75 percent of the 3.1 million ITINs
issued in calendar years 1998-2001 have appeared on a tax return. Of
those ITINs, about two-thirds of the ITINs were issued to residents and
their spouses or dependents, nearly 25 percent were issued to
nonresident aliens with a tax administration need, and the remaining 8
percent were issued to people with other needs.\27\ As noted above,
there are approximately 6 million undocumented workers in the United
States. The Treasury Inspector General for Tax Administration (TIGTA)
recently identified 353,000 Tax Year 2000 Forms 1040 filed with a
primary ITIN and reporting wages.\28\ As the IRS and stakeholders,
including Low Income Taxpayer Clinics, continue to conduct outreach and
education to these taxpayers about their rights and responsibilities,
we can expect the number of ITIN returns reporting wages to increase.
The increase in filings of such returns is not a problem, in and of
itself. The problems arise from ancillary issues such as identity
theft.
---------------------------------------------------------------------------
\26\ In a recent report, the Treasury Inspector General for Tax
Administration (TIGTA) stated that almost 25 percent of individual
taxpayers who filed a Tax Year 2000 Form 1040 with an ITIN
underreported an estimated $324 million in income. TIGTA noted in a
footnote that the margin of error for this estimate is +/- $122
million, or +/- 37.6%. See TIGTA, The Internal Revenue Service's
Individual Taxpayer Identification Number Creates Significant
Challenges for Tax Administration (2004-30-023, Jan. 2004), at 4.
Leaving aside the difficulty of basing tax policy and tax
administration decisions on data with this large a margin of error,
there are many explanations for this unreported income. Undocumented
workers are often transient workers, following various harvests; they
often work for short periods--sometimes only one day with one employer;
they share mail boxes and rely on others to forward mail. Each of these
reasons alone could result in missing W-2 forms and inadvertent
noncompliance.
\27\ Individual Master File, Returns Transaction File, analysis
conducted by MITS, Information Technical Services, Business Systems
Development, Business Systems and Extracts, Calendar Years 1998-2001.
Since data is unavailable to validate 1996 and 1997, and ITINs obtained
in 2003 may take several years to show up on a tax return, we will
report information on ITIN usage for 1998-2001. Of approximately 2.2
million distinctive ITINs that were included on tax returns for Tax
Years 1998-2001, about 40 percent were used by a primary filer, 25
percent were used by a secondary filer, and about 33 percent were used
to identify dependents.
\28\ TIGTA Report, supra note 26, at 16. The total number of
individual income tax returns with a primary and/or secondary ITIN
exceeded one million in TY 2001.
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Undocumented Workers and Identity Theft: Impact on Tax Administration
All individuals must demonstrate to their potential employers that
they have legal authorization to work in the United States.\29\ A new
employee must complete both IRS Form W-4, Employee's Withholding
Allowance Certificate, supplying a Social Security number that is valid
for work purposes, and a USCIS Form I-9, (Immigration) Employment
Eligibility Verification, providing the employer with documentary
evidence of his or her identity and citizenship, resident, or alien
status.
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\29\ Section 274A(a)(1)(B)(i) of the Immigration and Nationality
Act, 8 U.S.C 1324A (1992), makes it unlawful for an employer to hire
an individual without complying with the specific employment
verification requirements established under the provision.
---------------------------------------------------------------------------
Undocumented workers, of course, have no such documentation. They
are not authorized to work in the United States, and they cannot obtain
Social Security numbers. These workers either steal, ``borrow,'' or
fabricate Social Security numbers and obtain false identification
documents using these numbers.\30\ Employers then use these erroneous
numbers on their annual Forms W-2, Wage and Tax Statement, reporting
wages, earnings, and withheld taxes to the Social Security
Administration and the IRS.
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\30\ IRC 6723 imposes a penalty on the failure to comply with
specified information reporting requirements. Treas. Reg. 301.6723-
1(a)(4)(ii)(A) defines ``specified information reporting requirement''
to include the provision of a taxpayer identification number on a tax
return, statement or document. A few workers attempt to provide their
employers with an ITIN for W-4 and I-9 purposes, but this practice
should virtually cease with the IRS's substitution of a letter for an
ITIN card, and with its implementation of a more effective education
and outreach program to employers about identifying an ITIN.
---------------------------------------------------------------------------
When an undocumented worker receives his Form W-2 with an erroneous
SSN, he must decide whether and how he will file his returns. If the
taxpayer decides to file his tax returns, he must next decide whether
he should continue to use another person's SSN on his return, or
whether he will file his return reporting the income under his ITIN. If
he chooses the latter course, the attachment of a W-2 with an erroneous
SSN to an ITIN return is a clear admission that he has earned wages
without authorization to work. If he instead continues to use the
erroneous SSN on the tax return, he will be perpetuating his violation
of the Internal Revenue laws.
If a taxpayer seeks tax advice from a legitimate and principled
return preparer or representative, he should be advised to use his ITIN
on the return and attach the Form W-2 with the SSN. Doing so, however,
creates several procedural and processing consequences. First,
according to the IRS, it cannot process the return electronically
because the taxpayer identification number (TIN) on the W-2 does not
match the TIN on the return. Thus, the taxpayer must file a paper
return and cannot obtain tax preparation assistance from the IRS
Taxpayer Assistance Centers (formerly known as ``walk-in
offices'').\31\ Second, if the taxpayer does not already have an ITIN,
he must complete a Form W-7, Application for IRS Individual Taxpayer
Identification Number, and attach it, along with the required
documentation, to the return. Once the mismatched return is filed, the
IRS processes it under the ITIN, assesses the tax liability, and issues
a refund or a notice of assessment and demand for payment of tax, as
appropriate.
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\31\ The IRS has adopted the policy that it will only prepare
electronically filed returns at the Taxpayer Assistance Centers (TACs).
The IRS could develop a process that would enable W-2/ITIN mismatch
returns to be electronically filed and thereby assist these taxpayers
with return preparation.
---------------------------------------------------------------------------
The story does not end there, however. The employer has reported
wages earned by the taxpayer under a Social Security number that
belongs to another person. In most instances, the Social Security
Administration will not be able to post earnings to that SSN holder's
account because the name associated with the SSN does not match the
name on the Form W-2. Therefore these earnings will be posted to the
Social Security Administration's suspense file, where they will sit
unless and until something happens that enables SSA to reallocate the
earnings to the appropriate worker.\32\
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\32\ Some ITIN holders use the name of the SSN holder as well as
the SSN for employment purposes. In these instances, the SSN holder has
earnings attributed to his account incorrectly, thereby becoming
eligible for benefits on earnings that he did not earn. When an
employer reports earnings to SSA under an ITIN, the earnings will go
into the SSA suspense file because SSA does not have a valid SSN under
which to record the earnings. If the taxpayer later becomes eligible
for an SSN, he can ask SSA to reallocate the ITIN earnings to his SSN
account.
---------------------------------------------------------------------------
The IRS, on the other hand, has a wage document that tells it that
the SSN holder has earned income that is not reported on his or her
return. Thus, when the IRS conducts a computer match of information
documents, this taxpayer is likely to receive a notice of unreported
income from the IRS. (This initiative is called the Automated
Underreporter Program, or ``AUR.'') If the taxpayer calls the IRS to
discuss the notice, the taxpayer will have to provide an acceptable
explanation as to why the income is not properly attributable to him or
her. For the IRS, this involves, in most instances, a lengthy, time-
consuming, and manually-driven process of validating the taxpayer's
explanation, decreasing the proposed amount of additional tax from the
notice, and working with the Social Security Administration to delete
the wages paid under this SSN from the SSN holder's earnings account.
In many instances, the SSN holders either do not receive the proposed
AUR assessment notice or do not understand it and are afraid to call
the IRS. As a result, the tax attributable to these additional earnings
will be assessed against the SSN holder.
This resolution process can take over a year to complete. If the
issue is not resolved by the following filing season and the IRS's
system still shows that there is an outstanding assessment, the SSN-
holder may have his subsequent year's refund either frozen or offset.
Because this process is worked on a yearly matching basis and the
current IRS systems do not have a reliable identity fraud alert
indicator on a taxpayer's account, the taxpayer must repeat this
process each year in which the identity theft occurs.\33\
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\33\ I have personally represented taxpayers who were caught up in
the IRS AUR program for years, trying to prove that they did not earn
wages attributable to someone else's using their SSNs. From October 1,
2003, to February 29, 2004, the Taxpayer Advocate Service (TAS)
received 87 cases involving earnings arising from stolen or fabricated
SSNs. TAS received 133 such cases in FY 2003.
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Proposed Solutions and Their Impact on Tax Administration
It is clear from the above discussion that the use of ITINs in
conjunction with SSNs poses problems for taxpayers (both the victims of
identity theft and the ITIN holders), the IRS and the Social Security
Administration. Because ITIN holders who are undocumented workers are
violating the immigration laws, they also pose problems for the
Department of Homeland Security.
These problems have led the IRS, the Treasury Inspector General for
Tax Administration, and others to propose changes in ITIN
administration as well as routine sharing of tax information between
the IRS, Social Security Administration, and Federal immigration
authorities. Let us examine some of these proposals.
Authorize the use of ITINs on Forms W-4 and W-2. We might address
the Social Security Administration's concerns about its increasing
``suspense file'' of unidentified earnings by changing the Treasury
regulations to permit the use of an ITIN on Forms W-4 and W-2.
Employers would not be subject to penalty for putting ITINs on these
documents. This approach, however, would require a change in the Social
Security Act to enable SSA to create a record of earnings under an
ITIN. Further, and fatally, it would fly directly in the face of
immigration law that requires workers to be authorized to work in the
United States.
This proposal would force employers to acknowledge that they are
hiring an undocumented worker. An undocumented worker seeking a job
therefore would be unlikely to put an ITIN on a Form W-4 because it
would shine a bright light on his immigration status. Instead, the
worker would continue to place an SSN on the form. Thus, this proposal
would merely exacerbate the tension between tax and immigration law
without eliminating identity theft or tidying up SSA's suspense files.
Authorize the IRS to disclose to employers a match or mismatch of
employees' names and identifying numbers. We might address the problem
of mismatched or unmatched SSNs by amending the Code to require
employers to submit all Forms W-4 to the IRS upon hiring new employees
and amending IRC 6103 to permit the IRS to inform employers when
there is a mismatch. This approach, of course, does not resolve the
problem of complete identity theft--that is, where the taxpayer has
assumed not only the SSN but also the name of the SSN holder. Indeed,
complete identity theft likely would increase precisely because it
would enable undocumented workers to slip through, and complete
identity theft creates far more serious problems for the victim.
Further, as the Commissioner has noted in his testimony, this approach
would impose an extra burden on employers without necessarily clearing
up mismatches (that is, the employer could comply with his due
diligence requirements and still not have resolved the mismatch).
Finally, this proposal would not stop identity theft. Let us assume
an undocumented worker provides his true name and a fabricated SSN to
his new employer. Under the proposal, the employer would submit this
information to the IRS and would immediately be notified that there was
a mismatch. The employer would contact the worker and ask him to
resolve the mismatch. With this level of scrutiny, the undocumented
worker, in all likelihood, would either move on to another employer, or
worse, work for cash in the ``underground economy.'' He would continue
to use the fabricated or stolen SSN. All we would accomplish, through
this proposal, is force the undocumented worker underground and out of
compliance with the tax system.
Authorize the IRS to disclose tax information to SSA and USCIS
pertaining to undocumented workers. In its recent report on ITINs,
TIGTA recommended that the IRS Deputy Commissioner for Services and
Enforcement:
Coordinate with the BCIS [now USCIS] and the SSA to assess the
benefits to these agencies of seeking legislation to broaden the IRS's
authority to share information with them regarding unauthorized
resident aliens and seek legislation as warranted.\34\
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\34\ TIGTA Report, supra note 26, at 32.
For almost thirty years, since the enactment of the Tax Reform Act
of 1976, Congress, the IRS, and taxpayers have had an understanding
that tax returns and tax return information are, in general,
confidential. All exceptions to this general rule of confidentiality
must be specifically set forth in IRC 6103. Recently, taxpayers'
confidence in the confidentiality of their tax information has been
shaken by their awareness that this information is available to the
Treasury Inspector General for Tax Administration.\35\
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\35\ IRC 6103(h)(1) authorizes inspection and disclosure of tax
returns and return information to Treasury officials and employees
``whose official duties require such inspection or disclosure for tax
administration purposes.'' The Treasury Inspector General for Tax
Administration is authorized ``to conduct and supervise audits and
investigations relating to the programs and operations of'' the
Internal Revenue Service in order ``(A) to promote economy, efficiency,
and effectiveness in the administration of, and (B) to prevent and
detect fraud and abuse in'', the programs and operations of the
Internal Revenue Service. Inspector General Act of 1978, 5 U.S.C. 2
Appendix 3 (1998). TIGTA employees are subject to the restrictions of
IRC 6103(h) and (i). TIGTA employees cannot use their authority to
audit and inspect aspects of tax administration as a means to discover
and indirectly ``refer'' potential nontax criminal acts that would
otherwise be prohibited under IRC 6103. In the context of
undocumented workers who are trying to comply with the tax laws, such
actions on the part of TIGTA employees can actively undermine tax
administration.
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Congress has specifically authorized the IRS to disclose tax
information for law enforcement purposes in two sections relevant to
our discussion here today:
Disclosures for tax administration purposes: IRC 6103(h)(2)
provides that in matters involving tax administration, tax information
shall be open to inspection by Department of Justice employees and
officers who are ``personally and directly engaged in, and solely for
their use in'', a Federal grand jury proceeding or preparation for any
proceeding before a Federal grand jury or any Federal or State court
(or investigation that may lead to such a proceeding). Congress placed
limits on this authority, including requiring that the taxpayer be a
party (or potential party) to the proceeding or that the proceeding
involve the determination of civil or criminal liability under the Code
or the collection of tax imposed under the Code.
Disclosure to agencies for non-tax criminal cases: IRC
6103(i)(1)provides that during the course of Federal nontax criminal
investigations, Federal agencies must obtain an ex parte order from a
Federal district judge or magistrate in order to gain access to tax
returns and tax information provided by the taxpayer or the taxpayer's
representative.\36\ Return information that is reported by third
parties may be disclosed if the head of the Federal agency (or other
specified official) submits a written request.\37\ Further, the
Secretary (or his delegate) may disclose, on his own initiative, to the
appropriate head of agency, evidence of a Federal nontax crime where
such evidence is not on a tax return and is not tax information
provided by the taxpayer or the taxpayer's representative.\38\
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\36\ IRC 6103(i)(1).
\37\ IRC 6103(i)(2).
\38\ IRC 6103(i)(3)(A).
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These provisions are narrowly tailored to insure that tax
information, which is the cornerstone to our voluntary-compliance tax
system, is only disclosed after much consideration has been given to
the impact such disclosure would have on tax administration. Within
these provisions, however, there is ample maneuvering room for Federal
law enforcement agencies to obtain tax information when they can
demonstrate the requisite compelling need.
Thus, notwithstanding our concern about persons who steal and use
Social Security numbers to create identities for unlawful purposes,
including terrorism, the answer to these problems does not lie in
expanding the disclosure of tax information beyond the limits currently
permitted under IRC 6103. Such proposals would, in practice, have the
effect of increasing the damage done to the innocent victims of
identity theft and also undermine the IRS's obligation to provide
customer service to taxpayers who are attempting to comply with the tax
laws.
In fact, we want these mismatch taxpayers to be part of the tax
system and file their returns. That way, the IRS should be able to
identify the stolen SSN and the correct ITIN. We could ``fence off''
the wages or other income reported under the stolen SSN, thereby
protecting the identity theft victim from unnecessary IRS audits and
collection actions. We could notify SSA of the correct number (the
ITIN) to which to attribute earnings, and prevent overpayment of
benefits to the SSN holder. And if USCIS or another Federal agency is
investigating the ITIN holder, we would be able to provide tax
information to that agency to the extent permissible under IRC
6103.\39\
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\39\ When I was a director of a Low Income Taxpayer Clinic, here is
how I would explain the ITIN rules to clients or audiences in outreach
sessions to allay fears expressed by undocumented workers about the
risks of filing their tax returns. In general, for the Department of
Justice or another Federal agency to obtain tax returns or tax return
information for purposes of a non-tax administration criminal
investigation or proceeding, it must obtain an order from a Federal
judge. Thus, in general, the client should be concerned that his tax
information could be shared with another Federal agency (for example,
immigration) if he were already or were likely to be placed under
investigation for some nontax violation of law. For many undocumented
taxpayers, this risk is outweighed by the strong incentive for and
benefits of being compliant with the tax laws--that is, the ability to
prove good moral character for immigration purposes by filing tax
returns.
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A Modest Proposal: The Status Quo Plus
The proposals discussed above do not solve but instead perpetuate
(and possibly exacerbate) the problem of identity theft, increase tax
noncompliance, and do not help enforce the immigration laws (because
undocumented workers will move to the underground economy). Any
solution must both protect national security and not undermine three
important tax administration objectives--compliance by taxpayers with
the tax laws, the provision of customer service to those taxpayers, and
the elimination of undue burden on taxpayers (and employers) trying to
comply with the tax laws. The solution must also protect taxpayers from
misuse of their tax data by third parties (identity theft for tax
purposes).
In light of IRS data that clearly indicate that the majority of
ITIN holders attempt to file and comply with the tax laws, the IRS
should continue to encourage undocumented workers to obtain ITINs and
assist all ITIN holders, including those who have Forms W-2 showing
SSNs, to file returns under their ITINs. ITINs are the entry point for
these taxpayers into the tax system. Any effort to restrict access to
obtaining ITINs must be carefully scrutinized to determine whether the
purpose for the restriction outweighs the tax administrator's core and
fundamental mission of helping taxpayers to meet their tax obligations.
Thus, I propose the following approach to the ITIN ``problem'':
To ensure accurate preparation of ITIN applications, IRS
should continue to make improvements to the revised ITIN program,
including improving the timeliness of processing applications and its
outreach to taxpayers, and their advocates and representatives.
To increase the accuracy of return preparation, IRS
should develop a system to electronically file SSN/ITIN mismatch
returns so that these taxpayers can be assisted at IRS Taxpayer
Assistance Centers.
To protect victims of identity theft from unwarranted,
intrusive, and repetitive audits and/or collection activity
attributable to the misreported income, IRS should develop a system to
``fence off'' the income misreported under a stolen or fabricated SSN.
The advantage of this proposal is that it actually improves tax
administration while remaining neutral to the administration of Social
Security and immigration laws. It acknowledges that taxpayers filing
SSN/ITIN mismatch returns are generally trying to comply with the tax
laws, even at risk of having their immigration status detected. The
proposal implements Congress' explicit determination that the
definition of resident alien for tax purposes should extend beyond its
definition under immigration law. It permits the disclosure of tax
information to other Federal agencies as currently authorized by IRC
6103. And it helps identity theft victims. Fundamentally, the proposal
maintains the delicate balancing act between the interests of tax
administration and the interests of taxpayers without harming
government's other legitimate interests. In short, it defuses the
``problem.''
Chairman HOUGHTON. Thank you very much, Ms. Olson. Mr.
O'Carroll?
STATEMENT OF PATRICK P. O'CARROLL, ACTING INSPECTOR GENERAL,
SOCIAL SECURITY ADMINISTRATION
Mr. O'CARROLL. Good afternoon, Chairman Houghton. Good
afternoon, Chairman Shaw and Members of the Subcommittee. It is
a pleasure to have my first hearing before these Subcommittees
on the important topic of SSN and ITIN mismatches and misuse.
The growth and misuse of ITINs pose considerable challenges for
the SSA, and for SSN integrity. My testimony today will provide
an overview of our work to address challenges in three areas.
First, the ITIN's impact on the SSA's earning process. Second,
its impact on SSN misuse and identity theft. Last, our most
serious concern, the impact of the ITIN or SSN misuse on
homeland security. I will conclude my remarks with our
recommendations to improve these processes.
The SSA is mandated to maintain records of wages employers
pay to individuals. The SSA has no role in assigning ITINs.
Many ITINs so closely resemble the nine-digit SSN, many
employers assume it is an SSN. When employers use ITINs to
report wages rather than an SSN, the SSA cannot post these
earnings to the wage earner's record. The SSA's record of wage
reports where names and SSNs failed to match has grown to about
$421 billion in wages, representing $244 million in incorrect
wage items. The ITIN also impacts SSN misuse and identity
theft. The SSA has made significant progress to strengthen SSN
integrity. The SSA now independently verifies all non-citizen
immigration documents prior to issuing an SSN, and we encourage
the IRS to take similar measures. The SSA recently restricted
the issuance of non-work SSNs to non-citizens except under very
limited circumstances. However, this new policy may increase
ITIN use because non-citizens without work authorization may
now try to obtain an ITIN for work purposes.
The ITIN's impact on SSN misuse poses a serious potential
threat to homeland security. We believe ITIN misuse could
undermine our ability to provide reliable investigative data to
the law enforcement community. For example, we recently
participated in Operation Swipe Out, a large-scale anti-
terrorism initiative concerning a group of foreigners that
defrauded numerous credit card companies of about $5 million.
Many of the subjects received lengthy prison sentences and were
ordered to pay over $1 million in restitution for the SSN
misuse. As part of our homeland security initiatives, we
investigated airport employees who used ITINs on identification
badge applications for access to critical areas. The ITIN has
also facilitated fraud where ITINs are falsely submitted as if
it were an SSN. We have also found educational institutions
advertising on websites that they will issue, quote,
``temporary SSNs'' to students. These numbers are not issued by
the SSA, but closely resemble SSNs or ITINs using a nine-digit
numbering system.
We need improved coordination and sharing of data, and data
reliability and the use of shared data. For example, the IRS is
barred from disclosing tax information to other Federal, State,
or local agencies. However, we believe expanded coordination
should be explored to allow for joint pilots or non-
investigative reviews to identify areas where formal disclosure
agreements could be used. For example, the SSA shares data with
the IRS to help assess penalties against employers for
reporting mismatched names and SSNs. The SSA also sends DHS
information on over 500,000 individuals who are not authorized
to work in the United States but still show wages in the SSA's
systems. We believe legislation is needed to require a
reoccurring cross-verification of identification data between
governmental, financial, and commercial holders of records and
the SSA. Cross-verification would be an important step to help
prevent the spread of SSN misuse, identity theft, and improve
our homeland security.
I congratulate Congress and especially Chairman Shaw and
Ranking Member Matsui on the enactment of H.R. 743, the
``Social Security Protection Act of 2003,'' which provides new
safeguards for Social Security programs and beneficiaries.
Thank you for your continued commitment to these critical
areas.
[The prepared statement of Mr. O'Carroll follows:]
Statement of Patrick P. O'Carroll, Assistant Inspector General for
Investigations, Social Security Administration, Baltimore, Maryland
Good morning, it is a pleasure to be here today for this important
hearing on the issues of Social Security number (SSN) and Individual
Tax Identification Number (ITIN) mismatches and misuse. Today's
discussion will provide valuable insight into the impact and
implications that ITINs have across the Federal government. Today, I
would like to focus my comments on the ITIN's impact on the Social
Security Administration's (SSA) programs and operations.
SSA's Office of the Inspector General (OIG) has worked very hard
with the Agency in recent years and made significant progress to
strengthen the defenses of the SSN. These activities included close
cooperation with other law enforcement agencies and with the Internal
Revenue Service (IRS) to strengthen the integrity of SSA's data and
those who rely upon it.
Over the past few years, we have testified on numerous occasions
before Congress on the topics of SSN misuse, document fraud, and
identity theft. The most important aspect of our mission to combat
fraud, waste and abuse is the protection and oversight of the SSN.
Today, the SSN is the single most widely used identifier for Federal
and State governments, as well as for the private sector. As a result,
we continuously seek new and innovative ways to prevent SSN misuse and
work collaboratively with other Federal, State, and local entities.
Although we have made notable progress, the public's reliance on the
SSN as a national identifier has made it an increasingly valuable
commodity for lawbreakers trying to take advantage of SSA's programs
and operations.
Similarly, the growth and misuse of ITINs pose considerable
challenges for SSA. Today, I will highlight three areas and provide an
overview of our work to address these challenges. First, I will discuss
the ITIN's impact on SSA's earnings process. Second, I will summarize
the ITIN's impact on SSN misuse and identity theft. Third, I will
outline our most serious concern, how misuse of the ITIN or SSN could
impact Homeland Security. I will conclude my remarks with a brief
summary of recommendations to improve these processes and outline
opportunities to open a broader dialogue on these issues.
The ITIN's Impact on SSA's Earnings Process
As mandated by Title II of the Social Security Act, SSA maintains
records of wage amounts employers pay to individuals. Each year,
employers and self-employed individuals report earnings information to
SSA using a unique nine-digit number, the SSN. This information is used
to determine (1) whether an individual is eligible for retirement or
disability benefits and (2) the size of the benefit payment.
Accordingly, it is critical that SSA protect the integrity of the SSN
and properly post wages reported through the Agency's earnings process.
SSA has no role in assigning ITINs. This function is the sole
responsibility of the IRS. Nevertheless, IRS use of these numbers may
negatively impact SSA's ability to accurately record employee wage
information. Because the nine-digit ITIN so closely resembles an SSN,
many employers assume it is an SSN. Yet when employers report wages
earned by an individual to SSA using the IRS ITIN rather than the
individual's SSN, SSA is unable to post these earnings to the wage
earner's record.
When SSA is unable to post earnings to an individuals' record, the
earnings are captured in SSA's Earnings Suspense File (ESF), the
Agency's record of wage reports for which wage earner names and SSNs
fail to match SSA's records. Although SSA is able to post about 96.4
percent of all reported earnings to individuals' earnings records,
those earnings that cannot be matched continue to accumulate in the
ESF. Between 1937 and 2003, the ESF grew to about $421 billion in
wages, representing about 244 million wage items that could not be
posted correctly.
Removal of wage items and their associated dollar value from the
ESF occurs only when the wages can be matched and posted to an
individual's master earnings file. Since the Agency does not enumerate
the owners of ITINs, its ability to match these wages correctly will be
even more difficult because SSA has incomplete information on the ITIN
holder.
Still, while SSA has limited control over the factors that cause
the volume of erroneous wage reports submitted each year, the Agency
does have some ability to improve the wage reporting process. SSA can
work with employers to resolve wage reporting issues, encourage greater
use of SSN verification programs, and improve coordination with other
Federal agencies such as the IRS that have separate yet related
mandates, to foster better sharing of information.
Additionally, we believe increased coordination between SSA, IRS
and DHS could be used to detect trends, identify problems in the
employer community and to propose legislative remedies. For example,
cooperation between IRS and SSA on the ITIN process could minimize the
volume of incorrect wages posted to the ESF.
The ITIN's Impact on SSN Misuse and Identity Theft
It is no longer realistic to believe that the SSN is simply a
number for tracking workers' earnings and the payment of social
insurance benefits. Recognizing the importance of the SSN throughout
society, SSA has taken significant steps to strengthen controls over
the issuance of SSNs in recent years. We applaud SSA's efforts, but we
are concerned that increased misuse of ITINs may undermine some Agency
initiatives.
In FY 2001, SSA established a task force to address SSN integrity
concerns, and took a number of important steps. For example, in
September 2002, SSA started independently verifying all non-citizen
immigration documents prior to issuing an SSN. We are currently
assessing the Agency's compliance with these new procedures. However,
we do not know whether IRS takes similar measures when issuing ITINs to
non-citizens.
SSA also recently restricted the issuance of non-work SSNs to non-
citizens except under very limited circumstances. Under this policy,
non-citizens should only be issued a non-work SSN because:
Federal statute or regulation requires that the non-
citizen provide his or her SSN to get the particular benefit or
service, or
State or local law requires that the non-citizen provide
an SSN to get general assistance benefits to which the non-citizen has
established entitlement.
As a result of SSA's new policy regarding non-work SSNs, the use of
ITINs for work purposes may increase. Non-citizens in the United States
without work authorization who were previously able to use non-work
SSNs for tax purposes may now obtain an ITIN and present it to a
prospective employer as an SSN and use it instead for wage reporting.
Currently, there are several provisions of the law that address SSN
misuse, such as:
Social Security Act provisions that make it a felony to
deliberately represent another person's SSN as your own.
Identity Theft and Assumption Deterrence Act provisions
that make it a criminal offense to knowingly use another person's means
of identification with the intent to commit a violation of Federal law.
This would include using another individual's personal identifying
information, such as an SSN, or providing that SSN to obtain a tax
refund.
We applaud the recent announcement by IRS that it will discontinue
its practice of issuing ITINs in the form of cards, and instead will
notify ITIN applicants by letter. However, we fully expect that the
growing confusion between ITINs and SSNs will exacerbate problems with
wage reporting. Additionally, the ease with which one obtains an ITIN
may negate the robust screening processes used to deter fraudulent
applications.
For example, we have found that the ITIN has been used to
facilitate fraud in cases where an ITIN is submitted as if it were an
SSN. In one such case, a woman using an ITIN as her SSN obtained loans
and lines of credit of approximately $300,000. Furthermore, she was
able to secure a mortgage of nearly $140,000 by furnishing bogus W-2
forms bearing the ITIN.
ITIN/SSN Misuse Impact on Homeland Security
Still, while financial crimes involving SSNs are more numerous than
terrorism-related crimes involving misuse of the SSN, the potential
threat SSN misuse poses to homeland security is also of real concern.
The information SSA stores on each of us is personal, and is
entitled to all of the protections we can afford. However, I have
learned during my role leading OIG's investigative effort, that there
are times when an individual's privacy must be balanced against the
need of law enforcement agencies for information to protect our
country. For example, following September 11th, and again during the
sniper attacks in the Washington, D.C. area, it became necessary to
share information stored by SSA with appropriate law enforcement
authorities to permit those authorities to conduct their investigations
and, more importantly, prevent additional lives from being lost.
On both occasions, we asked to use the ad hoc authority vested in
the Commissioner by SSA regulations to permit the sharing of SSA
information with our law enforcement partners. However, we believe in
instances like this the Inspector General of Social Security should
have the ability to disclose such information without prior approval.
When lives are at stake, every minute is critical, and we need to be
able to provide this information as expeditiously as possible.
Those connected with terrorism will at some point either take
advantage of security gaps across the Federal government or try to
obtain SSNs or ITINs. They may seek SSNs or ITINs through:
The use of counterfeit or stolen documents purchased on
the Internet or created through readily available computer processing
equipment and software.
Fraudulent application for genuine documents issued by
government agencies.
Therefore, we must remain vigilant to ensure that there are
adequate safeguards to prevent the misuse of SSNs and ITINs.
We believe the misuse of ITINs could undermine SSA's programs and
our investigative ability to provide reliable data to the law
enforcement community. ITINs could be used to facilitate an underground
network to undermine homeland security and perpetrate fraud against our
economy and its citizens. It is incumbent upon us to resolve these
issues now, before another crisis emerges and data is needed quickly.
Nationally, OIG has been an active participant on Joint Terrorism
Task Forces. We have provided round-the-clock support to the national
criminal investigation of potential terrorist activities. Our special
agents and attorneys have helped identify, detain, indict, and convict
individuals who may have a relationship with terrorist activities. For
example, we have investigated airport employees during our homeland
security operations who used ITINs on applications to obtain Secure
Identification Display Area badges.
Additionally, our Electronic Crime Team rendered assistance to the
FBI, while our computer specialists wrote programs to more specifically
query SSA's databases for FBI-requested information. Many of our
investigators continue to perform substantial work on terrorism
investigations and respond to allegations of SSN misuse.
Many of our agents participated in Operation Swipe Out, a large-
scale, anti-terrorism, white collar crime initiative. The investigation
focused on the fraudulent activities of a Pakistani group involved in
credit card, Social Security, immigration, bank and mortgage fraud.
Starting in January 2003, 30 criminal complaints/arrest warrants and
two search warrants were issued. The suspects defrauded numerous
credit card companies of approximately $5 million, sending some of
their proceeds to banks in Pakistan and Canada. For the 30 criminal
cases, 17 of the subjects pleaded guilty, receiving sentences ranging
from 2 years probation to 57 months of incarceration, and being ordered
to pay $1,137,224 restitution. Two subjects' cases were dismissed; the
remaining 11 subjects are fugitives. Seven were charged with SSN
misuse.
In other situations, criminals ``shop`` for State and local
governments that do not mandate an SSN, and consequently accept an
ITIN. One of our investigations detected an SSA employee furnishing
SSNs to a co-conspirator who supplied them to illegal aliens for
obtaining driver's licenses. After the employee was arrested and no
longer able to provide SSNs, the co-conspirator simply moved his
operation to North Carolina, which allowed the use of ITINs for
driver's licenses.
In a 2002 audit, we discussed our concerns regarding SSA's risk of
exposure to improper enumeration of foreign students. We found SSA did
not have a reliable system for determining whether a foreign student is
actually enrolled at an educational institution and required an SSN to
perform authorized work. Some schools provided work authorization
letters to students for on-campus employment when the school had not
actually extended an employment offer to the student. As a result of
our recommendation, the Agency proposed a regulatory requirement that
evidence of actual employment be necessary for foreign students to
receive SSNs.
In a draft report we recently issued to SSA, we reported that at
least 22 colleges and universities across the country--9 of which
represent those with the largest foreign student populations--advertise
on their web sites that they will issue ``temporary SSNs'' to students.
These numbers are not issued by SSA, but are generally nine-digit
numbers that resemble an SSN or an ITIN. One university even provided
the names of several banks where foreign students could open a bank
account with one of these ``temporary SSNs.'' We are recommending that
SSA contact these universities and discourage them from continuing this
practice. We are also recommending that SSA work with national
education committees and alliances to spread the word that this
practice should be halted.
Areas for improved coordination
The areas that need improved coordination are:
Sharing of data.
Data reliability.
Use of shared data.
SSA maintains two types of information in its databases; 1) SSA
information received from individuals self-reporting on applications
for SSNs or Social Security benefits, or from States and the private
sector; and 2) IRS information received from employers in the form of
W-2s and W-3s.
IRS maintains information in its databases generally from W-2s, W-
3s and tax information. However, Section 6103 of the Internal Revenue
Code restricts (with exceptions) the disclosure of this information to
any other Federal, State, or local agency.
Currently, IRS already releases taxpayer data for statistical
purposes to the Department of Commerce's Bureau of Economic Analysis
and similar organizations, indicating that such data can be released
for legitimate governmental purposes. However, further opportunities
for expansion of coordination should be explored to allow for joint
pilots and/or non-investigative reviews to allow auditors to identify
areas where formal disclosure agreements could be later negotiated if
warranted.
For example, SSA shared data with IRS on the 100 employers having
the most wage items in suspense. This information could assist IRS to
assess penalties against these employers for reporting mismatched names
and SSNs on W-2 forms. SSA is also cooperating with DHS on unauthorized
workers in the U.S. economy. Each year SSA sends DHS information on
over 500,000 individuals who are not authorized to work in the U.S.
economy, but who nonetheless show wages in SSA's system. A recent
report we issued, ``Profile of the Social Security Administration's
Non-work Alien File,'' found DHS is neither using this information to
take action against these individuals nor advising SSA when they are
authorized to work in the U.S. economy.
It is imperative that SSA and IRS have consistent and reliable
information to improve efficiency and effectiveness, and to reduce
fraud, waste and abuse. While SSA is already actively sharing its own
data with other agencies, there are a number of one-way restrictions
and boundaries by law that limit the sharing of data between IRS and
SSA. We are working with IRS to improve data reliability. Despite the
restrictions I have outlined, we stand ready to work with IRS and DHS
to develop strategies to improve our collective ability to use existing
information to ensure the integrity of the SSN and strengthen homeland
security.
For example, we believe the following combined efforts would enable
both agencies to make significant strides in addressing the ITIN/SSN
misuse issue.
Improved Employee Verification
Cross-Verification of Data
Improved Employee Verification
Coordination with IRS on employee verification would assist
employers with one-stop verification of employee data. SSA already
assists employers with its Employee Verification Service (EVS) for
registered employers.
SSA is also piloting an online Social Security Number Verification
Service (SSNVS), which allows employers and third parties to verify
employees' names and SSNs via the Internet with information in SSA's
records for wage reporting purposes. As with EVS, SSNVS also provides a
death indicator where SSA records indicate that the employee is
deceased. Employers have two online options to use SSNVS:
Key in up to 10 names and SSNs at a time and the results
are returned in seconds.
Submit a file containing up to 250,000 names and SSNs per
file and the results are returned the next business day.
SSNVS is beneficial because it:
Helps employers use correct names and SSNs on wage
reports.
Reduces the number of submission errors.
Offers an additional method of requesting verification
services.
Reduces the number of telephone calls required for
employers to verify names and SSNs.
Cross-Verification of Data
Cross-verification would improve the process without requiring
major expenditures of money or the creation of new offices or agencies.
We believe legislation is needed to require mandatory cross-
verification of identification data between governmental, financial and
commercial holders of records and the SSA on a recurring basis. Much of
the data already exists and could be drawn from information the
Federal, State and local governments and the financial sector already
have.
All options should be explored to make the cost of providing this
service budget neutral. The technology is already in place to allow
these data matches and verifications to take place. Coupled with steps
underway by SSA to strengthen the integrity of its enumeration business
process, cross-verification would be an important step to help prevent
the spread of SSN misuse and identity theft, and to improve homeland
security.
Some possibilities for cross-verification are:
Mandatory SSN verifications for employees in critical or
sensitive positions, such as defense, energy, chemicals,
transportation, and national security.
SSN verification for banks, credit reporting agencies and
other financial lending institutions.
The ability to verify SSN data for all law-enforcement
entities.
Another positive aspect of cross-verification for SSA is the
ability to correct errors on a more timely basis--errors that might
otherwise keep workers from receiving full credit for years of labor
and credit that can be nullified by simple typographical errors in
submitting their data.
Conclusion
I want to congratulate Congress, and especially Chairman Shaw and
Ranking Member Matsui, on the recent enactment of H.R.743, the Social
Security Protection Act of 2003. This milestone bill, the work of three
Congresses, provides new safeguards for Social Security and
Supplemental Security Income (SSI) beneficiaries who have
representative payees, and will enhance other program protections. It
will also provide significant new authority to our office to protect
the SSN, SSA employees, and the Social Security Trust Funds.
The challenge for Congress and SSA is to balance the SSN's privacy
against public and private needs to have limited access to this data.
In the spirit of H.R. 2971, Chairman Shaw's pending SSN legislation, we
believe the following steps need to be taken to meet this challenge:
Limit the SSN's public availability to the greatest
extent practicable, without unduly limiting commerce.
Prohibit the sale of SSNs, prohibit their display on
public records, and limit their use to valid transactions.
Enact strong enforcement mechanisms and stiff penalties
to further discourage SSN misuse.
Cross-verify all legitimate databases that use the SSN as
a key data element.
We are cognizant of the legal restrictions regarding the sharing of
data, and respect the right to protect individual privacy concerns,
however, we believe greater coordination and controlled sharing of data
will improve the integrity of the SSN and SSA's programs.
I thank you for your continuing commitment to these critical
issues, and would be happy to answer any questions.
Chairman HOUGHTON. Thanks very much. Mr. Shaw?
Chairman SHAW. Mr. O'Carroll, I would first of all like to
say I understand last night, you were named as the Acting IG. I
would like to congratulate you for that particular position.
Mr. O'CARROLL. Thank you, Chairman.
Chairman SHAW. I think I have reason to believe that you
have been involved somewhat in the study that I made reference
to earlier regarding the Palm Beach Post and what has gone on
there. Could you give us an update as to what has happened in
that particular case? It is headlined, they call it ``Modern
Day Slavery,'' and I think that is probably a very good choice
of words based upon the content of the articles.
Mr. O'CARROLL. As you notice, in one of those articles in
there, it describes how my office did an investigation on two
SSA employees who were selling for about $1,500, genuine SSNs
that were used by this ring. Since then, we have been working
with the U.S. Attorney's office down there. It is an ongoing
investigation. I can't go into much detail on it.
Chairman SHAW. Thank you very much. If you would keep me
advised as to the progress.
Mr. O'CARROLL. We will give you the updates.
Chairman SHAW. I don't want to go down there and have a
hearing and jump in the middle of an ongoing investigation, but
some people have to answer to this, and I assume that your
people are also talking to the folks at the Palm Beach Post to
get what information they can. I don't think there is any
privileged information, so I would think they would be very
forthcoming in assisting us in this investigation.
Mr. O'CARROLL. Yes, sir.
Chairman SHAW. I have no further questions. Thank you.
Chairman HOUGHTON. Mr. Becerra?
Mr. BECERRA. Thank you, Mr. Chairman. Mr. Brostek, let me
ask you a couple of quick questions. The information you
provided in your testimony points out some of the issues with
the ITIN, as have the other witnesses. Give me a sense, now. I
know that most of your comments were made prior to the IRS'
efforts to try to tighten things up within the ITIN process.
Give me a sense, now that you have seen what the IRS has done,
what your comments would be as a result of the changes that
they have made to tighten up the process.
Mr. BROSTEK. I do believe that the changes that were made
appear to be improvements in the system, reducing the number of
documents that are going to be allowed for supporting the ITIN
from 40 to about a dozen or so, the additional training that is
going to be provided to the IRS personnel when they review
those documents, the requirement for some evidence of a tax
need. I think those are all positive steps. Our ability to have
gotten an ITIN using false documents wouldn't necessarily be
addressed by those changes, in part due to a couple of primary
weaknesses. One, the individual who is applying is not
necessarily seen, in fact, is often not seen by anyone. You are
just submitting paperwork, so the IRS doesn't know whether the
individual applying is really the one whose documents are being
reviewed. In addition, the IRS is not checking the validity of
the document with a third party. That is not an easy thing to
do, and it certainly would also be a very large imposition of
workload on the IRS were they to actually see each individual.
More than a million apply every year for an ITIN.
Mr. BECERRA. If I could stop you there, would you recommend
that the IRS move forward to try to do some type of checking to
confirm the identity, in which case you are talking about
additional resources?
Mr. BROSTEK. I think it would be useful for the IRS to try
to figure out additional cost effective ways of improving the
verification process. We didn't do enough research to have any
suggestions on exactly what that might be, but these are
weaknesses that do enable someone to get a card with less
assurance that they are the person they say they are than, for
instance, if they are applying for an SSN, where people are
interviewed and where there is at least some third-party
verification of documents.
Mr. BECERRA. I was actually very surprised to see that one
of the documents that was obtained as a result of using the
ITIN was a voter registration, and somehow, someone was able to
register to vote based on an ITIN. The ITIN doesn't even
indicate on the ITIN card itself where you reside, so I could
live in California, in Los Angeles where I live, go to New
York, and if you have someone in the county voter registration
office, as apparently you must have had in this case, go to
this person and say I have got an ITIN that is supposedly valid
and I can apply to be a registered voter in the State of New
York, or Alabama, or North Dakota. It sounds like what we need
to do, as well, is try to approach the different agencies and
private sector individuals who have the authority to authorize
subsequent documents or identification vehicles and train them,
as well, on what you can and can't do with particular types of
Federal documents.
Mr. BROSTEK. Yes, I think that is a good point, and the IRS
has started a campaign, as they refer to it, to try to better
educate businesses and governments about the proper use of the
ITIN. It is kind of curious in the case that you are citing
here where we got the voting registration card. The number that
we gave was never apparently questioned, but when we first
applied, we just used a post office box as opposed to a
residential address and that was questioned, so we did have to
provide further evidence of living in the jurisdiction.
Mr. BECERRA. That one just really seems so strange, to see
someone apply for a voter registration card through use of an
ITIN. Last question. I want to probe this a bit more because I
know that the responsibilities that the IRS and the SSA have
are tremendous because they have to deal with the benefits and
services and taxes of millions and millions of Americans. I
want to make sure that if we are going to propose something, we
actually give the agencies the power to do the work without
straining other obligations that they have. If we were to go to
some form of third party verification, which would give us more
of a sense of security that the individual applying for the
ITIN really is eligible to get it, we would either have to
move, shift people who are currently doing other types of
investigative work at the IRS to do this, or bring on more
personnel, is that true?
Mr. BROSTEK. Well, certainly to the extent that it would
increase the amount of work that the IRS has to do, and I think
by definition it would, there would be a resource requirement
that would go with that. We don't know what the more cost
effective ways would be to try to address this problem, so we
don't have a sense of how much more the resources would be
required.
Mr. BECERRA. One final question, if I may, Mr. Chairman. I
don't know if any of the panel recall the number off the top of
their head, I know it is a large number, the amount of
uncollected taxes. It is somewhere in the several hundred
billion dollars, I believe.
Mr. BROSTEK. It depends on whether you are referring to the
tax gap, the annual difference between what is collected and
what should have been collected?
Mr. BECERRA. Correct.
Mr. BROSTEK. I think the most recent estimate is a little
over $300 billion. Of that, after some voluntary payments
occur, that comes down to the $250 billion range.
Mr. BECERRA. So, $250 billion, that is on an annual basis?
Mr. BROSTEK. Yes.
Mr. BECERRA. That we don't collect from people who owe it,
and we don't have the resources to figure out the best way to
try to collect a quarter of a trillion dollars. So, I am
assuming that to try to do third-party verification means that
we are probably going to do an even worse job at collecting
some of the $250 billion annually unless we figure out a way to
get either more productive or more novel ways to try to
complete all these obligations that the IRS has.
Mr. BROSTEK. One of the biggest sources of noncompliance in
that $250 billion are individuals for whom we don't have third-
party reports of their income--self-employed individuals,
independent contractors who don't have information reports that
go to the IRS that report how much they receive in income. So,
this is a key issue for tax administration as a whole.
Mr. BECERRA. Thank you very much. Mr. Chairman, thank you
very much.
Chairman HOUGHTON. Thank you. Mr. Hulshof?
Mr. HULSHOF. Thank you, Mr. Chairman. Mr. O'Carroll, just a
quick comment. I appreciate very much the recommendations that
you have made on, for instance, cross-verification of data
between the IRS and the SSA. I think this additional data
sharing and increased coordination generally would help detect
some trends, identify problems, maybe identify some
administrative remedies, and ultimately possibly some
legislative remedies. So, I make that quick comment. Ms.
Gardiner, a question. Ms. Olson, sitting next to you, your
fellow panelist, recommended some things that the IRS do to
develop a system to electronically file SSN-ITIN mismatch
returns--right now, they are done on paper--so that people that
show up at the IRS taxpayer assistance offices might get some
help. The other thing I would like you to comment on briefly is
this idea, really a fascinating idea, to fence off income that
is under a reported or a fabricated SSN. Generally, your
reaction to the recommendations by the Taxpayer Advocate?
Ms. GARDINER. Well, first, I would like to make a
distinction between the mismatches, because in some cases on
these ITIN tax returns, the attached W-2 will have the name of
the person who filed the ITIN return but a different SSN. That
is what I made reference to in my remarks. Then you also have a
very large number, in the thousands, of ITIN returns that are
filed, with W-2s that have both the name and the SSN that
belong to someone else. In those cases, they truly are victims
because they get notices from the IRS. I believe it is that
part of it, in particular, that Ms. Olson is referring to. So,
victims whose both very name and SSN was misused wouldn't get a
notice from the IRS saying, where is the rest of our taxes? You
have this additional income. So, we think that would be a good
idea. It doesn't solve the problem as much with the mismatches
where the person does use their correct name and that other
individual's SSN. That information just isn't really used now.
Mr. HULSHOF. The fencing off provision?
Ms. GARDINER. It only works really for both the name and
number situations.
Mr. HULSHOF. Ms. Olson, any comment on that comment?
Ms. OLSON. Well, I am the person who has to solve taxpayer
problems, and I see people with W-2s where someone has used--
the ITIN holder has used their own name and given the victim's
SSN, and the victim is getting, in fact, our underreported
notices. So, my thinking was that the fencing off would be
something that would protect many victims, and if the SSA
wanted that information, that could be something that we would
be notifying them. I would like to make some comments, if I
might, because I think you would be interested in this, about
the third-party verification and my idea of people coming into
the walk-in sites. Right now, the IRS' policy is that whereas
in the walk-in sites people can deliver their documentation and
their ITIN applications, the documents are not really verified
there, and that is the opportunity for the IRS to see an
applicant face-to-face.
We changed our procedure saying, send in an application
with your tax return attach the application to the tax return,
and the idea of that was to say, we know you have got a tax
administration purpose. You are not getting the ITIN for a
driver's license. It means we are holding refunds until we can
verify. So, if we were to really do the processing of the
application and the verifying of the documents while the
taxpayer is right there before us in the walk-in sites, we
might have better results than shipping them off somewhere,
delaying refunds.
Mr. HULSHOF. My time is really short and I want to be
sensitive to Ms. Tubbs Jones giving questions, so if any of you
want to chime in on this, again, the same question I proposed
to the previous panel. Under current law, wages subject to the
Social Security tax are credited toward benefits even if it is
an unauthorized immigrant who is doing the work. What are the
tradeoffs? Some of you referenced this, I think, in your
testimony, but if anybody wants to quickly answer, what would
be the tradeoffs if we were to stop paying Social Security
benefits and tax refunds based on unauthorized work?
Ms. OLSON. Sir, if I could talk about the refunds briefly.
Mr. HULSHOF. Okay.
Ms. OLSON. Because refunds are under the taxpayer's
control, they will just simply stop doing extra withholding and
using the IRS as a bank. It won't stop them from using the
ITIN.
Mr. HULSHOF. Maybe from the SSA's position, Mr. O'Carroll,
as IG?
Mr. O'CARROLL. From our standpoint on it, what we are
looking at is--as Mr. Lockhart said, it is a confusing point
right now. We have some jurisdictions now under the new law
that Chairman Shaw has done, H.R. 743, that is going to make
people have to be a citizen working under a genuine SSN to get
benefits, which we agree with and applaud. However, as Mr.
Lockhart said, the retrospective ones are kind of confusing and
there is a lot of data matches that have to be done between the
SSA and the DHS in terms of finding out when non-work SSNs
because authorized for work, and that is an area that I think
we all agree on, is that we should be doing much better data
matching with the DHS on that type of issue.
Chairman HOUGHTON. Thank you. Judge?
Ms. TUBBS JONES. Thank you very much. You can tell old
friends when they call you judge, go back to your old careers.
[Laughter.]
Ms. TUBBS JONES. Mr. Brostek, help me out. You were going
through a process of being able to get various genuine
documents with counterfeit instruments, counterfeit documents.
Number three on the ITIN card, you said you had someone take
the ITIN card and they did what?
Mr. BROSTEK. They used the ITIN card--they filled out the
application for a voter registration card, and as I understand
it, we submitted that application and a copy of the ITIN card
to the registering official.
Ms. TUBBS JONES. They were able to get a voter registration
card?
Mr. BROSTEK. Yes.
Ms. TUBBS JONES. With no other identification, they were
able to do that? The ITIN card doesn't have an address on it,
right?
Mr. BROSTEK. Correct, and that is what I pointed out. On
the application, the first application, rather than putting a
residential address, we put a post office box, and that was
questioned and we had to submit a revised application with a
residential address.
Ms. TUBBS JONES. When you submitted a revised application
with a residential address, you did not have to show any other
evidence of that address?
Mr. BROSTEK. That is my understanding. I wasn't the
individual doing this, but that is my understanding.
[The information follows:]
U.S. General Accounting Office
Washington, D.C. 20548
March 26, 2004
The Honorable Stephanie Tubbs Jones
U.S. House of Representatives
Washington, D.C. 20515
Dear Ms. Tubbs Jones:
During our testimony on ITIN (ITINs), before the House Committee on
Ways and Means' Subcommittees on Oversight and Social Security on March
10, 2004, you asked how we were able to obtain a voter's registration
card using an ITIN that we created. The steps we took follow:
During October 2003, we mailed a voter registration
application to a local county in the State of Virginia. We entered the
fictitious ITIN in lieu of the requested SSN on the application, and
also entered an undercover name, and an undercover post office box as
the return mailing address.
During November 2003 (about 5 weeks after we mailed the
application), we received a letter from the county along with our
application. That letter denied our request for a voter registration
card because we used a business address (post office box) instead of a
residential address in the county.
Using the undercover name, one of our staff members
called a voter registration official in the county shortly after we
received the rejected application. That official said to cross out the
post office box address, write-in an actual county residential address,
and re-mail the application. We did so but we also added the words ``in
care of'' in front of this residential address.
When we did not receive the voter's registration card
within 2 weeks, our staff member called the official again. That
official said that a voter has to live at the county residential
address listed in the application. Our staff member asked this official
to cross out ``in care of'' from the address. That official agreed to
do so and to process the application.
About a month later in late December 2003, we received
the voter registration card--issued on December 19, 2003--for that
fictitious person at the residential address that we listed on the
application.
Since we did our work, certain actions, if successfully implemented
by the States, may limit the opportunities to misuse an ITIN to obtain
a voter registration card. Federal law \1\ requires States to have
implemented, by January 2004, procedures under which voter registration
applicants must provide certain identification documents (e.g., bank
statement, paycheck, or government document) when they register to
vote, or the first time they vote in a Federal election. States are
also required to check voter registration applications for accuracy by
routinely requiring and verifying the applicant's driver's license or
Social Security identification number (last four digits) \2\ When the
verification indicates that a registrant is not eligible, has provided
inaccurate or fraudulent information, or information that cannot be
verified, then the voter registration card application must be denied,
according to executive correspondence from the Department of Justice.
Had these provisions been in place when we sought a card with
fraudulent documentation, we may not have been successful.
---------------------------------------------------------------------------
\1\ See Department of Justice documents on the Help America Vote
Act of 2002 at http://usdoj.gov/crt/voting/hava/hava.html
\2\ Most States, including the State from which we obtained the
voter registration, have applied for a waiver to this requirement until
January 2006.
---------------------------------------------------------------------------
Sincerely yours,
Michael Brostek
Director, Tax Issues Strategic Issues Team
Ms. TUBBS JONES. I don't want to beat a dead horse or
anything. I think, though, we ought to have an understanding of
what happened in order to get a voter registration card because
you are representing something with this chart, okay? I
appreciate it. Let me go to Ms. Olson. Ms. Olson, how long have
you been the Taxpayer Advocate?
Ms. OLSON. Three years.
Ms. TUBBS JONES. Three years? What do you think should be
the major issue that this Subcommittee should consider to
ensure fair treatment and confidentiality for average Joe
Taxpayer with regard to the issues we presented today?
Ms. OLSON. For ITIN taxpayers, I think there are a couple
of issues. We have talked about ITIN taxpayers using SSNs. I
think that low-income taxpayer clinics, outreach and education
to these taxpayers about their rights and responsibilities, is
perhaps the best thing for that particular taxpayer. Not having
the government agencies delivering the information, but
stakeholders that they can trust. On the other hand, for the
employers of the average Joe Taxpayer, the ITIN taxpayer, the
IRS has done a study that shows when they went out and
interviewed employers that many of them didn't recognize the
ITIN number as an ITIN number. They thought it was an SSN. So,
when you get into the entry point of the system where someone
might say, I don't want to hire you because you are giving me a
suspect number, we don't have a lot of what you would call
branding issue recognition, and the IRS really needs to do
something about that, and I think this Committee really needs
to watch over the IRS to make sure it does that.
As far as confidentiality, I think my position is really
clear. I believe that the current 6103, the section of the
Code, protects taxpayer information, which is a vital part of
the bargain. That we get taxpayers to file because they know
their information is going to be held confidential. I think
there are ample authorities under the law that if immigration,
or Social Security, or some other agency is looking at a
taxpayer for a violation of some other law, that they can get
that data from us. They just can't do fishing expeditions, and
I think that is the right thing for taxpayers to expect from
their tax administrator.
Ms. TUBBS JONES. That is a perfect segue for my question
for Mr. O'Carroll, since I am running out of time. Ms.
Gardiner, it is not that I don't want to ask you anything. I
just don't have enough time. Your testimony, Mr. O'Carroll,
suggests that the IRS and other Federal agencies work together
to develop additional ways to share data. Are you suggesting
that Congress needs to change the disclosure rules in section
6103 of the Tax Code?
Mr. O'CARROLL. Yes, Congresswoman. That would take
legislation to do that type of sharing, but an example of it is
that in our earnings suspense file, we have about 350,000
mismatched wages that start with a 9 as the beginning of the
digit of the 9-digit code, which is--ITINs are usually in the
900 series. If we were to be able to share information with the
IRS, we would be able to determine whether those are false
numbers, whether they are ITIN numbers, or they are other types
of numbers so that we could be able to work
on the earnings suspense file, and that, at the moment, we are
unable to share with the IRS.
Ms. TUBBS JONES. What do you think about that, Ms. Olson?
Then I am done, Mr. Chairman.
Ms. OLSON. I think that my understanding is that the ITIN
numbers, the 900 numbers, don't make up a large portion of the
earnings suspense file, and so in order to erode 6103 in order
to deal with a small portion of that issue, it does not meet my
balancing test for protecting tax administration and
confidentiality in tax administration.
Ms. TUBBS JONES. In other words, it is almost like passing
a constitutional amendment to stay away from big things like
that, when the issues aren't of that level.
Ms. OLSON. Section 6103 is fundamental to the
administration of the tax system.
Ms. TUBBS JONES. Thank you, Ms. Olson. Thank you, Mr.
Chairman.
Chairman HOUGHTON. Thank you very much. I am going to let
you go here because we are way over time, but I want to ask one
question. Ms. Olson, the last page of your testimony, I thought
was very helpful as far as I was concerned because it
specifically says certain things ought to be done. I have got a
question. You expressed concern that the proposals to advance
Social Security and immigration policies through the Tax Code
could undermine the whole administration of the tax system. Do
you want to break that down a little bit?
Ms. OLSON. I think that the more that you ask the IRS to
administer different laws and different policies other than
just pure tax policy, you make it harder for us to bring people
into the system and comply with the system. We keep saying,
taxes are the life blood of government. So, sometimes there are
reasons for the tax administrator to essentially adopt a
``don't ask, don't tell'' policy so that taxpayers do come in
and the government does collect the funds. I think that looking
to us to carry the water for other programs makes it very
difficult for us to do our core job.
Chairman HOUGHTON. Isn't it possible to create a system of
discipline and yet have an underlying bed of trust, because
that is the whole point of our tax system? Another thing is,
what happens 20 years from now? Are we going to be talking
about the same issues? Is it going to be the same sort of
knife-edged type of situation?
Ms. OLSON. I think that we can do a better job. I talked
about the educating of the employers. We can certainly get them
to identify the numbers and not employ people who have these
questionable numbers. I think that the new system that Social
Security has talked about, where employers can verify numbers
on the internet, and that is appropriate for Social Security to
do that because they are the caretakers of those SSNs. We
certainly can do a better job, look at verifying information. I
have made some proposals about the walk-in centers and things
like that, where when we are seeing the ITIN applicants, we are
essentially doing what Social Security does with their SSNs. I
think that if you take those kind of approaches, you are taking
a balanced approach. You are protecting the tax system and yet
you are not ignoring the issue. You are addressing the serious
issue.
Chairman HOUGHTON. Well, thank you, and thank you very much
for bearing with us. Thank you for your excellent testimony.
The meeting is adjourned.
[Whereupon, at 12:30 p.m., the hearing was adjourned.]
[Questions submitted from Chairman Shaw to Mr. Lockhart,
Mr. Everson, Mr. Tom Ridge, and Ms. Gardiner, and their
responses follow:]
Questions from Chairman E. Clay Shaw, Jr. to Hon. James B. Lockhart,
III
Question: You stated in your testimony that the Social Security
Administration (SSA), Internal Revenue Service (IRS), and Department of
Homeland Security (DHS) have formed an executive level steering
Committee. What are your plans for increased agency coordination?
Answer: As stated in our testimony, SSA has formed an executive
level steering Committee with DHS to oversee and direct cooperative
activities. The first areas of discussion will be strengthening the
integrity of SSNs to promote homeland security and identifying
potential data sharing activities that would best assist each
organization in carrying out its mission. We believe it will be a
successful and productive effort.
Even more recently, we established another high-level interagency
group with the IRS to work on issues of mutual concern and efforts that
cross agency lines. We held our first meeting on March 5th to discuss
logistics. We anticipate that this interagency coordination will be
useful and productive for each agency.
Question: The SSA and IRS match data on earnings, to ensure
accurate wage reports. Are there any authorizations for sharing
information between your two agencies in current law that are not being
utilized, or are under-utilized?
Answer: We are not aware of any authorizations for sharing
information between SSA and IRS that are not being utilized or are
under-utilized.
Question: In his testimony, the SSA Acting Inspector General
suggests exploring additional data-sharing opportunities. Do you have
any recommendations for changes in data-sharing authority that would
enable both agencies to better do their jobs?
Answer: With respect to data sharing opportunities, SSA and the IRS
are exploring expanded online access to employer report and adjustment
information. This provides wage information processed for a particular
employer in a given tax year (TY). This includes original as well as
any adjustments to the employer report. This data is the online
equivalent to the employer report and adjustment information data files
that are currently released to IRS on a weekly basis for integration
into the IRS database. SSA and IRS currently have an online pilot in
one IRS location and are working to expand access to other sites.
Question: The National Taxpayer Advocate recommends IRS continue to
encourage unauthorized workers to file tax returns, so that the IRS
could identify stolen SSNs and the correct ITINs. She recommends IRS
notify the SSA of the ITIN to which wages should be attributed when an
unauthorized immigrant works using a false or stolen SSN. Do you agree
with this recommendation, and is it feasible?
Answer: When someone works under an incorrect SSN--possibly a false
or stolen SSN--the wages are recorded in SSA's earnings suspense file.
Even if an ITIN is subsequently assigned to the taxpayer by IRS, SSA
cannot remove the wages from the suspense file, because an ITIN is not
a valid number for crediting wages. Thus, the additional work involved
would yield little or no benefit to SSA and would not be an optimal use
of our resources.
Question: The SSA Acting Inspector General said that 22 colleges
and universities will issue ``temporary'' SSNs to students, which are
not SSNs at all but rather 9-digit numbers that look like SSNs. How is
the agency addressing this issue and what is being done to deter
educations institutions from creating these misleading numbers?
We instructed our regional offices to contact the colleges and
universities identified by the Inspector General to ask them to remove
all references to ``temporary SSNs'' from their websites and
informational materials, and they did so. The colleges and universities
were advised of the purpose and use of the SSN and the potential risks
associated with issuing ``temporary SSNs.''
We also have an on-going relationship and dialog with several of
the national educational associations. For example, SSA staff provided
information about the potential risks of referring to student
identification numbers as ``temporary SSNs'' in a May 25, 2004 national
meeting with NAFSA, the association of international educators.
Question: The SSA offers SSN verification to employers on a
voluntary basis. Are all employers able to verify SSNs of their new
hires if they so choose? If an employer needs to verify dozens SSNs per
day, how quickly will the SSA provide a reply? Is the SSA taking steps
to make the SSNVS more user friendly?
Answer: The SSA has provided SSNVS to the employer community for
many years. Employers may contact SSA to verify SSNs via several
methods.
The Employer Verification System (EVS) provides several options at
no cost to employers. For up to 5 SSNs, employers can call SSA's toll-
free number for employers--1-800-772-6270--weekdays from 7:00 a.m. to
7:00 p.m. Verification is provided immediately for requests submitted
through the employer 800 number. Employers may also use this number to
get answers to any questions they have about EVS or to request
assistance concerning wage reporting.
Employers also have the option to submit a paper listing to the
local Social Security Office to verify up to 50 names and SSNs. In
addition, they may submit verifications on magnetic media. A simple
registration process is required to use the magnetic media option.
Paper and magnetic media EVS requests can be submitted at any time and
generally take about 30 days to process.
SSA also has a pilot in place that allows participating employers
to use a secure Internet site to verify names and SSNs. Currently, 85
employers are participating in this pilot. This pilot is referred to as
the Social Security Number Verification Service (SSNVS). SSNVS provides
a quicker and more efficient alternative for employers to obtain
verifications. This pilot offers the participating employers two
options to verify SSNs. Employers can receive instant feedback for up
to 10 names and SSNs, or the employer may upload a file with up to
250,000 names and SSNs. The response is ready for the employer on the
next business day.
We are pleased with the feedback we have received from employers
using SSNVS. The SSA surveyed pilot participants, and 93 percent of the
respondents rated this service very good or excellent.
Question: In March 2003 the SSA Inspector General (SSA IG) found
that though the IRS is sending the SSA information on wages reported
under an identity theft victim's name (thus resulting in overreported
wages on that worker's record), the SSA is not processing this workload
in a timely fashion. As a result, the SSA IG estimated there was a
backlog of 80,000 unprocessed referrals. What is the SSA doing to
resolve this backlog?
Answer: By the end of December 2003, the SSA had processed to
resolution the entire backlog of overstated wage referrals that SSA's
Office of Inspector General reported on in March 2003. Currently, there
is no backlog of referrals; SSA continues to process current IRS
referrals as they are received. In order to address the accumulated and
future referrals, SSA has developed and documented updated standard
processing procedures. To facilitate the possibility of more efficient
processing, SSA has elicited IRS support to develop an automated
application to process this workload. SSA and IRS are continuing to
meet to discuss how to develop an automated process.
Question: Since 1997, the SSA has sent information to the DHS on
wages reported under SSNs issued for non-work purposes. However, the
DHS has said the information is in an electronic format it cannot use.
Are you working with the DHS to resolve these problems? Also, are you
working with the DHS to obtain more up-to-date information on the work
authorization status of SSN holders?
Answer: Yes. We are working with DHS to resolve the problems that
have been brought to our attention with regard to this file. For
example, in addition to the information sent as required by law, DHS
recently requested the data in a different electronic format. We
provided a prototype file of the new electronic format to DHS in early
April 2004 for testing purposes. However, there are inherent
difficulties resulting from the fact that each agency maintains unique
data to support its mission. Our information is indexed under the
individual's SSN; however, DHS records do not usually contain an SSN.
DHS uses immigration numbers as its index; SSA records do not presently
contain the immigration numbers. However, SSA is exploring capturing
those numbers as part of a future long-term enhancement to its system
for assigning SSNs, which would be helpful in our efforts to obtain
more up-to-date information on work authorization status.
Question: Your agency's letter to employers notifying them of
mismatched names and SSNs on their wage reports states that employers
should not use the letter to take any adverse action against an
employee and that doing so could violate State or Federal law and
subject them to legal consequences. Did you consult with the DHS on
this language? Is it also the DHS's policy that employers should not
take adverse action based on the letter?
Answer: The SSA discussed the ``No Match'' letter language
developed in 2002 with the Office of Special Counsel at the Department
of Justice, which had jurisdiction over the Immigration and
Naturalization Service (INS). As you know, most of the functions of the
INS were subsumed under DHS. We would defer to the DHS to address
questions concerning their policies.
Question: Could you provide an estimate of the number of clearly
invalid SSNs (e.g., all zeros, sequential numbers, alphanumeric, ITINs,
and so forth.)? What much in wages is attributed to these numbers?
Answer: There are currently about 244 million items in the suspense
file. (Items refer to quarterly employer reports for individual workers
for years prior to 1978 and to W-2s for years after 1977.)
About 91.6 million of these items have an SSN that is
000-00-0000, reflecting approximately $34.9 billion in wages. The
percentage of wage items with all zero SSNs has declined significantly
since 1990. For TY 1990, 17 percent of W-2s received were all zeros;
for TY 2002, 2.5 percent of W-2s received were all zeros. The use of
all zeros for the SSN is consistent with instructions issued by SSA and
IRS for certain situations that employers may encounter until they can
obtain a valid SSN. For example, where the employer files his/her wage
reports with SSA electronically and cannot supply a worker's SSN--for
example, the employer hires a person who does not have an SSN by the
time the W-2 report is due and who may no longer work for the
employer--the employer is instructed to complete the SSN field by
entering all zeros. The use of all zeros allows SSA to record the wages
in the earnings suspense file and facilitates the payment of taxes on
these wages. (Once the employee receives his/her SSN, the employer
should complete and submit a form W-2c to provide the correct SSN.)
Another 30.1 million of the suspense items have an SSN
that could not have been assigned by SSA, reflecting $102.9billion in
wages. This includes the 800 and 900-series that have not been assigned
by SSA. Since 1996, the 900-series has been reserved for use by IRS to
issue ITINs. The ITIN is a 9-digit number issued to non-citizens who
need ITINs for tax purposes and who otherwise do not meet the
requirements for being assigned an SSN.
There are approximately 1.5 million items in the suspense
file reported to 900-series SSNs. Of these, about 342,000 appear to be
valid ITINS. The total earnings amount associated with these ``apparent
ITINS'' is $2.8 billion, representing 0.7 percent of all wages in the
earnings suspense file.
These three groups account for 50 percent of the items in the
suspense file--about 122 million out of 244 million items.
The remaining 50 percent of the items in the suspense file
represent situations such as individuals not reporting name changes,
clerical errors, and individuals using another's person's SSN.
The SSA has developed, and is currently implementing, a new process
for examining items in the suspense file by considering additional data
in an effort to move items from the suspense file to the records of
individual workers. As this implementation continues, we also continue
to evaluate the results to ensure that earnings are accurately posted
to the earnings record.
Question: Could you provide an estimate of the amount of benefits
received, versus payroll taxes paid, based on unauthorized wages that
have been removed from the Earnings Suspense File and allocated to the
correct worker?
Answer: We are unable to provide this information based on our
records. SSA has no way of determining whether or not earnings in the
earnings suspense file (ESF) are from unauthorized work. SSA's source
of information about earnings is the Form W-2, and there is no
indication on the W-2 as to an employee's citizenship or immigration
status. By definition, if reported earnings are in the ESF, we are
unable to attribute that record to any specific individual. Thus, SSA
has no way of determining from our records whether earnings removed
from the suspense file are from unauthorized work.
Question: The Commissioner of the IRS testified that, while they
have levied fines on employers who submitted wage reports with
mismatched names and SSNs, none of these fines have been upheld on
appeal because the employers complied with IRS and DHS documentation
requirements regarding collection of information on an individual's
name, SSN, and work authorization. Similarly, the SSA has previously
stated their ability to prevent wages from being reported under
erroneous names and SSNs is limited, because they must rely on the IRS
to penalize employers and the DHS to enforce immigration laws. Given
that the ability of both the SSA and IRS to maintain accurate records
and enforce laws over which they have jurisdiction rely substantially
upon DHS documentation requirements and immigration enforcement, please
provide a joint SSA, IRS, DHS response with recommendations to prevent
erroneous reporting of wage information to the IRS and SSA, including
any planned changes to employer instructions, other procedures or
regulations, along with any recommendations for needed change in law.
Answer: By statute, the SSA, IRS, and DHS each fulfill separate
roles within the Federal Government. The SSA advances the economic
security of U.S. citizens through retirement and disability programs.
The IRS administers and enforces the nation's revenue laws. The DHS
leads efforts to ensure the security of the United States homeland and
its citizens, including protection of the nation's borders. Despite
these separate roles, the three agencies interact with each other, as
necessary, to fulfill their respective roles and as authorized by law.
The subject of the March 10, 2004, hearing was SSN and ITIN misuses
and mismatches. The hearing testimony mainly addressed issues arising
from the use of SSNs stolen or fabricated by unauthorized workers in
the United States; the potential problems this caused with regard to
the SSA's Earnings Suspense File and IRS's collection of revenue; and
the IRS's attempts to fine employers for submitting information returns
to the IRS with invalid employee name/SSN combinations, which were not
upheld on appeal. The hearing also addressed the IRS's issuance and use
of ITINs in order to facilitate participation in the United States tax
system by individuals required to pay tax to the United States, but who
are ineligible for an SSN.
The issues explored at the hearing focused mainly on the
interaction between the SSA and IRS. Employers report their employees'
earnings and withholdings of income and Federal Insurance Contributions
Act (FICA) tax on IRS Form W-2. These earnings and taxes are tracked
through the use of the employee's SSN, for which all U.S. citizens are
eligible. SSA also will issue SSNs to certain non-citizens authorized
to work in the United States, and to certain non-citizens who qualify
for Federal or State benefits. DHS determines whether these individuals
are eligible to work, and the SSA's issuance of an SSN to an immigrant
is based on this determination.
Occasionally, an employer will submit a W-2 that contains an
invalid name/SSN combination, often because of a simple reporting
error. Generally, such minor errors can be remedied and the wages and
FICA taxes credited to the proper account at SSA and IRS. There are,
however, circumstances under which the name/SSN combination cannot be
matched to any record.
To decrease the number of invalid name/SSN combinations reported to
the SSA, the SSA has implemented a name/SSN verification system, called
the Employer Verification Service (EVS). The EVS matches employees'
names and SSNs with SSA's records. The EVS is offered to employers and
third party submitters (e.g., accountants and service bureaus). The SSA
believes that providing employers with the opportunity to verify names
and SSNs is an important step in accurate wage reporting. Consequently,
the SSA provides three options--through paper listings, magnetic media,
or telephone--for employers to verify names and SSNs. The SSA received
over 1.1 million phone calls from employers in 2003 to verify the
accuracy of their employees' reported names and SSNs.
The SSA is currently piloting an Internet-based application that
allows employers and third-party submitters to check their employees'
names/SSNs against SSA's records. The pilot is called the Social
Security Number Verification Service (SSNVS). The pilot began with six
participating employers. As of June 20, 2004, SSA has expanded the
pilot to include 86 employers. Of those, 74 employers have used this
service over 44,000 times to verify over 8.7 million names and SSNs.
The SSA is now evaluating the SSNVS pilot.
Under the SSA's privacy regulations, based on the Privacy Act, an
employer may not verify a name and SSN prior to hiring. This
information can be verified only after the employee is hired. Thus,
even if an employer learns that an employee's name and SSN do not
match, the employer is still required to send a Form W-2 (wage report)
with a name and SSN mismatch in cases in which the employee had left
employment with that employer.
As a further initiative, the SSA has established a process,
administered jointly by SSA and the U.S.Department of State (DOS), that
allows the SSA to assign SSNs and issue SSN cards to non-citizens who
choose to apply for an SSN as part of the process that allows them to
enter the country as permanent residents. This process is known as
Enumeration at Entry. The data required to assign an SSN, including
verification of the individual's immigration and work authorization
status, are provided by the DOS and DHS to the SSA. The SSA believes
this process is an important step to ensuring the integrity of the SSN,
and ultimately improving the accuracy of wage reporting.
Moreover, the DHS and the SSA have instituted a pilot program,
known as the Basic Pilot, to facilitate verification of information
that employees provide to employers to determine whether it matches
government databases and whether the employee is authorized to work in
the United States. By volunteering to participate in the Basic Pilot,
employers may verify the information provided by all newly hired
employees. This pilot will be available to employers in all States by
December 2004. Thus, employers participating in this pilot are able to
ascertain that the SSN information they have been provided matches the
SSA's records and that the person hired is authorized to work in the
United States.
In contrast with the SSA's and DHS's ability to verify information,
the IRS is prohibited from doing so under most circumstances. This
prohibition extends to an individual's name/SSN combination, because
such information is considered taxpayer information when held by the
IRS. The Internal Revenue Code currently prohibits the IRS from
disclosing such information, before or after an employer hires an
individual, except under very limited circumstances. section 413 of the
Tax Administration Good Government Act of 2003, which was passed by the
Senate on May 19, 2004, would permit the IRS to verify taxpayer
identifying numbers, including the SSN, to requesters who are required
to provide such information to the IRS for tax administration purposes.
Even though the IRS is prohibited from prospectively verifying
name/SSN combinations, the Internal Revenue Code does provide authority
for the IRS to fine employers that file information returns with
invalid name/SSN combinations. Through use of information returns, the
IRS has placed certain reasonable responsibilities on employers with
respect to reporting wages and withheld taxes for their employees.
Regulations require a level of diligence on the part of the employer in
meeting these responsibilities. The IRS forms, such as the Form W-2,
provide sufficient clear guidance to employers, and are a tax
administration tool for employers to report wage information to the IRS
and the SSA. The IRS relies on these forms to administer and enforce
the revenue laws of the United States. Most information provided on
such forms is accurate, and the IRS attempts to correct erroneous
information whenever possible.
When information returns contain invalid name/SSN combinations, the
IRS can impose a fine unless the employer qualifies for a ``reasonable
cause'' waiver. The reasonable cause waiver prevents employers from
being held as guarantors of the accuracy of information for which they
serve as mere transmitter. To qualify for a waiver, an employer must
show due diligence in attempting to solicit an accurate SSN and
soliciting again upon learning that the SSN provided is inaccurate. The
IRS believes that this standard is reasonable to encourage employers to
collect and report the proper tax on income earned in the United
States, regardless of the immigration status of the taxpayer.
Forms W-2 that contain invalid name/SSN combinations that cannot be
matched might be attached to tax forms filed by individuals under an
ITIN. The IRS created the ITIN for those individuals ineligible for an
SSN, but who are required by the Internal Revenue Code to pay tax to
the Federal Government because, for example, they have U.S.-source
income greater than the exemption amount. The IRS bases its
determination whether to issue an ITIN on information provided by the
taxpayer on the Form W-7.
Even though ITIN holders who file returns and attach Forms W-2
showing an SSN may not be legally present in the United States, the IRS
is prohibited by Section 6103 of the Internal Revenue Code from sharing
that information with the DHS or any other government agency except in
very limited situations. For example, IRS had been permitted to share
return information, including taxpayer identity, with Federal law
enforcement agencies, when that information is related to a terrorist
incident, threat, or activity, under an amendment to Section 6103
passed after the terrorist attacks of September 11, 2001. This
authority expired December 31, 2003, but section 416 of H.R. 4250, the
``American Jobs Creation Act of 2004,'' which was passed by the House
of Representatives on June 17, 2004, would re-enact the authority.
Regardless of potential changes, the protections provided by section
6103 are fundamental to encouraging voluntary compliance with the tax
laws. Therefore, the IRS strongly believes that any changes thereto
should be made only after very careful consideration.
The information provided to employers by individuals on the
principal DHS form used for employment eligibility verification, the
Form I-9, is also restricted as to its uses. By statute, neither the
form nor the information contained therein may be used for any
governmental purpose other than enforcement of the Immigration and
Nationality Act and several specific criminal provisions of Title 18,
United States Code. See 8 U.S.C. 1324a(b)(5).
In light of the foregoing discussion, we would disagree with one
premise of the question, namely, that the ability of the SSA and IRS to
enforce laws within their respective jurisdictions relies substantially
on DHS enforcement and documentation requirements. Each agency works to
prevent document fraud and enforce the laws within its jurisdiction. No
agency can be held responsible for enforcing laws within another
agency's jurisdiction. However, each agency, if authorized, may share
information to further the others' missions. Any changes to the current
system, which might potentially lead to more accurate information
reporting, also may have a negative effect, particularly on tax
administration. They must, therefore, be very carefully considered.
Questions from Chairman E. Clay Shaw, Jr. to Hon. Mark W. Everson
Question: The Social Security Administration (SSA) and the Internal
Revenue Service (IRS) match data on earnings, to ensure accurate wage
reports. Are there any authorizations for sharing information between
your two agencies in current law that are not being utilized, or are
under-utilized?
Answer: We believe we are using all available statutory authority
to share information. IRS and SSA meet regularly to explore additional
data sharing opportunities and methods to increase ease of data
exchange and ease of use. To solidify our data sharing commitments, a
Memorandum of Understanding (MOU) was prepared. In drafting the MOU, we
ensured that both agency needs and goals would be met to improve wage
reporting and reconciliation and the means to resolve name/SSN
problems.
Question: In his testimony, the SSA Acting Inspector General
suggests exploring additional data-sharing opportunities. Do you have
any recommendations for changes in data-sharing authority that would
enable IRS and SSA to better do their jobs?
Answer: In an effort to increase the sharing of information between
our agencies and enhance our efforts in the area of matching and
verifying wage reporting data, the two agencies have agreed that IRS
will be provided access to the SSA Employer Report Query (ERQY) command
code. The ERQY command code will allow IRS online access to employer
report and adjustment information maintained on the SSA Employer
Control Database (ECDB). The ECDB contains the wages, tips and Medicare
wage information reported on Forms W-3 and W-2 from the employer
community for the years 1937 to the present.
IRS currently has access to the ECDB information that is available
on microfilm to IRS employees from the Wage Information Retrieval
System (WIRS) at one location. IRS and SSA also have an on-line pilot
site in Philadelphia and are working together to expand access to other
sites. On-line access to this database will facilitate expanded use of
the information by providing immediate viewing of W-3/W-2 information
via electronic means. In addition, it will enhance the Service's
ability to match and verify wage document filings and information
reported by employers while decreasing the time it takes to determine
compliance with wage reporting requirements.
Question: The National Taxpayer Advocate recommends IRS continue to
encourage unauthorized workers to file tax returns, so that the IRS can
identify stolen SSNs and the correct ITIN. She recommends IRS notify
SSA of the ITIN to which wages should be attributed when an
unauthorized immigrant works using a false or stolen SSN. Do you agree
with this recommendation?
Answer: The IRS will continue to encourage unauthorized workers who
owe tax to the Federal Government to file tax returns, as they are
required to do so by law. The National Taxpayer Advocate's testimony
states that the IRS ``could notify SSA of the correct number (the ITIN)
to which to attribute earnings.'' However, we are prohibited from
sharing such information with SSA under section 6103 of the Internal
Revenue Code, which prohibits the IRS from sharing information
concerning taxpayers, except under the limited circumstances
specifically identified in the statute.
Question: You say that sharing confidential taxpayer information
with immigration authorities would discourage illegal workers from
participating in the tax system and deprive the Federal Government of
tax revenue. Why should illegal workers participate in our tax system,
and how much tax revenue do they provide to our government?
Answer: The Internal Revenue Code requires illegal workers to
participate in the tax system. Any person, regardless of immigration
status, who has U.S.-source income greater than the exemption amount is
required to file a tax return and pay any tax due to the Federal
Government.
There is no method to accurately calculate the amount of tax
revenue illegal workers contribute to the Federal Government. Any
attempt to arrive at an amount would need to consider a number of
factors, including that there is no reliable measure of the number of
illegal workers present in the United States. In addition, illegal
workers contribute to the Federal Government through excise taxes (such
as gasoline tax and tax on alcoholic beverages), too, which are
inherently immeasurable based on identified taxpayer groupings.
Specific to income tax, it is clear that illegal workers are filing
income tax returns with the Service. However, at this time we have no
program in place to separately measure the amount of income tax revenue
paid into the Federal Government by ITIN taxpayers. We will do a
special extract from our Master File system to measure the total income
tax liability reported by ITIN taxpayers on Forms 1040 (line 60) for
the past five tax years, and provide you with the results once they are
available.
Question: Why does IRS process returns and issue refunds to
taxpayers when there is an ITIN/SSN mismatch issue that might indicate
the misuse of an SSN?
Answer: The IRS issues refunds based upon demonstration that the
filer of the return earned the income reported, and that, based upon
that income, tax was withheld greater than tax owed to the Federal
Government. The IRS is required by section 6402 of the Internal Revenue
Code to refund such overpayments.
Question: On the employee's withholding allowance certificate (Form
W-4), the employee signs under penalty of perjury that he/she is
entitled to the number of withholding allowances claimed. However, the
employee is not stating under penalty of perjury that the name and SSN
are correct. Why don't employees have to attest to the accuracy of
their names and SSNs under penalty of perjury on the Form W-4?
Answer: The purpose of the Form W-4, Employee's Withholding
Allowance Certificate, is to ensure that the proper amount of tax is
withheld from an employee's income. The Code mandates that no employee
claim more withholding exemptions than the number to which the employee
is entitled. See I.R.C. 3402(f)(2)(A). By signing the W-4, employees
certify that they are not claiming more exemptions than they are
allowed to claim, and the purpose of the statute, and by extension the
form, is fulfilled. The statute provides a remedy as well: an employer
is required to withhold tax at a higher rate on an employee whom it
suspects has filed an invalid W-4 or who has failed to file a W-4.
Furthermore, if an employer does not use one of SSA's SSN
verification options to verify employees' SSNs, the employer may only
learn that a SSN is invalid after submitting Forms W-2 after close of
the tax year. This is due, in part, to the fact that very few W-4s are
sent to the IRS. A completed W-4 remains on file with the employer
unless the employee claims more than ten exemption allowances, or
claims to be exempt from withholding but earns more than $200 per week.
There is no requirement in law that an employer validate TINs with the
Service. Currently, the confidentiality provisions of the Code prohibit
us from disclosing whether the TIN-name combination provided by an
employee matches the TIN-name combination on file with the Service,
although legislation recently passed by the Senate, the Tax
Administration Good Government Act of 2003 (S. 882), would provide the
necessary authorization.
Finally, we would anticipate that compliance by non-ITIN taxpayers
would be negatively impacted, and participation in the tax system by
ITIN taxpayers discouraged, if a perjury statement were added to the W-
4. A portion of our resources dedicated to combating noncompliance
would need to be shifted from other noncompliance issues in order to
administer the new requirement, diminishing our ability to address
other, more flagrant, areas of noncompliance.
Question: Under current law, a worker is not eligible for the
earned income tax credit based on a Social Security number that was
issued for non-work purposes. Are workers eligible for the earned
income tax credit if they use a SSN issued based on temporary work
authorization, if that work authorization has expired? Does the IRS
match data with the SSA or the Department of Homeland Security to
determine whether a SSN is based on authorization to work?
Answer: During the processing of income tax returns, the IRS
verifies the name and SSN of taxpayers, spouses, and dependents against
records provided to us by the SSA in its NUMIDENT file. The NUMIDENT
file indicates whether the SSN was assigned for work or for non-work
purposes. SSA assigns non-work SSNs to non-citizens legally in the U.S.
who meet all requirements to be paid a state public assistance benefit,
other than having an SSN. The tax law allows a taxpayer to claim EITC
when a non-work SSN was assigned for state benefit purposes. However,
SSA also assigns non-work SSNs to non-citizens when a Federal statute
or regulation requires the non-citizen to have an SSN in order to
receive a federally funded benefit to which the non-citizen has already
established entitlement, such as a Social Security benefit. A non-
citizen assigned an SSN for this reason does not qualify for EITC. At
this time, SSA does not identify the specific non-work reason for which
the SSN was assigned, and thus IRS cannot determine from SSA records
which taxpayers qualify for EITC. Therefore, IRS does allow a taxpayer
to claim EITC based on a non-work assigned SSN. IRS has suggested a
technical correction to the tax law that would eliminate the
distinction between an SSN assigned for state benefit purposes and one
assigned for other non-work reasons. The IRS does not match data
directly with the Department of Homeland Security (DHS). Instead,
information about a non-citizen's authority to work in the U.S. that is
provided to us by SSA would be based on information SSA received from
DHS. It is this information that SSA uses to determine whether to
assign an SSN and whether the card issued will be for work or for non-
work purposes.
Question: The Commissioner of the IRS testified that, while they
have levied fines on employers who submitted wage reports with
mismatched names and SSNs, none of these fines have been upheld on
appeal because the employers complied with IRS and DHS documentation
requirements regarding collection of information on an individual's
name, SSN, and work authorization. Similarly, the SSA has previously
stated their ability to prevent wages from being reported under
erroneous names and SSNs is limited, because they must rely on the IRS
to penalize employers and the DHS to enforce immigration laws. Given
that the ability of both the SSA and IRS to maintain accurate records
and enforce laws over which they have jurisdiction rely substantially
upon DHS documentation requirements and immigration enforcement, please
provide a joint SSA, IRS, DHS response with recommendations to prevent
erroneous reporting of wage information to the IRS and SSA, including
any planned changes to employer instructions, other procedures or
regulations, along with any recommendations for needed change in law.
Answer: By statute, the SSA, IRS, and DHS each fulfill separate
roles within the Federal Government. The SSA advances the economic
security of U.S. citizens through retirement and disability programs.
The IRS administers and enforces the nation's revenue laws. The DHS
leads efforts to ensure the security of the United States homeland and
its citizens, including protection of the nation's borders. Despite
these separate roles, the three agencies interact with each other, as
necessary, to fulfill their respective roles and as authorized by law.
The subject of the March 10, 2004, hearing was SSN and ITIN misuses
and mismatches. The hearing testimony mainly addressed issues arising
from the use of SSNs stolen or fabricated by unauthorized workers in
the United States; the potential problems this caused with regard to
the SSA's Earnings Suspense File and IRS's collection of revenue; and
the IRS's attempts to fine employers for submitting information returns
to the IRS with invalid employee name/SSN combinations, which were not
upheld on appeal. The hearing also addressed the IRS's issuance and use
of ITINs in order to facilitate participation in the United States tax
system by individuals required to pay tax to the United States, but who
are ineligible for an SSN.
The issues explored at the hearing focused mainly on the
interaction between the SSA and IRS. Employers report their employees'
earnings and withholdings of income and Federal Insurance Contributions
Act (FICA) tax on IRS Form W-2. These earnings and taxes are tracked
through the use of the employee's SSN, for which all U.S. citizens are
eligible. SSA also will issue SSNs to certain non-citizens authorized
to work in the United States, and to certain non-citizens who qualify
for Federal or State benefits. DHS determines whether these individuals
are eligible to work, and the SSA's issuance of an SSN to an immigrant
is based on this determination.
Occasionally, an employer will submit a W-2 that contains an
invalid name/SSN combination, often because of a simple reporting
error. Generally, such minor errors can be remedied and the wages and
FICA taxes credited to the proper account at SSA and IRS. There are,
however, circumstances under which the name/SSN combination cannot be
matched to any record.
To decrease the number of invalid name/SSN combinations reported to
the SSA, the SSA has implemented a name/SSN verification system, called
the Employer Verification Service (EVS). The EVS matches employees'
names and SSNs with SSA's records. The EVS is offered to employers and
third party submitters (e.g., accountants and service bureaus). The SSA
believes that providing employers with the opportunity to verify names
and SSNs is an important step in accurate wage reporting. Consequently,
the SSA provides three options--through paper listings, magnetic media,
or telephone--for employers to verify names and SSNs. The SSA received
over 1.1 million phone calls from employers in 2003 to verify the
accuracy of their employees' reported names and SSNs.
The SSA is currently piloting an Internet-based application that
allows employers and third-party submitters to check their employees'
names/SSNs against SSA's records. The pilot is called the Social
Security Number Verification Service (SSNVS). The pilot began with six
participating employers. As of June 20, 2004, SSA has expanded the
pilot to include 86 employers. Of those, 74 employers have used this
service over 44,000 times to verify over 8.7 million names and SSNs.
The SSA is now evaluating the SSNVS pilot.
Under the SSA's privacy regulations, based on the Privacy Act, an
employer may not verify a name and SSN prior to hiring. This
information can be verified only after the employee is hired. Thus,
even if an employer learns that an employee's name and SSN do not
match, the employer is still required to send a Form W-2 (wage report)
with a name and SSN mismatch in cases in which the employee had left
employment with that employer.
As a further initiative, the SSA has established a process,
administered jointly by SSA and the U.S.Department of State (DOS), that
allows the SSA to assign SSNs and issue SSN cards to non-citizens who
choose to apply for an SSN as part of the process that allows them to
enter the country as permanent residents. This process is known as
Enumeration at Entry. The data required to assign an SSN, including
verification of the individual's immigration and work authorization
status, are provided by the DOS and DHS to the SSA. The SSA believes
this process is an important step to ensuring the integrity of the SSN,
and ultimately improving the accuracy of wage reporting.
Moreover, the DHS and the SSA have instituted a pilot program,
known as the Basic Pilot, to facilitate verification of information
that employees provide to employers to determine whether it matches
government databases and whether the employee is authorized to work in
the United States. By volunteering to participate in the Basic Pilot,
employers may verify the information provided by all newly hired
employees. This pilot will be available to employers in all States by
December 2004. Thus, employers participating in this pilot are able to
ascertain that the SSN information they have been provided matches the
SSA's records and that the person hired is authorized to work in the
United States.
In contrast with the SSA's and DHS's ability to verify information,
the IRS is prohibited from doing so under most circumstances. This
prohibition extends to an individual's name/SSN combination, because
such information is considered taxpayer information when held by the
IRS. The Internal Revenue Code currently prohibits the IRS from
disclosing such information, before or after an employer hires an
individual, except under very limited circumstances. section 413 of the
Tax Administration Good Government Act of 2003, which was passed by the
Senate on May 19, 2004, would permit the IRS to verify taxpayer
identifying numbers, including the SSN, to requesters who are required
to provide such information to the IRS for tax administration purposes.
Even though the IRS is prohibited from prospectively verifying
name/SSN combinations, the Internal Revenue Code does provide authority
for the IRS to fine employers that file information returns with
invalid name/SSN combinations. Through use of information returns, the
IRS has placed certain reasonable responsibilities on employers with
respect to reporting wages and withheld taxes for their employees.
Regulations require a level of diligence on the part of the employer in
meeting these responsibilities. The IRS forms, such as the Form W-2,
provide sufficient clear guidance to employers, and are a tax
administration tool for employers to report wage information to the IRS
and the SSA. The IRS relies on these forms to administer and enforce
the revenue laws of the United States. Most information provided on
such forms is accurate, and the IRS attempts to correct erroneous
information whenever possible.
When information returns contain invalid name/SSN combinations, the
IRS can impose a fine unless the employer qualifies for a ``reasonable
cause'' waiver. The reasonable cause waiver prevents employers from
being held as guarantors of the accuracy of information for which they
serve as mere transmitter. To qualify for a waiver, an employer must
show due diligence in attempting to solicit an accurate SSN and
soliciting again upon learning that the SSN provided is inaccurate. The
IRS believes that this standard is reasonable to encourage employers to
collect and report the proper tax on income earned in the United
States, regardless of the immigration status of the taxpayer.
Forms W-2 that contain invalid name/SSN combinations that cannot be
matched might be attached to tax forms filed by individuals under an
ITIN. The IRS created the ITIN for those individuals ineligible for an
SSN, but who are required by the Internal Revenue Code to pay tax to
the Federal Government because, for example, they have U.S.-source
income greater than the exemption amount. The IRS bases its
determination whether to issue an ITIN on information provided by the
taxpayer on the Form W-7.
Even though ITIN holders who file returns and attach Forms W-2
showing an SSN may not be legally present in the United States, the IRS
is prohibited by Section 6103 of the Internal Revenue Code from sharing
that information with the DHS or any other government agency except in
very limited situations. For example, IRS had been permitted to share
return information, including taxpayer identity, with Federal law
enforcement agencies, when that information is related to a terrorist
incident, threat, or activity, under an amendment to Section 6103
passed after the terrorist attacks of September 11, 2001. This
authority expired December 31, 2003, but section 416 of H.R. 4250, the
``American Jobs Creation Act of 2004,'' which was passed by the House
of Representatives on June 17, 2004, would re-enact the authority.
Regardless of potential changes, the protections provided by section
6103 are fundamental to encouraging voluntary compliance with the tax
laws. Therefore, the IRS strongly believes that any changes thereto
should be made only after very careful consideration.
The information provided to employers by individuals on the
principal DHS form used for employment eligibility verification, the
Form I-9, is also restricted as to its uses. By statute, neither the
form nor the information contained therein may be used for any
governmental purpose other than enforcement of the Immigration and
Nationality Act and several specific criminal provisions of Title 18,
United States Code. See 8 U.S.C. 1324a(b)(5).
In light of the foregoing discussion, we would disagree with one
premise of the question, namely, that the ability of the SSA and IRS to
enforce laws within their respective jurisdictions relies substantially
on DHS enforcement and documentation requirements. Each agency works to
prevent document fraud and enforce the laws within its jurisdiction. No
agency can be held responsible for enforcing laws within another
agency's jurisdiction. However, each agency, if authorized, may share
information to further the others' missions. Any changes to the current
system, which might potentially lead to more accurate information
reporting, also may have a negative effect, particularly on tax
administration. They must, therefore, be very carefully considered.
Questions from Chairman E. Clay Shaw, Jr. to Hon. Tom Ridge, Secretary,
U.S. Department of Homeland Security
Question: The Deputy Commissioner for the Social Security
Administration (SSA) stated in his testimony that the SSA, Internal
Revenue Service (IRS), and Department of Homeland Security (DHS) have
formed an executive level steering committee. What are your plans for
increased agency coordination?
Question: The Commissioner of the IRS testified that, while they
have levied fines on employers who submitted wage reports with
mismatched names and SSNs, none of these fines have been upheld on
appeal because the employers complied with IRS and DHS documentation
requirements regarding collection of information on an individual's
name, SSN, and work authorization. Similarly, the SSA has previously
stated their ability to prevent wages from being reported under
erroneous names and SSNs is limited, because they must rely on the IRS
to penalize employers and the DHS to enforce immigration laws. Given
that the ability of both the SSA and IRS to maintain accurate records
and enforce laws over which they have jurisdiction rely substantially
upon DHS documentation requirements and immigration enforcement, please
provide a joint SSA, IRS, DHS response with recommendations to prevent
erroneous reporting of wage information to the IRS and SSA, including
any planned changes to employer instructions, other procedures or
regulations, along with any recommendations for needed change in law.
Question: In his testimony, the SSA Acting Inspector General
suggests exploring additional data-sharing opportunities. Do you have
any recommendations for changes in data-sharing authority that would
enable the SSA and DHS to better do their jobs?
Question: Since 1997, the SSA sent information to the Immigration
and Naturalization Service (INS), and now to the DHS, on wages reported
under SSNs issued for non-work purposes.
Question: However, we have been informed by DHS that the
information is in an electronic format your agency cannot use. Are you
working with the SSA to resolve these problems? Do you have any plans
to utilize this information for enforcement purposes? Also, are you
working with the SSA to provide more up-to-date information on the work
authorization status of SSN holders?
Question: The SSA sends letters to employers notifying them when
they submit wage reports with names and SSNs that do not match the
SSA's records. While in some cases this results from a simple clerical
error, in other cases it results from false information provided to the
employer by an individual working in the United States without
authorization. Has DHS consulted with SSA regarding the instructions to
employers contained in these letters? What does the DHS instruct
employers to do if they receive such a letter from the SSA? Are
employers required to ask for additional documentation for the
Employment Eligibility Verification form I-9? If so, what documentation
is required? If the employee fails to provide the documentation, what
further actions must the employer take? What penalties does the
employer face if he/she does not take the required actions? Have these
penalties been enforced? If so, please provide data on penalties issued
in recent years.
Question: Legislation has been introduced in the 108th Congress to
prohibit payment of Social Security benefits based on wages earned
while an individual lacked authorization to work in the United States.
Does the DHS have historical information on an individual's work
authorization status at a point in time? How far back do the DHS
records on an individual's work authorization status go?
[At the time of publishing, a response had not been received.]
Questions from Chairman Houghton for Ms. Pamela Gardiner
Question: TIGTA Report 2004-30023 finds that 25% of tax filings by
ITIN holders involve significant fraud in non-reported wage income.
This finding seems to constitute a major crisis in the ITIN program and
warrant immediate corrective action. What is your response to the fact
that the management leadership at the Treasury Department has accepted
only five of the twelve Recommendations made in Report 2004-30023?
Answer: Our statistical sample showed that approximately 23 percent
of returns filed by unauthorized resident aliens appear to have not
reported all income from wages and non employee compensation. While 23
percent is significant, the total number of Forms 1040 using an ITIN as
the primary identifier (for Tax Year 2001--530,000) is proportionately
small compared to the total volume of Forms 1040 filed (for Fiscal Year
2002--over 110 million).
This underreporting can be identified by the Internal Revenue
Service's (IRS) Automated Underreporter program and by examinations of
tax returns. However, as we reported, neither method is fully effective
for finding and taxing income not reported by unauthorized resident
aliens.
Only 1 of the 12 recommendations in the report addressed this issue
(recommendation #6). TIGTA is disappointed that IRS management did not
take immediate action on this recommendation. Instead, they stated that
they would have to perform a cost-benefit analysis of implementing our
recommendation. Management stated that they will continue to study
whether the actions we recommended might become feasible in the future.
In commenting on management's response, TIGTA stated that the
corrective action would involve only an estimated 444,000 of the 89
million paper filed Tax Year 2001 Forms 1040, or about one-half of 1
percent. The processing cost would be approximately $435,000, a small
portion of the Fiscal Year 2003 IRS budget approaching $10 billion.
Substantial information relating to this audit finding and TIGTA's
recommendation is sensitive and was redacted from both the audit report
and this response. If requested, TIGTA would be pleased to brief the
Committee on that information.
Question: Does the TIGTA have the resources to fully and adequately
investigate the widespread fraud that has been documented by TIGTA
Report 2004-30023? If not, what additional resources are needed?
Answer: The ITIN fraud referenced in the TIGTA Audit Report
involves substantive tax violations that are IRS program
responsibilities.
Question: In your opinion, does Treasury Department management
fully support the vigorous investigation and prosecution of ITIN fraud?
Answer: In December 2003, the IRS made a number of significant
changes to the ITIN program designed largely to prevent problems from
occurring. These changes included such things as requiring applicants
for ITINs to show a Federal tax purpose for requesting them, and
changing the document issued from a card to a letter to avoid confusion
with Social Security cards. Further, it is TIGTA's understanding that
the IRS' Criminal Investigation function evaluates potential ITIN fraud
cases in the same manner that it evaluates other criminal cases--using
case selection criteria.
Question: Has the agency made any determination or set any policy
with the goal or aim of curtailing or deemphasizing investigation or
prosecutions of ITIN fraud where the perpetrators appear to be illegal
aliens?
Answer: As previously noted, ITIN fraud is a substantive tax
violation. IRS has program responsibility for investigating these
violations and for referring cases to the Department of Justice (DOJ)
for DOJ's prosecutive determinations. We are unaware of any IRS
decision to initiate or forego investigations based on an individual's
immigration status.
Question: Has the Treasury Department, the White House, or any
agency outside TIGTA pressured or advised you or your staff to slow
down, deemphasize, or curtail investigation of ITIN fraud in cases
where the perpetrator appears to be an illegal alien?
Answer: No.
Question: Does the TIGTA endorse and support amendments to Section
6103 of the Internal Revenue Code to permit the sharing of information
among SSA, IRS, BICE and other Federal agencies to facilitate
investigations and enforcement of Federal law?
Answer: During the course of TIGTA's audit activity, TIGTA
identified what appeared to be conflicting obligations in the
confidentiality provisions of the Internal Revenue Code (I.R.C. 6103)
and provisions in Title 8 concerning immigration law enforcement. We
noted the apparent conflict and suggested IRS confer with the Social
Security Administration (SSA) and Bureau of Citizenship and Immigration
Services (BCIS) to determine whether the provisions' effect prevented
sharing of information that might be helpful in non-tax Federal law
enforcement. If so, the entities could determine whether to recommend
to their agency officials to pursue legislative changes to facilitate
information sharing.
Question: Did an employee of your agency, Michael Delgado, make a
telephone call to the U.S. Attorney for the Western District of
Kentucky, telling him that TIGTA would not support two recently filed
criminal complaints against two ITIN filers (N. Silva Pina and Carlos
D. Sanchez, complaint numbers 3:03MJ-405 and 3:03MJ-404, respectively)
and suggesting that the cases be dismissed?
Answer: Deputy Assistant Inspector General for Investigations
(DAIGI) Michael Delgado contacted the United States Attorney's office
for the Western District of Kentucky and advised an Assistant United
States Attorney (AUSA) of TIGTA's concerns relating to potential
operational issues regarding TIGTA's referral of several cases for
prosecution determination and of TIGTA's internal inquiry to determine
whether TIGTA policy and procedures were followed. DAIGI Michael
Delgado requested that the AUSA discuss these concerns with the AUSA's
supervisors and consider dismissing the criminal complaints.
Question: Is it true that TIGTA investigative agents were told
verbally in January through official channels to halt and not proceed
with investigations of ITIN fraud where the case involves illegal
aliens?
Answer: Following allegations that TIGTA improperly investigated
and referred investigative results to the Department of Justice and
targeted undocumented aliens, TIGTA temporarily suspended all
investigations involving non-IRS employees to permit an inventory
review. TIGTA conducted this inventory review to ensure that all
applicable policies and procedures were being followed.
[Submissions for the record follow:]
Statement of Linda R. Lewis, American Association of Motor Vehicle
Administrators, Arlington, Virginia
Thank you for providing the American Association of Motor Vehicle
Administrators (AAMVA) the opportunity to provide a written statement
for the printed record regarding mismatches and misuse of the Social
Security Number (SSN) and Individual Taxpayer Identification Numbers
(ITIN).
AAMVA is a state-based, non-profit association representing motor
vehicle agency administrators and senior law enforcement officials in
the United States and Canada. Our members are the recognized experts
who administer the laws governing motor vehicle operation, driver
credentialing, and highway safety enforcement.
The driver's license is now the identification document of choice
throughout North America. With a photo, signature, and physical
description, the driver's license assumes a role beyond its original
purpose of identifying a licensed driver. The license is now readily
accepted as an official identification document for both licensed
drivers, and, in most jurisdictions, for non-drivers. The motor vehicle
agencies (MVAs) accept various breeder documents \1\ as proof of
identity to obtain a driver's license or identification card. MVAs are
also under increasing pressure to verify the identity of individuals to
whom they issue a driver's license or identification card. All motor
vehicle agencies are required to collect the SSN for child support
purposes while others require the SSN to satisfy legal presence
requirements. AAMVA recently released A Package of Decisions Based on
Best Practices, Standards, Specifications and Recommendations to
Enhance Driver's License Administration and Identification Security
which included a list of acceptable documents that jurisdictions should
use when issuing driver's licenses or identification cards. We also
recommended that MVAs verify the validity of breeder documents with
issuing agencies like the Social Security Administration (SSA) to
reduce identity fraud.
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\1\ Breeder documents are defined as those documents used to
confirm identity such as birth certificates, Social Security cards or
immigration documents.
---------------------------------------------------------------------------
The AAMVA has developed an online system called Social Security
Number Online Verification (SSOLV) with SSA to help motor vehicle
agencies verify an individual's SSN during the driver's license
issuance or renewal process, while an applicant is still at the
counter. However, states can use the batch method to which SSA usually
responds within 24 to 48 hours. Currently, 30 states are electronically
verifying SSNs with the Social Security Administration through the
online method.\2\ But that verification process needs improvement.\3\
Too frequently SSA's automated system indicates that a number does not
match, when in reality, after manual investigation, it is a match. This
is happening due to data updates not being applied to the file that
DMVs are allowed to access. This situation is deterring other states
from using the Social Security Administration system. Congress must
direct the Social Security Administration to improve their system so
that this unnecessary, labor-intensive process can be eliminated. Each
check of the system should also reference SSA's death records to ensure
that a state does not issue a driver's license or identification card
to an individual presenting personal information of a deceased person.
Improvement in the Social Security Administration's system will help
reduce motor vehicle agencies' vulnerability to identity theft and
fraud.
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\2\ Alabama, Arizona, California, District of Columbia, Florida,
Georgia, Idaho, Maine, Maryland, Massachusetts, Mississippi, Missouri,
Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina,
Ohio, Pennsylvania, Rhode Island, South Carolina, South Dakota,
Tennessee, Texas, Vermont, Virginia, Washington, West Virginia, and
Wyoming
\3\ General Accounting Office, Social Security Numbers: Improved
SSN verification and Exchange of States' Driver Records Would Enhance
Identity Verifications, GAO-03-920, September 2003.
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The AAMVA is uneasy about states using the Individual Taxpayer
Identification Number for driver's licensing purposes. AAMVA shared the
Internal Revenue Service's (IRS) letter advising states not to use the
ITIN to determine the identity of applicants for driver's licenses.
However, MVAs are under pressure from state legislatures to serve the
driving population in their states since the SSA will no longer issue
Social Security Numbers for driver licensing purposes. Currently, seven
states accept the Taxpayer Identification Number in lieu of a SSN and
legislation is pending in several states to require motor vehicle
agencies to accept the ITIN as a substitute for a Social Security
Number. If state legislators are going to require MVAs to accept the
Individual Taxpayer Identification Number, MVAs need a system to verify
the number with the IRS.
The AAMVA is pleased that the Internal Revenue Service has
strengthened the ITIN issuance process by reducing the number of
acceptable documents as proof of identity, as well as verification of
documents. With the new acceptable list of documents developed by
AAMVA, the Individual Tax Identification Number was not included as an
acceptable document. The IRS and AAMVA must work together to curtail
the use of the ITIN.
The AAMVA strongly supports efforts on the part of Congress, the
Department of Transportation (DOT), and the Internal Revenue Service to
curb evasion of the Heavy Vehicle Use Tax (HVUT). We understand that
this evasion is widespread and damaging to the highway fund. We are
convinced that the cooperation of all agencies is necessary for
effective long-term enforcement of the HVUT.
For many years--in fact ever since the states have been required by
federal law to verify the payment of the Heavy Vehicle Use Tax before
registering a heavy commercial vehicle--state motor vehicle
administrators have desired an electronic means of doing this. Motor
carrier credentialing systems cannot be fully effective and efficient
until HVUT verification can be automated. State progress in the DOT-
funded and sponsored Commercial Vehicle Information Systems and
Networks (CVISN) Project has been held up by this administrative
bottleneck.
Section 1307 of the Safe, Accountable, Flexible and Efficient
Transportation Equity Act of 2003 (SAFETEA) proposes an IRS electronic
Heavy Vehicle Use Tax Payment Data Base. However, information from the
completed database could only be shared with ``appropriate State and
Federal revenue, tax, and law enforcement authorities, subject to
Section 6103 of the Internal Revenue Code of 1986.`` This appears to
preclude providing the data to motor vehicle registration officials.
Even if the IRS were permitted to share notice-of-payment from an
HVUT Payment Data Base with motor vehicle agencies, it will be of no
use to state motor vehicle agencies unless it is in a form they can
use. It is our understanding that IRS does not currently capture
vehicle identification numbers (VINs) when it processes the Form 2290
excise tax returns, but relies instead on Social Security and federal
tax identification numbers (FEINs). Motor vehicle agencies rely very
heavily on VINs to identify individual motor vehicles, for which SSNs
and FEINs are not suited. In other words, even if motor vehicle
administrators can receive information from the projected HVUT Payment
Data Base, it will be of no use to them in Heavy Vehicle Use Tax
enforcement if that system is not appropriately designed.
Since state motor vehicle registration officials will continue to
be primarily responsible for the verification of the payment of the
HVUT through examination of a paper IRS Form 2290 presented by the
registrant taxpayer, AAMVA recommends that Congress amend the Internal
Revenue Code to give the IRS consent to disclose to MVAs electronically
whether or not the Heavy Vehicle Use Tax has been paid for each
individual heavy commercial vehicle. This would not require access to
tax records, but a simple ``yes`` or ``no`` upon query.
We think adoption of these recommendations will facilitate the
common goals of DOT, IRS and the states: HVUT enforcement must be
improved and the process should be automated. State motor vehicle
agencies are IRS' and DOT's partners in reaching these goals.
In conclusion, Congress must ensure motor vehicle agencies have the
ability, preferably electronically, to verify the validity of source
documents with issuing agencies, such as the SSA, IRS, Immigration and
Naturalization Services, vital records agencies and other MVAs. Without
the ability to exchange and share information, states face a greater
risk for fraud in motor vehicle administration.
For more information, please contact Tom Wolfsohn, AAMVA's Senior
Vice President of Government Affairs at (703) 522-4200.
Statement of Raul Yzaguirre, National Council of La Raza
My name is Raul Yzaguirre, and I am President of the National
Council of La Raza (NCLR). NCLR is a private, nonprofit, nonpartisan
organization established in 1968 to reduce poverty and discrimination
and improve life opportunities for the nation's Hispanics. NCLR is the
largest national Hispanic constituency-based organization, serving all
Hispanic nationality groups in all regions of the country through a
network of more than 300 affiliate community-based groups. I appreciate
the opportunity to submit comments on the issues of the Social Security
Administration's (SSA) no-match letters and ITINs.
The two issues before the Committee have had a disproportionate
impact on the Latino immigrant community. While we share the
Committee's concerns about homeland security, we do not believe that
targeting hardworking, low-income, taxpaying immigrants enhances
national security. In fact, efforts to keep immigrants underground and
dependent on a cash economy hinders efforts to identify persons
residing in the U.S. Furthermore, SSA no-match letters and efforts to
undermine the ITIN program will only result in poor compliance among
immigrants with regard to filing taxes; make immigrants more dependent
on the black market for fraudulent or fraudulently-obtained documents;
lead to an increase in the Suspense File; and continue to have other
harmful effects on the Latino community
Individual Taxpayer Identification Number (ITINs)
The Internal Revenue Service (IRS) created the ITIN on July 1,
1996, for foreign-born individuals who are required to file tax
returns. The ITIN, a nine-digit number similarly formatted like a
Social Security Number (SSN), is issued only to individuals who are not
eligible for an SSN. Since the inception of the program, the IRS has
issued nearly 6.9 million ITINs--70% to Latino immigrants. Over a
million taxpayers reported wages of almost $7 billion and paid more
than $305 million to the IRS in 2001 using the ITIN as their
identifier. More importantly, three-quarters of all ITINs issued were
reflected in tax returns prompting Nina Olson, the Taxpayer Advocate,
to refer to the ITIN population as a ``very compliant sector of the
U.S. taxpayer population.''
Contrary to common perception, ITINs are not solely for
undocumented immigrants; the ITIN is available to a range of foreign-
born persons. Use of an ITIN does not therefore create an inference
regarding a person's immigration status. Those eligible for the ITIN
include nonresident students; professors or researchers; authors who
earn royalties for their writings or who are paid an honorarium for
speaking engagements at a university; individuals who have interest-
bearing accounts in a bank, or who receive dividends from money
invested in stocks but are not eligible for an SSN; and many immigrants
whose immigration cases are in process but who do not yet have
employment authorization. Immigrants and U.S. citizens may also apply
for an ITIN for their spouse or dependents in order to claim them as
dependents on their tax returns.
It is important to distinguish between the ITIN as an
``identifier'' and that of proof of identity. An ITIN alone cannot and
should not be used to prove identity. Just like the Social Security
Number, the ITIN is issued so that a taxpayer has a unique identifier
that is associated with his or her tax return. Since other forms of
identifiers can either be frequently changed (address) or be shared by
many people (names and birth dates), the IRS assigns to each individual
taxpayer a unique number that will not be assigned to any other
taxpayer.
The ITIN is a unique identifier provided to individuals who can
prove their identity and foreign-born status. An individual cannot get
more than one ITIN assigned to him or her. All applications are
submitted and approved at a single processing center in the United
States located in Pennsylvania. The IRS ensures that the W-7, the
application for an ITIN, is properly filled out and that all of the
requisite documents have been submitted. The IRS then authenticates the
documents through a number of validation methods such as the use of
inspection equipment (Black Lights, Jewelers' Loupe, etc.). All
documents must be current and either originals, copies certified by the
issuing agency, copies certified by the U.S. Department of State,
copies certified or notarized by a military Judge Advocate General
(JAG) office, or copies notarized in the United States. Documents
notarized in a foreign country are not acceptable unless they meet
certain criteria. Documents establishing identity must bear the
applicant's name and photograph. The only document that is sufficient
by itself to establish both identity and foreign-born status is an
unexpired passport. All other documents, including the ``matricula''
(the identification issued by Mexican consulates) and voter
registration card, must be accompanied by a second document in order
for the applicant to corroborate his or her identity.
Although tax return filing is clearly the primary purpose for using
an ITIN, ITINs have also been used to open interest-bearing accounts at
financial institutions. Linking immigrants to mainstream financial
services deters crimes and predatory schemes against immigrants, who
are more vulnerable not only because they are more likely to have a lot
of cash on hand to pay for daily needs, but because they are the least
likely of residents to report crimes to local police. Four out of five
(82%) unbanked individuals use check-cashing outlets and, therefore,
must often carry large sums of cash making them easier targets for
crime--especially theft or robbery. Because of these safety concerns,
police departments across the country support efforts to link immigrant
workers to mainstream financial institutions as a means of reducing
crime and violence in neighborhoods and communities and as a means of
promoting good community policing. Therefore, ITINs facilitate, not
harm, public safety, crime prevention and investigation, and national
security efforts.
SSA No-Match Letters
Sent by the Social Security Administration to certain employers,
no-match letters have had a devastating impact on immigrant worker
communities throughout the country. For the last several years,
advocates have been expressing deep concern about the continued use of
these no-match letters by employers to discourage immigrant workers
from asserting their workplace rights. Advocates have also been working
hard to educate employers who, due to the confusion caused by these
letters, feel pressured to take some action against employees listed in
the no-match letters.
In an effort to update its database, SSA sends no-match letters to
employers when the names or Social Security Numbers listed on an
employer's W-2 forms do not agree with SSA records. Attached to each
no-match letter is a list of employees for whom the SSA database could
not find a match. The no-match letter is intended to be an educational
correspondence that informs companies that their employees' wages are
not being properly credited to their Social Security accounts. SSA aims
to correct its records so that employees' earnings are accurately
tracked and can be used to calculate benefit levels when applications
for retirement or disability benefits are made with SSA. Correcting the
SSA database is certainly a commendable goal. However, the
effectiveness of these no-match letters is unproven, and the resulting
consequences on immigrant worker communities have been devastating.
Despite hundreds of thousands of no-match letters that have been
sent in the past several years, the Earnings Suspense Fund (ESF) has
not decreased. In fact, cumulative earnings in the ESF covering 1937-
2001 total over $420 billion. However, the system's ineffectiveness is
not its gravest consequence. The impact of the no-match letters on the
immigrant community has been profound and widespread. The failure of
the no-match letters to safeguard workers effectively against unfair
and illegal practices on the part of employers has had devastating
effects on the workers and their families
As the SSA admits, there are many reasons for computer no-matches,
and the no-match letters themselves do not prove any wrongdoing by
either employer or employee. For example, a large proportion of the
names on the no-match letters are Latino, Asian, or other names
frequently misspelled by employers resulting in computer no-matches.
These honest data-entry mistakes disproportionately affect immigrant
workers. However, employer misuse of the no-match letters has caused
great harm to workers nationwide. While the letter explicitly warns
employers not to take adverse action against workers listed on the
letter, layoffs, suspensions, firings, retaliations, and discrimination
against these workers are widespread and well-documented. Some
employers have simply fired all workers on the list; others have
incorrectly reverified the work authorization of workers on the list.
In many cases, only Latino or other ``immigrant'' workers, or workers
involved in union organizing campaigns, have been fired or harassed
(See Aaron Nathans, UW and Janitors Settle; Tentative Deal: $24,000 for
Latinos, Capital Times, Dec. 8, 2001 at A1). And since a
disproportionate number of names on the no-match lists are ``foreign-
sounding'' names, many employers fear that they will face sanctions if
they hire additional workers who look or sound ``foreign,'' resulting
in increased citizenship or national origin discrimination in the
hiring process.
Low-wage immigrant workers are the most likely to be affected by
all of these illegal practices. In fact, Latino communities have
reported widespread abuse of the SSA no-match letters, resulting in
greatly increased anxiety within the immigrant community. Many legal
permanent residents and even U.S. citizens have been affected, and the
undocumented worker community has been pushed even further underground.
Because many immigrants live in mixed-status families and close-knit
communities, when one worker is fired entire families, including U.S.
citizen children, suffer.
Thus the SSA's no-match letter policy has not resulted in reducing
the suspense file, has not eliminated computer no-matches, and has not
diminished unfair hiring practices. In fact, the consequences have been
quite the contrary. Particularly in this time of heightened security,
we must foster an environment that that will encourage individuals to
emerge from the shadows and participate as productive members of our
society in order to separate them from those who are here to do us
harm. Rather than pour the SSA's resources and energies into an
ineffective and harmful policy, we must be prepared to step back and
look at the larger picture.
Conclusion
The problems highlighted during this hearing clearly demonstrate
the need for comprehensive immigration reform. The SSA suspense file
shows that immigrant workers, regardless of their immigration status,
are paying Social Security taxes and are not receiving the benefits of
those taxes. The evidence presented also demonstrates that immigrant
workers are essential to the U.S. economy and that U.S. employers have
knowingly and unknowingly hired many undocumented workers needed to
fill jobs in key sectors of the economy. These hardworking, taxpaying
immigrants should be rewarded for their contributions by earning the
opportunity to legalize their immigration status and obtain permanent
residence in the U.S. Future immigrant workers must come through lawful
channels. Only in this way can these workers come out from the shadows,
be known to U.S. authorities, properly pay all of their taxes, and be
compensated appropriately. Reforming our nation's immigration system
and making all immigration lawful would also greatly reduce document
fraud by virtually eliminating the market for falsified Social Security
Numbers and other identifying documents, and the Social Security
Administration and Internal Revenue Service could continue their
primary missions of administering the Social Security program and
collecting taxes.
We urge you to reflect upon the ineffectiveness of the no-match
letter policy and work toward effective and comprehensive solutions to
the problems associated with unauthorized labor in the U.S. We look
forward to working with you in the future.
Statement of Linton Joaquin and Marielena Hincapie, National
Immigration Law Center, Los Angeles, California
We, Linton Joaquin and Marielena Hincapie, submit these comments to
the House Committee on Ways and Means Subcommittee on Oversight
Subcommittee on Social Security on behalf of the National Immigration
Law Center (NILC).
NILC is a national legal nonprofit organization whose sole mission
is to protect and promote the rights and opportunities of low-income
immigrants and their family members. NILC's diverse staff specializes
in the complex intersection of immigration law and the employment and
public benefits rights of low-income immigrants. We conduct policy
analysis and advocacy, and impact litigation on these issues as well as
providing training, publications, and technical assistance for a broad
range of organizations including immigrant rights coalitions, legal aid
programs, community and faith based groups, worker advocates, labor
unions, government agencies, policymakers, and the media.
Each year, NILC responds to an average of 600 requests for
assistance with Individual Taxpayer Identification Numbers (ITIN) and
the Social Security Administration's (SSA) no-match letters, as well as
other employment-related issues. We appreciate the opportunity to
submit comments based on the experience we have accumulated over the
years on these issues that are so critical to low-income immigrant
workers.
Background
The changing demographics of our nation and the increasingly vital
role immigrants play in this society through their contributions in
building and helping maintain a strong economy, require policy makers
to prudently balance the mandates of each of the federal agencies
involved--Internal Revenue Service (IRS), SSA, and the Department of
Homeland Security (DHS)--with the unintended consequences that may flow
from any of the legislative or regulatory changes to the ITIN or SSA
no-match program currently under consideration.
In order to analyze the impact of any proposed measures, it is
important to recognize the role immigrants are playing in the U.S.
society. Immigrant workers now comprise 11 percent of the total U.S.
population,\1\ nearly 15 percent of the nation's labor force \2\ and
head 20 percent of low-income households in the U.S.\3\ One out of
every five low-wage workers in the U.S. is an immigrant worker.\4\ One
out of every two new labor force participants between 1990 and 2000 was
a new immigrant; \5\ and nearly two-thirds of the growth in the male
labor force was due to male immigrant workers.\6\
---------------------------------------------------------------------------
\1\ Capps, Fix, Passel, et al., A Profile of the Low-Wage Immigrant
Work Force (Urban Institute, 2003).
\2\ Sum, Khatiwada, Harrington, et al., New Immigrants in the Labor
Force and the Number of Employed New Immigrants in the U.S. from 2000
through 2003: Continued Growth Amidst Declining Employment Among Native
Born Population (Center for Labor Market Studies, Northeastern
University, December 2003).
\3\ Capps, Fix, Passel, et al., A Profile of the Low-Wage Immigrant
Work Force (Urban Institute, 2003).
\4\ Passel, Capps, and Fix. Undocumented Immigrants: Facts and
Figures (Urban Institute, January 2004).
\5\ Sum, Fogg, Harrington, et al., Immigrant Workers and the Great
American Job Machine: The Contributions of New Foreign Immigration to
National and Regional Labor Force Growth in the 1990s (National
Business Roundtable, August 2002).
\6\ Sum, Khatiwada, Harrington, et al., New Immigrants in the Labor
Force and the Number of Employed New Immigrants in the U.S. from 2000
through 2003: Continued Growth Amidst Declining Employment Among Native
Born Population (Center for Labor Market Studies, Northeastern
University, December 2003).
---------------------------------------------------------------------------
Despite high participation rates in the labor force, immigrant
workers are disproportionately represented in dangerous jobs such as in
the construction, manufacturing and agriculture sectors, and in
hazardous occupations within those industries.\7\ Immigrants are also
most vulnerable to workplace exploitation such as nonpayment of wages,
sexual harassment, and other forms of discrimination. Notwithstanding
the widespread exploitation suffered by immigrants, the output of goods
and services in the U.S. would be at least $1 trillion smaller than it
is today without the contribution of immigrant labor,\8\ and the
civilian labor force would have only grown 5 percent (versus 11.5
percent) between 1990 to 2001.\9\ The total net benefit to the Social
Security system if immigration levels remain constant will be nearly
$500 billion for the 1998-2022 period and nearly $2 trillion through
2072.\10\
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\7\ Improving Health and Safety Conditions for California's
Immigrant Workers. (The Working Immigrant Safety and Health Coalition,
November 2002).
\8\ Employment Policy Foundation, Policy Backgrounder, (June 11,
2001).
See www.epf.org/research/newsletters/2001/pb20010608.pdf.
\9\ Sum, Fogg, Harrington, et al., Immigrant Workers and the Great
American Job Machine: The Contributions of New Foreign Immigration to
National and Regional Labor Force Growth in the 1990s (National
Business Roundtable, August 2002).
\10\ The New Americans: Economic, Demographic, and Fiscal Effects
of Immigration (National Academy of Sciences, 1997).
---------------------------------------------------------------------------
It is for these reasons that a ``delicate balance'' must be struck
between the U.S. tax, social security and immigration systems, as
National Taxpayer Advocate, Nina Olson, stated in her comments before
this Committee. Low-wage immigrant workers, who are hard working and
taxpaying individuals, are the most impacted by the ITIN and SSA no-
match issues. Finally, Congress and the respective federal agencies
must ensure that any policy changes are in fact addressing the
underlying problem leading to the growing Earnings Suspense File (ESF).
Individual Taxpayer Identification Numbers (ITIN)
As the Committee is aware, the IRS created the ITIN in 1996 to
facilitate the tax compliance of those individuals who have earned
income in the U.S. and are required to report that tax or have some
other reporting requirement to the IRS but who are not eligible for a
Social Security Number. The ITIN can be issued to both resident and
nonresident aliens as long as they meet the eligibility requirements
for an ITIN. The Internal Revenue Code distinguishes between resident
and non-resident taxpayers. These categories are tax definitions of who
is required to pay what level of taxes based on their physical presence
in the U.S., and not whether the taxpayer is lawfully present in the
U.S. under our immigration laws. The ITIN is for tax purposes only and
does not create any inference into a person's immigration status since
there are many categories of foreign-born individuals who are eligible
for the ITIN. Additionally, the ITIN does not authorize a person to
work in the U.S., nor does it confer any benefits to people such as the
Earned Income Tax Credit (EITC) or Social Security benefits.
According to Pamela J. Gardiner, Acting Inspector General with the
Treasury Inspector General for Tax Administration (TIGTA), there has
been a dramatic increase in the number of ITINs issued with a 36
percent increase between 2001 and 2002 alone. Ms. Gardiner appears
concerned that for Tax Year (TY) 2001 approximately 530,000 1040 forms
were filed with the ITIN. She notes, ``Normally, ITINS would be used to
file a Form 1040NR--U.S. Nonresident Alien Income Tax Return.''
However, she does not explain what this assumption is based on since
both resident and nonresident aliens are eligible for ITINs. Indeed,
the IRS data regarding ITINs indicate that 75 percent of the 3.1
million ITINs issued for calendar years 1998-2001 were in fact used for
tax purposes indicating that by and large ITIN holders are complying
with their tax requirements.
There are many reasons why the other 25 percent of ITIN holders may
not have filed tax returns including the fact that many immigrant
workers earn such low-wages that they may have fallen outside the
requirement to report their income. In 2000, nearly half of all
immigrant workers earned less than 200 percent of the minimum wage,
compared with 32 percent of native workers.\11\ Additionally, many
workers find themselves in the precarious situation of not getting W-2s
from their employers and are afraid to ask for this information for
fear of being fired.
---------------------------------------------------------------------------
\11\ Capps, Fix, Passel, et al., A Profile of the Low-Wage
Immigrant Work Force (Urban Institute, 2003).
---------------------------------------------------------------------------
TIGTA estimates that ``for TY 2000 one in four individuals filing
with an ITIN failed to report on their tax returns wages and
nonemployee compensation totaling $324 million.'' However, it is
unclear how TIGTA came up with this figure, especially considering
National Taxpayer Advocate Olson's statement that TIGTA noted ``that
the margin of error for this estimate is +/- $122 million, or +/ -
37.6%.'' \12\ In her testimony, Acting Inspector General Gardiner
states, ``the mismatches between the ITINs and the SSNs limits the IRS'
ability to identify this underreporting.'' Similarly, the testimony
provided by Patrick P. O'Carroll, Assistant Inspector General for
Investigations, Office of Inspector General, Social Security
Administration, claims that the unlawful use of ITINs for employment
purposes will continue to rise and that it will exacerbate the wage
reporting problems.
---------------------------------------------------------------------------
\12\ See, Olson testimony, n. 26, citing to TIGTA, The Internal
Revenue Service's Individual Taxpayer Identification Number Creates
Significant Challenges for Tax Administration (2004-30-023, Jan. 2004),
at 4.
---------------------------------------------------------------------------
However, it important to remember that the primary reason for the
mismatch between ITINs and SSNs is the unintended consequence of the
growth in the black market of false documents and false SSNs that
resulted after the Immigration Reform and Control Act of 1986 (IRCA)
was enacted. It is critical to recognize that the mismatch will
continue to exist until there is a change in this nation's immigration
laws so that hardworking and taxpaying immigrants do not have to resort
to using false SSNs as a means of survival. Immigrant workers are not
terrorists but instead core members of the U.S. society who are
integral to our economy and who are paying taxes. In fact, one of the
incentives immigrants have to comply with the U.S. tax laws is that by
doing so they establish their ``good moral character'' which is also a
requirement under immigration laws in order for them to adjust their
immigration status.
The creation of the ITIN should be applauded as a systems
improvement which allows an agency such as the IRS to enforce the laws
under its jurisdiction by helping the many hardworking immigrants who
want to comply with the tax laws to actually do so independent of their
immigration status. We support the IRS's efforts to strengthen the
document validation requirements in issuing the ITIN, as well as
efforts to standardize the application process and train the Acceptance
Agents. With the recent changes adopted in December 2003, the IRS has
already begun taking important steps such as requiring that a tax
return or supporting documents for an interest-bearing banking account
be filed along with the ITIN application.
The testimony provided by both the TIGTA and SSA Inspector General
Offices call for greater information sharing, stronger enforcement
mechanisms and penalties, and legislative changes that would in essence
use SSA and IRS resources to enforce our broken immigration system. Any
steps toward greater information sharing with the DHS or increased
enforcement targeting undocumented workers who are simply trying to
comply with their tax obligations will backfire and deter immigrants
from coming out of the shadows and paying their share of taxes. The
recent disturbing incidents out of Louisville, Kentucky involving the
collaboration of IRS and TIGTA agents to file federal felony charges
against hardworking immigrants and to place them in deportation
proceedings sent a chilling wave throughout immigrant communities
across the country.
Ill-conceived policies or enforcement actions such as the
Louisville cases do not address the underlying issue of undocumented
workers in the U.S., and they have the negative consequence of scaring
immigrants further into the underground for fear of prosecution and
deportation for simply by trying to meet their tax obligations. We
strongly believe that the Treasury Department and the IRS should focus
their efforts on enhancing the integrity of the ITIN. These efforts
must be done without unfairly exaggerating the threat of ITIN tax
filers to national security. The Louisville strategies are flawed and
ineffective means of combating terrorism and regulating our nation's
immigration policies. As IRS Commissioner Everson stated, ``any sharing
of confidential taxpayer information, directly or indirectly, with
immigration authorities--would deprive the Federal Government of tax
revenue by discouraging illegal workers in the U.S. from participating
in the tax system, when the Code requires them to pay tax on their U.S.
earnings.''
SSA No-Match Letters and the Earnings Suspense File (ESF)
Since approximately 1997, NILC has been at the forefront of the
issues created by SSA no-match letters and the growing ESF. NILC has
taken the lead at the national level to provide training on the rights
and obligations of both employees and employers, drafting publications
explaining the ESF and the SSA no-match letters, providing technical
assistance to worker advocates (and sometimes employers) regarding the
appropriate steps an employer is to take upon receipt of an SSA no-
match letter. Perhaps most importantly, NILC serves as a liaison to the
SSA regarding the impact the SSA no-match letters have on the low-wage
immigrant worker community.
Throughout the years, NILC has worked closely with representatives
of the business and labor community to work with SSA in improving the
text of the no-match letter given that it often leads employers to
mistakenly believe the letter means the workers who are listed are
undocumented. SSA admits there are many reasons for a mismatch
including typographical mistakes, name changes based on marriage,
compound names that are so common among immigrants, as well as the use
of false SSNs. After the employer files its Wage and Tax Statement
(Form W-2), if SSA cannot match the employee's name or SSN, their
earnings go into the ESF and the worker does not get credit for those
wages until the discrepancy is corrected. According to the SSA's
Assistant Inspector General for Investigations O'Carroll's testimony,
the ESF grew to approximately $421 billion in wages representing 244
million wage items that could not be posted correctly between 1937 and
2003.
SSA sends two types of letters in an attempt to address the
discrepancy: one directly to workers at their home address listed on
the W-2, and the other sent to employers listing a group of workers. It
is this latter letter which has become known as the SSA no-match letter
that has gotten quite a bit of media attention. In 2002, SSA sent no-
match letters to approximately 950,000 employers who had at least one
employee with information that did not match SSA's records. This
created great confusion and chaos for both employers and employees who
were unaware of each other's responsibilities and how to respond to the
no-match letters. The result was that tens of thousands of workers,
mainly low-wage immigrant workers--lost their jobs, and many employers
also lost hardworking employees they had trained and invested time and
resources into. In December 2002, SSA decided to change its policy for
the no-match letters for 2003. This policy change came about after SSA
realized that despite the large numbers of letters sent to employers
much of the new information provided by employers still contained
incorrect information.
SSA's new policy for 2003 as well as for 2004 is to send no-match
letters out to employers who reported a no-match for at least 10
employees, or who reported no-matches for at least \1/2\ of one percent
of the total number of items the employer reports on the W-2s.
According to SSA, it sent no-match letters to approximately 126,250
employers in 2003 representing 7.5 million incorrect W-2s, in
comparison with 9.5 million letters sent directly to employees. It is
still unclear how effective the no-match letters sent to employers in
2003 were at correcting the discrepancies and reducing the ESF.
However, we do know from previous audit reports by the SSA's Office of
Inspector General that the employer no-match letters accounted for at
most two percent of corrections, in comparison to 8 percent of
corrections resulting from the letters sent directly to employees and
other internal SSA processes such as the Single Select process which
accounts for 61 percent of corrections.\13\ In this latter process, the
worker's name is presumed to be correct and the SSN incorrect. SSA then
compares the name against its Numident database, which contains all
valid SSNs, and if only one SSN matches the name, then SSA corrects the
SSN and posts the worker's earnings correctly.
---------------------------------------------------------------------------
\13\ Social Security Administration, Office of Inspector General,
Congressional Response Report: Status of the Social Security
Administration's Earnings Suspense File (A-03-03-23038) November 2002.
---------------------------------------------------------------------------
Additionally, we clearly know that while the SSA no-match letters
are not leading to reducing the ESF, they are leading to increased
exploitation of workers and misuse by employers. NILC has worked with
SSA to strengthen the language of the letter advising employers that it
is unlawful for them to take any adverse action against a worker solely
because they are listed on a no-match letter. Although the language of
the no-match letter has been strengthened as much as possible, both
documented and undocumented workers are often caught up in the
confusion caused by these letters and end up losing their jobs. NILC
has provided expert testimony and declarations in at least three labor
arbitration cases where workers have been wrongfully terminated as a
result of the SSA no-match letters. Finally, employers keen on hiring
and exploiting undocumented workers are not deterred by these letters
and instead use them as a retaliatory tool against workers trying to
assert their workplace rights.
In collaboration with the University of Illinois at Chicago's
Center for Urban Economic Development (UIC-CUED) and other
organizations throughout the country, NILC conducted a sampling of
worker surveys to begin documenting the impact of the no-match letters.
The survey findings are compiled in a report issued by UIC-CUED in
November 2003.\14\ The major findings of the study are that:
---------------------------------------------------------------------------
\14\ The full report is available online at http://www.nilc.org/
immsemplymnt/SSA_no-match_survey_final_report_11-20-03.pdf and the
Executive Summary is included as an attachment to these comments.
The SSA no-match letters have been ineffective at
reducing the ESF;
The letters have inadvertently encouraged employers to
fire workers with mismatched SSNs;
The no-match letter program has encouraged some employers
to take advantage of workers with discrepancies in their name or SSN;
and
The no-match letters are ill-suited as an immigration
enforcement tool.
Most recently, and at the core of this Committee's March 10, 2004
hearing, has been the mismatch that exists when a worker files their
taxes using an ITIN while their W-2 contains an SSN. The earnings
reported under this SSN will also result in the ESF since it will not
match SSA's records for that person. Another scenario is when a W-2
contains an ITIN instead of a valid SSN, which means the worker
presented the ITIN to the employer at the time of hire. This too will
result in earnings being posted to the ESF. While O'Carroll's testimony
seems to equate this type of ITIN use with identity theft in general,
fraud on a grand scale, and a threat to our national security, the
reality is that many workers who are presenting an ITIN to an employer
do so out of the naive idea that it is best to present a government-
issued number (in this case by the IRS) to an employer rather than
using a false SSN. Moreover, according to SSA's Deputy Commissioner
Lockhart, a one-time review of W-2s where ITINs were reported in lieu
of an SSN during the period of 1996 through 2002 resulted in
approximately 342,000 W-2s for which the earnings were posted into the
ESF. This represents a negligible less than two-tenths of 1 percent of
the W-2s contained in the ESF.
Accordingly, it is critical that Congress and the respective
federal agencies not resort to legislative changes such as those
proposed by O'Carroll, and instead look towards policy solutions that
will indeed address the underlying problems. It is clear from NILC's
ample experience with the SSA no-match letters that it is an
ineffective and inefficient program that has failed at its intended
purpose of ensuring that workers' earnings are properly credited, and
instead has resulted in greater workplace exploitation.
We strongly urge SSA to stop wasting its resources in sending the
employer no-match letters out. Instead the agency should focus on
developing new systems aimed at more efficiently reducing the ESF such
as that mentioned by Deputy Commissioner Lockhart in which SSA had
began implementing a new process in April 2003 to electronically find
millions of additional matches of W-2s by using the worker's detailed
earnings record and the master beneficiary record, rather than just the
information in the Numident. In FY 2003, SSA states that 2.4 million W-
2s were removed from the ESF and posted to the correct earnings
records--a process which seems much more promising and efficient than
the SSA no-match letters sent to employers.
Conclusion
The complexity of the interplay between the tax, social security,
and immigration laws and policies demand a cautious and measured
approach at dealing with cross-cutting issues such as the ITIN and SSA
mismatch. NILC shares the concern over such an exorbitant ESF, which
means that millions of workers who have labored arduously for years are
not getting credit for their2 earnings. We urge this Committee not to
fall prey to fears over national security in addressing the ITIN and
SSA no-match issues, and instead to recognize that these are
hardworking taxpaying immigrants caught in a web of complicated and
often contradictory laws.
We urge you to follow the proposals set forth by National Taxpayer
Advocate Olson in safeguarding the integrity of the ITIN while ensuring
that immigrant taxpayers are able to continue participating in the tax
and financial systems. We strongly believe that any other legislative,
regulatory, or administrative changes aimed at greater immigration
enforcement or further sharing of information between agencies will
have a negative impact on the tax and financial systems as well as the
economy. Similarly, any increased enforcement or penalties associated
with the SSA no-match program will result in greater unfair employment
practices, while any sharing of information will simply push
undocumented workers further underground into the informal cash economy
or it will force them to purchase more false documents as a means of
surviving.
It is for these reasons that we highlight the need to address the
problem of the ESF at its core. It will be only through comprehensive
immigration reform allowing immigrant workers to truly come put of the
shadows and amend their earnings records that the ESF will be
decreased. Additionally, many of the documented workers who are
currently showing up on the SSA no-match lists were once undocumented
and are still working with their old false SSN for fear of being fired
from their job. After IRCA, workers were allowed to come forward to
correct their records without the fear of losing their jobs since
employers. It is critical that a similar provision be enacted again so
that both employers and workers correctly report earnings, and
therefore not unnecessarily add to the growth of the ESF.
Finally, in order to address the issue of undocumented workers in
the U.S., Congress and the federal agencies must focus their efforts on
increasing and improving the enforcement of this nation's labor laws.
It is the ability to hire and recruit undocumented workers to toil in
substandard and inhumane working conditions without any fear of
penalties that serves as the incentive for employers to lure
undocumented workers into their employ. One step towards addressing
this is for Congress to enact legislation that overturns the U.S.
Supreme Court's decision in Hoffman Plastic Compounds, Inc. v. NLRB,
denying backpay to undocumented worker under the National Labor
Relations Act.\15\
---------------------------------------------------------------------------
\15\ 122 S.Ct. 1275 (2002).
---------------------------------------------------------------------------
The Hoffman decision established a loophole permitting companies to
evade basic worker protection laws with relative impunity if they hire
undocumented workers. This has created perverse incentives that
undermine both labor and immigration law. The decision undermines
immigration law by making undocumented workers more attractive to
employers than they were pre-Hoffman because such workers carry reduced
liability for labor law violations. The decision weakens the position
of authorized workers confronting abuse or exploitation because their
undocumented coworkers have fewer legal avenues for redress of labor
violations, including unlawful retaliation, and therefore they have far
less incentive to participate in efforts to improve conditions.
Businesses that take advantage of this situation can cut legal corners
and thereby gain a competitive advantage over law-abiding employers.
Congress should repeal the Hoffman Plastic decision. The result in
Hoffman was based on statutory interpretation, not constitutional
considerations, and the Supreme Court specifically noted that Congress
has the authority to change the law if it is unhappy with the results.
Repealing the decision would restore the pre-Hoffman environment under
which the remedy for violating U.S. labor laws was determined by the
conduct of the employer who violated the law rather than the status of
the victim. Unscrupulous employers should not be allowed to shield
themselves behind immigration laws to circumvent their legal
responsibilities.
It is the need for measures such as enacting comprehensive
immigration reform and repealing the Hoffman decision that will address
the underlying problems creating the ITIN and SSN mismatches. The ESF
and the administrative problems created for the IRS and SSA are simply
symptoms of the real problem, which lies in broken employment and labor
law and immigration systems.
We thank you once again for the opportunity to submit these
comments on such an important issue affecting low-income immigrants.
Please feel free to contact us if we could be of any further assistance
on this matter. We look forward to working with you in the future.
Statement of Patriot Tax International, LLC
Patriot Tax International, LLC (``Patriot Tax'') is a Kentucky
Limited Liability Company in the business of filing tax returns for
United States taxpayers. Patriot Tax is enrolled in the Internal
Revenue Service's (``IRS'') Individual Taxpayer Identification Number
(``ITIN'') program as an ITIN Acceptance/Certifying Agent as well as
the IRS Electronic Return Originator program. Patriot Tax has five (5)
offices located in three (3) different states in the United States. Our
clients are almost all Spanish-speaking taxpayers. The majority of our
clients are undocumented workers. The purpose of this statement is to
present several concerns about the ITIN program and offer appreciation
for the IRS's efforts to develop the ITIN program. We have a contract
with the IRS to certify and submit W-7 applications. We have a duty to
stay abreast of current policies that may impact our ability to fulfill
our contractual obligations to the IRS and our ethical obligations to
our clients.
1. Testimony before the Committee
We applaud the efforts of the witnesses who testified on behalf of
the IRS, Social Security Administration (``SSA''), and Treasury
Inspector General for Tax Administration (``TIGTA''). Prior to the
March 10, 2004 hearing (``hearing''), there were widespread rumors that
the IRS and/or TIGTA would unilaterally disclose taxpayer information
to other agencies if the information contained on a taxpayer return
indicated violation of immigration laws, and that taxpayers who filed a
taxpayer return with an ITIN number would be investigated by IRS or
TIGTA for a non-tax related crime.
The testimony of the representatives confirmed the IRS's continued
efforts to maintain the confidentiality provisions found in Internal
Revenue Code (``IRC'') 6103.\1\ Mark Everson, Acting Commissioner
IRS, stated that the confidentiality provisions contained in IRC 6103
are necessary to the administration of our tax system. He also stated
that maintaining the strength of these provisions is necessary to
encourage new immigrants to file taxes.
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\1\ IRC 6103(i)(3) allows the Treasury Department, including the
IRS and TIGTA, to release taxpayer information obtained from tax
returns that may constitute evidence of a violation of a non-tax
Federal laws to the extent necessary to apprise the appropriate agency
of the violation of the law under very specific circumstances. IRC
6103(i)(3)(A)(ii) provides that a taxpayer's identity can only be
disclosed if the information contained in the return indicates a
Federal crime, and under circumstances where: 1) the violation involves
an imminent danger of death or physical injury to any individual; or 2)
the circumstances involve a significant risk of flight from Federal
prosecution. Justifiably, the IRS, TIGTA, and Treasury have greater
latitude to release taxpayer information when it believes that the
information contained on a return indicates terrorist activity.
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Likewise, Nina Olson, National Taxpayer Advocate, promoted the
creation of policies and procedures that make it easier for
undocumented aliens to report income. Her written statement presents a
clear explanation of undocumented worker reporting scenarios, problems
relating to returns filed with ITIN's, as well as outlining the
foundation for the taxpayer confidentiality provisions contained in the
IRC. She stated:
In light of IRS data that clearly indicates the majority of ITIN
holder attempt to file and comply with tax laws, the IRS should
continue to encourage undocumented workers to obtain to obtain ITIN's
and assist all ITIN holders, including those who have Forms W-2 showing
SSN's, to file returns under their ITIN's. Any effort to restrict
access to obtaining ITIN's must be carefully scrutinized to determine
whether the purpose for the restriction outweighs the tax
administration's core and fundamental mission of helping taxpayers to
meet their tax obligations.\2\
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\2\ Hearing before the House of Representatives Committee on Ways
and Means, Subcommittee on Oversight, Subcommittee On Social Security,
March 10, 2004, at 11 (written Statement of Nina E. Olson, Taxpayer
Advocate).
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We applaud the efforts of Pamela Gardiner, Acting Inspector
General, TIGTA, to dispel rumors and press reports that individuals who
file a tax return with an ITIN are being identified for investigation
or are at risk of prosecution by TIGTA simply because they filed a tax
return with an ITIN number. In her written statement submitted to the
committee, she states:
I would like to close by responding to press reports suggesting
that TIGTA has compiled a list of people whom we suspect are illegal
aliens and that we intend to prosecute them. I assure you that this is
completely false. We do not have any such list, initiative, or program
designed to identify persons who are not authorized to work in the
United States.\3\
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\3\ Hearing before the House of Representatives Committee on Ways
and Means, Subcommittee on Oversight, Subcommittee On Social Security,
March 10, 2004, at 5 (written Statement of Pamela J. Gardiner, Acting
Inspector General, Treasury Inspector General for Tax Administration).
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Finally, we appreciate the IRS's efforts to try to evolve the ITIN
program in a manner that protects the integrity of the ITIN.
2. Marketing Tax Compliance to Undocumented Aliens
Only a small percentage of the entire population of undocumented
workers in the United States are attempting to comply with their tax
obligations through the ITIN program. In contrast, the data indicates a
high probability that ITIN holders will file their taxes.\4\ The IRS
estimates that there are 9 million undocumented workers in the United
States. However, only 530,000 tax returns were filled in 2001 with ITIN
numbers.\5\ The overwhelming majority of undocumented aliens must use
an ITIN number to file a tax return because they are not eligible to
obtain a Social Security Number.\6\ Testimony at the hearing indicated
that the IRS estimates that it lost approximately 250 billion tax
dollars due to unreported income. It is unclear what proportion of this
250 billion in tax dollars can be attributed to unreported income of
undocumented workers.
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\4\ Supra, Written Statement of Nina E. Olson, Taxpayer Advocate,
at 6.
\5\ Supra, Written Statement of Pamela J. Gardiner, Acting
Inspector General, Treasury Inspector General for Tax Administration,
at 3.
\6\ Some undocumented workers use Social Security Numbers issued
for non-work purposes or on expired visas to file a tax return.
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The testimony at the hearing clearly establishes the intentions of
the IRS and TIGTA to continue to promote tax compliance through the
ITIN program. However, there is still significant fear within the
immigrant community that information contained on tax returns will be
unilaterally disclosed to other agencies if the information on a tax
return indicates that the taxpayer provided his employer with a false
social security number, or that the taxpayer will be prosecuted for
filing a tax return that uses an ITIN as a taxpayer identification
number. To date, neither the IRS nor TIGTA has issued a clear statement
to dispel these concerns. We request both the IRS and TIGTA to publish
independent statements that will dispel fears of taxpayers and tax
professionals. The testimony at the hearing was clear. Most tax
preparers and undocumented workers will not base their conclusions upon
testimony at the hearing. Absent a clear statement from the IRS and
TIGTA, the undocumented population will base their decision to file a
tax return upon rumors and press reports that they will be prosecuted
if they file a tax return with an ITIN.
3. Prospective Tax Compliance Initiatives
a. W-4
Many of our clients present wage statements with an inflated amount
of exemptions. The IRS might consider printing this form in Spanish to
enable workers, undocumented and documented, to properly claim tax
exemptions with their employers.
b. Additional Child Tax Credit Worksheet
U.S. tax residents may be eligible to claim as dependents
individuals residing in Mexico or Canada. IRC 152(b)(3). However,
Congress specifically limits the application of the Child Tax Credit to
minor dependents who are Citizens or nationals of the US. The taxpayer
cannot claim the Child Tax Credit for minor dependents residing in
Mexico or Canada if the children are not U.S. Citizens or nationals.
IRC 24(c). We believe many taxpayers are claiming minor dependents
living in Mexico or Canada, who do not otherwise qualify as U.S.
Citizens or nationals, for purposes of the Child Tax Credit. Many tax
preparers do not recognize that that most minor dependents living in
Mexico or Canada will not qualify for the Child Tax Credit, even though
they can be claimed as dependents. A worksheet similar to the Earned
Income Credit Worksheet, form 8867, could enable tax preparers to more
efficiently apply this provision of the tax code.
c. EITC Qualifications for New SSN Holders
We believe that Congress, the IRS, and the SSA should consider the
repercussions of a scenario in which individuals retroactively claim
and receive the Earned Income Credit in years when the person was not
entitled to have a Social Security Number for employment. This
situation arises when an undocumented alien becomes eligible to
``adjust status'' after years of working unlawfully in the United
States. This issue will become more prevalent as undocumented workers
become lawful permanent residents pursuant to applications filed under
Section 245(i) of the Immigration and Nationality Act in 2001 or if the
United States passes significant immigration legislation for
undocumented workers. Due to significant backlogs with the Department
of Homeland Security, many of the applicants are now becoming legal.
Furthermore, if Congress passes legalization for illegal workers, an
estimated 9 million workers will be eligible to legalize and obtain
Social Security Numbers. Essentially, undocumented aliens might apply
for large tax refunds, mainly consisting of retroactive EITC credit.
This is an important financial cost that must be considered and
documented in any discussions about large-scale immigration legislation
that involves undocumented workers. In 2001, Congress required
undocumented aliens to pay a $1,000 penalty to adjust status under
245(i). However, the aliens could have recouped the
EITC for all years that they were still eligible to file an amended
return.\7\ Thus they would pay a penalty to the Department of Homeland
Security (formerly Immigration and Naturalization Service), but could
claim a substantial return from the IRS.
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\7\ IRS, Publication 596, pg. 5.
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4. Address Louisville, Kentucky TIGTA Investigation
We request the IRS and TIGTA to specifically address the well
publicized situation that occurred in Louisville, Kentucky, in which a
TIGTA officer disclosed information contained on a tax return to the
Justice Department and/or Department of Homeland Security.\8\ The
disclosure of the taxpayer information allegedly caused the taxpayers
to be charged and arrested with non-tax crimes. This situation has
caused many pro bono and private tax preparers to refuse to file tax
returns for aliens who must use an ITIN to file a tax return. The
continued spread of this story, if not appropriately addressed by TIGTA
and IRS, will undermine IRS's policy to require tax compliance for all
U.S. wage earners regardless of their immigration status. This
situation has caused many leaders in the immigrant communities to
advise undocumented aliens not to file taxes.
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\8\ TAX NOTES, January 23, 2004, 455-39; TAX NOTES, January 26,
2004, 955-97; TAX NOTES, March 1, 2004, 1058-62.
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The December 17, 2003 changes to the ITIN program application
process require all applicants for an ITIN to demonstrate a need for
such number by providing a legitimate tax purpose. An application for
an ITIN is made on IRS Form W-7. Ordinarily, the ITIN applicants
include a tax return to establish their tax purpose with their W-7
application(s). The IRS will not prepare the W-7's for the aliens. The
responsibility to prepare the W-7's and explain the policies and risks
is shouldered by pro bono preparers or private entities. These entities
are assisting undocumented workers to become tax compliant. It is
imperative for the tax preparation industry to be absolutely certain
that both TIGTA and the IRS are committed to the principles and rules
of law contained in IRC 6103. Therefore, we request IRS and TIGTA to
issue a statement that discloses the result of any internal
investigation arising out of the Louisville TIGTA officer's alleged
disclosure.
5. Conclusion
Undocumented workers and tax professionals need a clear message
about the disclosure policies of the IRS and TIGTA. We have a
burgeoning undocumented population. As stated by Commissioner Everson,
many of these individuals come from countries that do not have the same
respect for their tax program as we have in the United States. The ITIN
program may be the alien's first legitimate contact with the government
of the United States. We must make sure that their experience creates a
sense of trust and pride in the United States. As these aliens adjust
status to lawful permanent residents or simply remain undocumented in
the United States, we want them to develop respect for the laws of the
United States. We appreciate the opportunity to present our position.
Please contact us with any questions.
Respectfully Submitted,
Samuel C. Rock, Esq.\9\
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\9\ Samuel C. Rock, Esq. is an owner of and serves as General
Counsel for Patriot Tax International, LLC. He served as an Assistant
Commonwealth Attorney for the 14th Judicial District, Commonwealth of
Kentucky, between 1997 and 1999, where he prosecuted felony criminal
cases. He currently practices immigration law and civil litigation, as
well as counsel for Patriot Tax International, LLC. He is a member of
the Kentucky Bar Association, American Trial Lawyers Association, and
American Immigration Lawyers Association.
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Nathan Brown \10\
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\10\ Nathan S. Brown is a partner in Patriot Tax International,
LLC. Mr. Brown holds a M.A. in Diplomacy and Management from the
Patterson School of Diplomacy and International Commerce, University of
Kentucky. He is member of the Migrant Network Coalition in Kentucky.
Mr. Brown is a Certified Court Interpreter for the Administrative
Office of the Courts in Kentucky, also practicing as an interpreter in
Federal Court.
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Michael Yonosko, C.P.A.\11\
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\11\ Michael Yonosko is employed by Patriot Tax International,
LLC., as a C.P.A and Area Developer. Mr. Yonosko holds a B.A. in
Accounting from Asbury College. Mr. Yonosko was admitted to the
Kentucky State Board of Accountancy in 2000. Michael was employed by
Chilton and Medley, PLC from 1999-2000.
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Juan Marcelo Juliano \12\
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\12\ Patriot Tax International, LLC employs Juan Marcelo Juliano,
as an engineer and Technical Systems Manager. Mr. Juliano assists is
compliance with the ITIN and ERO programs for the company. He holds a
B.S. in Computer Engineering from Florida International University in
Miami.
Statement of Eric J. Oxfeld, Strategic Services on Unemployment and
Workers' Compensation
As the Subcommittees on Oversight and on Social Security consider
how best to address Mismatches and Misuse of Social Security Numbers
(SSN's) and Individual Taxpayer Identification Numbers (ITINs), we want
to make you aware of how SSN's are used in the unemployment insurance
(UI) system and urge that you preserve the ability of states and
employers to continue using SSN's to track UI claims.
UWC is the only national organization exclusively devoted to
providing legislative/regulatory representation for the business
community in connection with unemployment insurance (UI) and workers'
compensation (WC) programs. UWC's members include employers, national
and state business associations, third party claims and tax
administrators, accounting and law firms, and other service providers,
all of whom advocate maintenance of sound, cost-effective UI and WC
programs. UWC members, and their clients, policyholders and members,
collectively represent a major share of the business community in the
United States. UWC is intimately acquainted with unemployment insurance
law and best practices. In addition to UWC's advocacy efforts on behalf
of business, we manage the National Foundation for Unemployment
Compensation & Workers' Compensation, which conducts educational
activities such as the annual National UI Issues Conference, as well as
reference materials on UI, including the annual Highlights of State
Unemployment Compensation Laws book, the annual RESEARCH BULLETIN:
Fiscal Data for State Unemployment Insurance Systems, and the
EMPLOYER'S UNEMPLOYMENT COMPENSATION COST CONTROL HANDBOOK.
As the release announcing the hearings states, SSNs were created in
1936 to keep track of the earnings of people who worked in jobs subject
to Social Security taxes, in order to assure proper payment of taxes
and crediting of wages toward Social Security benefits. We want to be
sure that Congress and federal and state officials understand that
SSN's also serve the same purpose in the UI program by assuring the
proper payment of taxes and crediting of wages toward UI benefits, as
well as UI claim determinations and their dissemination to employers
who are charged for these benefits. As you know, the UI system was
originally established as a component of the Social Security system,
and Titles III, IX, and XII of the Social Security Act govern the
administration of UI benefits, the organization of the Unemployment
Trust Fund, and advances to state UI benefit trust accounts,
respectively.
SSN's are an integral part of the UI system. The UI system is
financed out of federal and state payroll taxes paid by employers, and
employers must use SSN's to keep their payroll records and to be sure
they are accurately filing their UI taxes. Federal and state laws
require employers to report all newly hired employees, including SSNs,
to state ``New Hire Directories,'' which helps child support
enforcement dramatically and enables states to detect and prevent UI
fraud. Federal law also requires employers to report all wages
quarterly, using SSN's. SSN's are used by state UI administrative
agencies to track UI benefit claims, which require a showing that the
claimant had earnings sufficient to qualify for benefits (in most
cases, states use information received from the quarterly wage reports
for this purpose). States also typically use SSN's when they report
claim determinations and decisions on appeals to the employer, as well
as periodic benefit charge statements that each employer verifies
(because its unemployment tax rate is based on its claims experience
and tax contributions). As a practical matter, employers who receive a
claim determination and statements of UI benefits charged to their
account rely on the SSN to verify the identity of the employee to which
the reports refer and the accuracy of the agency determination. Large
employers commonly have many workers who have the same or similar
names, as do even small and medium size employers. Further complicating
the need to track UI claims by SSN is the fact that UI benefits may be
charged in part to a former employer where qualifying wages were
earned. And now that States take initial UI claims by telephone or over
the internet, the importance of giving employers the information needed
to verify claims is greater than ever.
Recently, employers and State UI agencies have become more aware of
the importance of protecting payroll information from identity theft.
For example, last year a UI fraud ring, using purloined payroll
records, successfully filed phony claims costing the now bankrupt
California UI trust fund $53 million. Because UI is an
insurance system, these charges must be made up through higher taxes on
employers.
The business community thus has a clear stake in both the
efficiency of the UI system (including the reporting of wages, taxes,
and claim determinations) as well as protecting against identity theft
using SSN's.
The broader societal debate over protecting personal privacy,
including the abuse of SSN's, has affected the UI system, as well.
Several states have discontinued or are considering discontinuing the
use of SSN's in reporting UI claims to employers. In January 2004, for
example, the Utah UI agency stopped using SSN's on claim determinations
reported to employers, but later resumed their use after businesses and
UI advisory services voiced concern.
If some or all State UI programs discontinue using SSN's, the
result will be a very chaotic system of tracking UI claims, especially
for employers and service providers with multi-state operations, who
may be subject to inefficient, inconsistent, and perhaps conflicting
requirements. Employers and claims and payroll advisory organizations
have substantial monetary investments in computerized systems that
track payroll records for UI purposes. Changes in state or federal
policy that require modification of these systems, especially on a
piecemeal basis, should be discouraged because they will be disruptive
and expensive. For this reason, UWC and the National Association of
State Workforce Agencies have agreed to establish a joint task force to
explore mutually acceptable ways of tracking workers and UI claims
while providing appropriate privacy protections.
Because much of the impetus for States to discontinue use of SSN's
for tracking UI claim determinations and appeals is the perception that
such use may be inappropriate, we respectfully urge Congress to adopt a
strong statement of policy acknowledging that the use of SSN's in the
UI system, as described in these comments, is in fact legitimate and in
no way constitutes a ``misuse.'' We also urge that efforts to
coordinate SSN protections among the Social Security Administration,
Internal Revenue Service, and Department of Homeland Security also
include representation from the UI system and an opportunity for
employer input on policy decisions that may affect legitimate uses of
SSN's to track UI claims.
We appreciate your inclusion of these comments in the hearings
record. We would be pleased to answer any questions or provide
additional information. Please feel free to contact me by telephone at
202-637-3463 or by email at [email protected].
Tustin, CA 92780
March 24, 2004
Subcommittee on Oversight
Room 1136
Longworth House Office Building
Washington, DC 20515
Dear Honorable Committee Members:
This email is in response to the March 3, 2004, request (release
OV-11) for written comments due March 24, 2004, by the House Ways and
Means Subcommittee on Oversight Subcommittee on Social Security
concerning Social Security number (SSN) and Individual Taxpayer
Identification Number (ITIN) mismatches and misuse.
The Committee's March 10, 2004, hearing focused on focus on the
respective responsibilities of the Social Security Administration,
(SSA) Internal Revenue Service, (IRS), and Department of Homeland
Security (DHS) in ensuring accurate earnings reporting and tax
payments. I would like to compliment the committee for its attention to
this very important area and also bear witness to some of the issues
raised in release OV-11.
My name is George Willis. I am an attorney and for the past five
years have also been the program administrator of the Low Income
Taxpayer Clinic at Chapman University School of Law in Orange,
California. I am also a victim of identity theft.
I submit my comments to the committee as a person who has seen,
first hand, both proper and improper use of SSNs and ITINs. .
There is no need to reiterate the scope of the issues raised by the
Committee, especially the concerns with national security. It is
sufficient to say that there is a mismatch and misuse problem.
I would like to outline three important considerations and my
rationale for them. I respectfully submit these considerations for the
committee to use, or if needed, to redistribute to a Committee or
agency more appropriate for each task being outlined.
I. Forbid the use of Social Security Numbers as personal identifiers
any reason that does not involve the extension of consumer
credit.
The Committee has already taken notice of the proliferation of the
use of SSN's as a form of identification by private entities. This has
been done as a matter of convenience by private entities, and must be
stopped using the existing powers and purview of Congress.
I implore the Committee to ask ``Why has it become necessary to
provide a SSN in order to rent a video movie?'' This is just one of
hundreds of non-authorized uses of an SSN all done by private entities
for convenience sake. The reason is obvious; it is cheaper and easier
to use the government's de-facto identifier than to create ones own--
especially in the area of negative credit reporting.
Unfortunately, this cheap and easy way to do business allows for
the propagation of abuse of SSN's by rogue employees, mishandling of
data, security breaches, etc. Currently, there are insufficient federal
penalties for the misuse of SSN's by private entities.
Instead of creating a bureaucratic maze of regulations, I recommend
that the clock simply be ``reset'' and that Congress (1) ban the use of
SSN's by private entities as identifiers and (2) further ban the
collection of SSN's in any situation where credit is not being extended
to the consumer. (And credit needs to be defined to mean payment over
time, not temporary credit as the case may be in the rental of a
video!)
Business interests will certainly complain, and maybe even cry like
Chicken Little that this will bankrupt them; however, Business has
survived long before its unilateral and unauthorized adoption of the
SSN as a universal identifier, and I suspect that after a period of
detoxification, it will survive the separation of use. Of its own
accord, Business is using SSN's in an unauthorized manner, and
therefore can't complain when it is asked to cease this use.
In the alternative to an outright ban, severe fines must be imposed
on private entities, who whether knowingly or not, allow misuse of
SSN's through improper or negligent handling.
II. Better enumerate, codify, and increase penalties for the crime of
identification theft, even in cases where there is no actual
``out-of-pocket'' economic harm.
When I became the victim of ID theft through the misuse of my
federally issued social security number, I looked to federal law for a
remedy. Because I was fortunate enough to catch the misuse in time, I
had no ``out-of-pocket'' economic damages. Unfortunately, my good
fortune left me with no viable federal remedy against the person who
assumed my identity, nor the rogue corporate employee who initially
stole my SSN. Additionally, any civil remedy would have culminated in a
pyrrhic victory, at best. I spoke with federal Departments of Social
Security and Treasury, including the Secret Service, whom all
concurred.
I will provide an example below that better illustrates that there
is harm to the economy of the nation even in situations where there is
no out-of-pocket-harm to an individual.
The committee must recommend that the existing relevant federal
laws be updated to reflect the problems of identity theft in the new
millennium. Existing federal laws are archaic and provide hollow
protection as well as ineffective remedies against this modern crime.
III. Require that employers better screen and verify identification
documents.
I would like to shift my comments away from SSN's to ITIN. My
personal example above pales in comparison to the level of identity
theft that I see in dealing with low income taxpayers at Chapman
University School of Law's tax law clinic.
In order to keep these comments brief, let me simply relate the
most common problem that I encounter in this area, and recommend
possible alternatives for the committee to consider.
The typical scenario is this:
A potential worker in State X is unable to obtain a valid SSN. An
employer tells the worker that they must have a SSN in order to work.
The employer proposes that the worker use a SSN or ITIN that the
employer happens to ``have available'' or in the alternative directs
the taxpayer to some place where, for a price, they can ``get one.''
The worker uses this SSN or ITIN and may or may not file a tax return.
A year later, the valid SSN or ITIN holder in State Y is sent a
bill by the Internal Revenue Service (IRS) for not reporting the wages
earned in State X. The taxpayer in State Y comes to me, and we resolve
the case over the course of one to two years.
The employer claims ignorance to the whole thing and does not
cooperate with the valid SSN holder, nor our clinic's requests as there
are no penalties for not cooperating.
At the end of the case:
The IRS and the SSA have not received monies owed to them. The
valid SSN holder has negative marks on their credit report due to tax
liens, etc. Our clinic expends hundreds of staff hours in this process.
The invalid SSN holder continues to use the SSN and maybe even share it
with others, and the cycle continues year after year for the valid SSN
holder.
The illustration that I have provided certainly demonstrates that
there is actual harm to the economy of the nation even in situations
where there is no out-of-pocket-harm to the consumer.
Congress must be aggressive in requiring that employers obtain
valid SSN's and right to work documents. As part of this, businesses
must be provided with an easy method to validate the SSN's being
provided to them by employees.
At the same time, draconian federal penalties must be imposed on
those entities that refuse to comply with; or worse yet, actively
promote, SSN misuse, theft, falsification or general abuse. This will
have to be part of the cost of doing business, and is much less
intrusive than many other already codified forms of federal regulation.
Respected Committee members, I could provide many more comments and
specific examples, however, at this time, I hope that the three broad,
macro considerations that I have outlined will serve to assist you in
your goals to resolve the SSN and ITIN mismatch and misuse problem that
this nation faces.
Sincerely,
George L. Willis, Esq.