[House Hearing, 109 Congress]
[From the U.S. Government Printing Office]




 
              SECOND IN A SERIES OF SUBCOMMITTEE HEARINGS
               ON SOCIAL SECURITY NUMBER HIGH-RISK ISSUES

=======================================================================

                                HEARING

                               before the

                    SUBCOMMITTEE ON SOCIAL SECURITY

                                  and

                       SUBCOMMITTEE ON OVERSIGHT

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             SECOND SESSION

                               __________

                           FEBRUARY 16, 2006

                               __________

                           Serial No. 109-60

                               __________

         Printed for the use of the Committee on Ways and Means


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                      COMMITTEE ON WAYS AND MEANS

                   BILL THOMAS, California, Chairman

E. CLAY SHAW, JR., Florida           CHARLES B. RANGEL, New York
NANCY L. JOHNSON, Connecticut        FORTNEY PETE STARK, California
WALLY HERGER, California             SANDER M. LEVIN, Michigan
JIM MCCRERY, Louisiana               BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan                  JIM MCDERMOTT, Washington
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. MCNULTY, New York
PHIL ENGLISH, Pennsylvania           WILLIAM J. JEFFERSON, Louisiana
J.D. HAYWORTH, Arizona               JOHN S. TANNER, Tennessee
JERRY WELLER, Illinois               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           LLOYD DOGGETT, Texas
RON LEWIS, Kentucky                  EARL POMEROY, North Dakota
MARK FOLEY, Florida                  STEPHANIE TUBBS JONES, Ohio
KEVIN BRADY, Texas                   MIKE THOMPSON, California
THOMAS M. REYNOLDS, New York         JOHN B. LARSON, Connecticut
PAUL RYAN, Wisconsin                 RAHM EMANUEL, Illinois
ERIC CANTOR, Virginia
JOHN LINDER, Georgia
BOB BEAUPREZ, Colorado
MELISSA A. HART, Pennsylvania
CHRIS CHOCOLA, Indiana
DEVIN NUNES, California

                    Allison H. Giles, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                    SUBCOMMITTEE ON SOCIAL SECURITY

                    JIM MCCRERY, Louisiana, Chairman

E. CLAY SHAW JR., Florida            SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas                   EARL POMEROY, North Dakota
J.D. HAYWORTH, Arizona               XAVIER BECERRA, California
KENNY C. HULSHOF, Missouri           STEPHANIE TUBBS JONES, Ohio
RON LEWIS, Kentucky                  RICHARD E. NEAL, Massachusetts
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin

                                 ______

                       SUBCOMMITTEE ON OVERSIGHT

                    JIM RAMSTAD, Minnesota, Chairman

ERIC CANTOR, Virginia                JOHN LEWIS, Georgia
BOB BEAUPREZ, Colorado               EARL POMEROY, North Dakota
JOHN LINDER, Georgia                 MICHAEL R. MCNULTY, New York
E. CLAY SHAW, JR., Florida           JOHN S. TANNER, Tennessee
SAM JOHNSON, Texas                   CHARLES B. RANGEL, New York
DEVIN NUNES, California
J.D. HAYWORTH, Arizona

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 February 9, 2006 and revised advisory of February 16, 
  2006 announcing the hearing....................................     2

                               WITNESSES

Internal Revenue Service, Hon. Mark W. Everson, Commissioner.....    10
Social Security Administration, Hon. James B. Lockhart, III, 
  Deputy Commissioner............................................    14
U.S. Department of Homeland Security, Hon. Stewart A. Baker, 
  Assistant Secretary for Policy.................................    20

                                 ______

Social Security Administration, Hon. Patrick P. O'Carroll, 
  Inspector General..............................................    41
U.S. Government Accountability Office, Barbara Bovbjerg, 
  Director, Education, Workforce, and Income Security Issues.....    45

                       SUBMISSIONS FOR THE RECORD

Davis, Robert, Rockwall, TX, letter..............................    76
National Consumer Law Center, Boston, MA, letter.................    76


                         SECOND IN A SERIES OF
                        SUBCOMMITTEE HEARINGS ON
                SOCIAL SECURITY NUMBER HIGH-RISK ISSUES

                              ----------                              


                      THURSDAY, FEBRUARY 16, 2006

             U.S. House of Representatives,
                       Committee on Ways and Means,
                           Subcommittee on Social Security,
                                 Subcommittee on Oversight,
                                                    Washington, DC.

    The Subcommittees met, pursuant to notice, at 10:04 a.m., 
in room 1100, Longworth House Office Building, Hon. Jim McCrery 
(Chairman of the Subcommittee on Social Security), and Hon. Jim 
Ramstad (Chairman of the Subcommittee on Oversight) presiding.
    The advisory and revised advisory announcing the hearing 
follow:]

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-9263
FOR IMMEDIATE RELEASE
February 09, 2006
No. SS-11

                      McCrery and Ramstad Announce

             Second in a Series of Subcommittee Hearings on

                Social Security Number High-Risk Issues

    Congressman Jim McCrery (R-LA), Chairman, Subcommittee on Social 
Security, and Congressman Jim Ramstad (R-MN), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
Subcommittees will hold the second in a series of Subcommittee hearings 
on Social Security number (SSN) high-risk issues. The hearing will 
examine employer wage reporting. The hearing will take place on 
Thursday, February 16, 2006, in the main Committee hearing room, 1100 
Longworth House Office Building, beginning at 11:00 a.m.
      
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Employers are responsible for collecting, documenting, and 
submitting a new hire's personal information for Social Security, tax, 
and immigration purposes. It is the responsibility of the employer and 
the new hire to submit accurate information so that eligible 
individuals receive the Social Security benefits due them and that the 
appropriate taxes are withheld. However, each year, about 4 percent 
(about 9 million) of Forms W-2 that employers send to the Social 
Security Administration (SSA) to report employees' wages cannot be 
associated with the correct worker because they contain name and SSN 
information that do not match the SSA's records. These ``mismatched'' 
W-2s are logged in the SSA's earnings suspense file (ESF).
      
    Research by the SSA Inspector General (IG) and the U.S. Government 
Accountability Office (GAO) indicates that in recent years, W-2s logged 
in the ESF increasingly represent instances of SSN misuse or fraud and 
probable unauthorized work by foreign-born workers. For these reasons, 
and because improperly posted earnings could prevent individuals from 
receiving the Social Security benefits due them, the SSA IG has 
included the size and growth of the ESF among the agency's major 
management challenges.
      
    Three government agencies are involved in ensuring employers and 
employees submit accurate employment and wage information, and 
therefore play a role in addressing the ESF. The IRS is responsible for 
tax administration and requires employers to provide name, SSN, and tax 
withholding information on their employees and enforces penalties for 
failure to provide complete and accurate information for tax purposes, 
including penalties for mismatched W-2s. The U.S. Department of 
Homeland Security (DHS) is responsible for preventing and detecting 
unauthorized work and requires employers to examine documents 
establishing the identity and work eligibility status of newly hired 
employees to prevent unauthorized immigrants from using false or stolen 
SSNs and other documents to illegally gain employment, and also 
enforces immigration law. The SSA is responsible for recording each 
worker's career earnings history for benefit purposes and processes W-
2s for the Internal Revenue Service (IRS).
      
    The GAO noted in a February 2005 report, that three key factors 
contribute to ESF postings: (1) the IRS and DHS require employers to 
collect name, SSN, and employment eligibility information, but do not 
require employers to independently corroborate the validity of the 
information presented; (2) IRS regulations establish a ``reasonable 
cause'' waiver with minimal requirements and thus the IRS is unlikely 
to penalize employers, while DHS enforcement efforts against employers 
who knowingly hire unauthorized workers have been limited in recent 
years due to further shifting priorities following the events of 
September 11, 2001; and (3) the SSA and DHS offer employers SSN and 
employment eligibility verification services free of charge, but these 
services are voluntary and underutilized. Both the SSA IG and the GAO 
have made suggestions regarding data sharing between these agencies 
that could help address the ESF and better target enforcement 
activities by the IRS and DHS.
      
    In announcing the hearing, Chairman McCrery stated, ``The growing 
earnings suspense file is a symptom of a bigger problem--lack of 
enforcement of existing laws and lack of effective coordination between 
the responsible Federal agencies. We must carefully examine all 
available options and their potential effects on employers, employees, 
the government, and the economy to ensure we achieve a workable and 
balanced solution.''
      
    Chairman Ramstad stated, ``Accurate wage reporting is important for 
a number of government programs. It is clear that there are growing 
problems in this area that need to be addressed, and can only be solved 
with increased attention and coordination from the three agencies 
involved.''
      

FOCUS OF THE HEARING:

      
    The Subcommittees will examine how employers report wages to the 
SSA, the effects of incorrect wage reports on administration of the 
Social Security program and tax administration, and enforcement of 
hiring and wage-reporting responsibilities by the DHS and IRS. The 
Subcommittees will also examine the current employment eligibility 
verification process and needed improvements; the potential for data 
sharing between the SSA, DHS, and IRS to enhance detection and 
prevention of unauthorized work; and options to improve wage reporting.
      

DETAILS FOR SUBMISSION OF WRITTEN COMMENTS:

      
    Please Note: Any person(s) and/or organization(s) wishing to submit 
for the hearing record must follow the appropriate link on the hearing 
page of the Committee website and complete the informational forms. 
From the Committee homepage, http://waysandmeans.house.gov, select 
``109th Congress'' from the menu entitled, ``Hearing Archives'' (http:/
/waysandmeans.house.gov/Hearings.asp?congress=17). Select the hearing 
for which you would like to submit, and click on the link entitled, 
``Click here to provide a submission for the record.'' Once you have 
followed the online instructions, completing all informational forms 
and clicking ``submit'' on the final page, an email will be sent to the 
address which you supply confirming your interest in providing a 
submission for the record. You MUST REPLY to the email and ATTACH your 
submission as a Word or WordPerfect document, in compliance with the 
formatting requirements listed below, by close of business Thursday, 
March 2, 2006. Finally, please note that due to the change in House 
mail policy, the U.S. Capitol Police will refuse sealed-package 
deliveries to all House Office Buildings. For questions, or if you 
encounter technical problems, please call (202) 225-1721.
      

FORMATTING REQUIREMENTS:

      
    The Committee relies on electronic submissions for printing the 
official hearing record. As always, submissions will be included in the 
record according to the discretion of the Committee. The Committee will 
not alter the content of your submission, but we reserve the right to 
format it according to our guidelines. Any submission provided to the 
Committee by a witness, any supplementary materials submitted for the 
printed record, and any written comments in response to a request for 
written comments must conform to the guidelines listed below. Any 
submission or supplementary item not in compliance with these 
guidelines will not be printed, but will be maintained in the Committee 
files for review and use by the Committee.
      
    1. All submissions and supplementary materials must be provided in 
Word or WordPerfect format and MUST NOT exceed a total of 10 pages, 
including attachments. Witnesses and submitters are advised that the 
Committee relies 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 submissions must include a list of all clients, persons, 
and/or organizations on whose behalf the witness appears. A 
supplemental sheet must accompany each submission 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.

                                 

                       * * * CHANGE IN TIME * * *

ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS

                       SUBCOMMITTEE ON OVERSIGHT

                                                CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
February 16, 2006
SS-11 Revised

                         Change in Time for the

             Second in a Series of Subcommittee Hearings on

                Social Security Number High-Risk Issues

    Congressman Jim McCrery (R-LA), Chairman, Subcommittee on Social 
Security, and Congressman Jim Ramstad (R-MN), Chairman, Subcommittee on 
Oversight of the Committee on Ways and Means, today announced that the 
second in a series of Subcommittee hearings on Social Security number 
high-risk issues, previously scheduled for 11:00 a.m. on Thursday, 
February 16, 2006 in room 1100 Longworth House Office Building, will 
now be held at 10:00 a.m.
      
    All other details for the hearing remain the same. (See 
Subcommittee Advisory No. SS-11, dated February 9, 2006).

                                 

    Chairman MCCRERY. The hearing will come to order. Good 
morning, everyone. Welcome to our Joint Subcommittee on Social 
Security and Subcommittee on Oversight hearing on employer wage 
reporting. Today's hearing is the second in a series of 
hearings on high-risk issues related to Social Security Numbers 
(SSNs). Today, we will examine the longstanding and troubling 
issue of how some employers fail to report wages with accurate 
SSNs and the inadequate Federal response. Wages that are 
reported under incorrect or false SSNs are logged into a 
database within the Social Security Administration (SSA) called 
the Earnings Suspense File (ESF). This file has records of 
earnings that could not be linked to the correct worker. 
Employee data was first entered into the ESF in 1937, when 
wages became subject to Social Security taxes. Between 1937 and 
2003, nearly 255 million wage records for about $520 billion in 
earnings, accumulated in the ESF.
    The ESF is not just an administrative headache or a 
bureaucratic wasteland. It is a symptom of more serious 
problems. Research by the SSA's Inspector General (IG) and the 
U.S. government Accountability Office (GAO), indicates evidence 
of SSN misuse and unauthorized work by foreign-born workers. 
For example, according to a GAO study of SSNs frequently 
appearing in the ESF, wages claimed by foreign-born workers who 
had earnings before they were issued an SSN have grown over 
time, from an average of about 7 percent for years 1937 to 
1985, to 47 percent for the year 2003.
    Inaccurate SSN reporting has repercussions for workers' 
Social Security benefits, tax compliance, and immigration law 
compliance. Three government agencies play a role when employer 
wage reports end up in the ESF. The SSA is responsible for 
accurately keeping track of workers' earnings for benefit 
purposes. The U.S. Internal Revenue Service (IRS) is 
responsible for enforcing penalties to ensure employers report 
wages accurately for tax and benefit purposes. The U.S. 
Department of Homeland Security (DHS) is responsible for 
ensuring unauthorized workers do not work using false 
information that results in their earnings records ending up in 
the ESF.
    Unfortunately, the problem of a growing ESF has existed for 
decades. The responsible government agencies have been slow to 
work together toward a comprehensive solution. In addition, 
they have not adequately enforced the laws and regulations that 
would prevent inaccurate wage reporting. Last December, the 
House of Representatives passed legislation, H.R. 4437, the 
``Border Protection, Anti-Terrorism, and Illegal Immigration 
Control Act of 2005,'' which would take action where government 
agencies have not by requiring employers to verify the SSNs and 
employment eligibility of their employees with SSA and DHS.
    Today, we need to hear about what actions Federal agencies 
can and will take to address inaccurate wage reporting. We also 
want to examine options that Congress should consider to 
achieve a balanced and workable approach to improve the 
accuracy of wage reporting without unduly burdening employees, 
employers, and our economy. I want to thank all of our 
witnesses for coming today, and I look forward to your 
testimony. Now, I would like to ask my colleague, the Ranking 
Member, Mr. Levin, for any comments he may make.
    [The prepared statement of Chairman McCrery follows:]

    Opening Statement of The Honorable Jim McCrery, Chairman, and a 
         Representative in Congress from the State of Louisiana

    Good morning and welcome to our joint Social Security Subcommittee 
and Oversight Subcommittee hearing on employer wage reporting. Today's 
hearing is the second in a series of hearings on high-risk issues 
related to Social Security numbers, or SSNs. Today, we'll examine the 
longstanding and troubling issue of how some employers fail to report 
wages with accurate SSNs and the inadequate Federal response.
    Wages that are reported under incorrect or false SSNs are logged 
into a database within the Social Security Administration, called the 
Earnings Suspense File. This file has records of earnings that could 
not be linked to the correct worker. Employee data was first entered 
into the suspense file in 1937, when wages became subject to Social 
Security taxes. Between 1937 and 2003, nearly 255 million wage records 
for about $520 billion in earnings accumulated in the suspense file.
    The suspense file is not just an administrative headache or a 
bureaucratic wasteland; it is a symptom of serious problems. Research 
by the Social Security Administration's Inspector General and the 
Government Accountability Office, or GAO, indicates evidence of SSN 
misuse and unauthorized work by foreign-born workers.
    For example, according to a GAO study of SSNs frequently appearing 
in the suspense file, wages claimed by foreign-born workers who had 
earnings before they were issued an SSN have grown over time, from an 
average of about 7 percent for years 1937-1985 to 47 percent for the 
year 2003.
    Inaccurate SSN reporting has repercussions for workers' Social 
Security benefits, tax compliance, and immigration law compliance. 
Three government agencies play a role when employer wage reports end up 
in the suspense file. The Social Security Administration is responsible 
for accurately keeping track of workers' earnings for benefit purposes. 
The Internal Revenue Service is responsible for enforcing penalties to 
ensure employers report wages accurately for tax and benefit purposes. 
The Department of Homeland Security is responsible for ensuring 
unauthorized workers do not work using false information that results 
in their earnings records ending up in the suspense file.
    Unfortunately, the problem of a growing suspense file has existed 
for decades. The responsible government agencies have been slow to work 
together toward a comprehensive solution. In addition they have not 
adequately enforced the laws and regulations that would prevent 
inaccurate wage reporting.
    Last December the House of Representatives passed legislation, the 
Border Protection, Antiterrorism, and Illegal Immigration Control Act 
of 2005 (H.R. 4437), which would take action where government agencies 
have not, by requiring employers to verify the SSNs and employment 
eligibility of their employees with the Social Security Administration 
and the Department of Homeland Security.
    Today, we need to hear about what actions Federal agencies can and 
will take to address inaccurate wage reporting. We also want to examine 
options that Congress should consider to achieve a balanced and 
workable approach to improve the accuracy of wage reporting without 
unduly burdening employees, employers and our economy.
    Thank you for coming today, and I look forward to your testimony.

                                 

    Mr. LEVIN. Mr. Chairman, I have a statement. Let me submit 
it for the record. I take it without objection.
    [The prepared statement of Mr. Levin follows:]

Opening Statement of The Honorable Sander M. Levin, a Representative in 
                  Congress from the State of Michigan

    Today's hearing will examine a long-standing challenge at the 
intersection of immigration law and tax collections which may be 
growing. GAO and the Social Security Inspector General report an 
increasing number of W-2 forms being submitted to the IRS and the 
Social Security Administration in which the employee's name and Social 
Security number do not match. Some of these ``no matches'' are honest 
mistakes, but others represent employees working under false names or 
Social Security numbers, either because they are illegal immigrants or 
to commit other fraud.
    There are larger immigration issues surrounding the failure of some 
employers to verify work status for their employees, either at the time 
or later, when they are informed that the employee's name and Social 
Security number do not match. Those issues are out of the jurisdiction 
of the Ways & Means Committee, although I am pleased to see that the 
Department of Homeland Security will testify today and may be able to 
answer our questions about overall enforcement of immigration laws.
    The issue before the Ways & Means Committee is whether the Social 
Security Administration and the Internal Revenue Service should share 
personal information currently protected by taxpayer privacy laws with 
the Department of Homeland Security in order to identify those in this 
country and working illegally, and if they did, what burdens that would 
impose on the agencies and their collection of income and payroll 
taxes.
    I hope our witnesses today will help us explore two key issues.

    1.  First, what impact would such information sharing have on the 
effectiveness of our tax collection efforts?
    2.  Second, would the sharing of taxpayer information substantially 
improve our enforcement of immigration laws?

                                 

    Chairman MCCRERY. Thank you.
    Mr. LEVIN. I would just quickly summarize it, because we 
want to get on with the testimony, and I am really very glad 
that all three of the agencies are represented here today.
    We know that data regarding the no--the lack of match in 
the reporting. We also I believe have some idea as to what each 
of the three agencies is supposed to be doing, what your 
primary function is.
    So the question today I think, in part, is whether there is 
an adequate meshing of your responsibilities and of the 
information that you have; whether a primary problem in terms 
of our immigration policies relates to the interaction among 
the three agencies; what impact there would be on each of your 
agencies if there were a further requirement of the sharing of 
information.
    So we look forward to it. This is not a new problem, and 
the immigration aspect of this is not a new issue. We have been 
dealing with this for years, and I hope we can approach this 
issue with both determination and also with some care. Thank 
you.
    Chairman MCCRERY. Thank you, Mr. Levin. Any Member wishing 
to submit a statement for the record may do so, without 
objection. Mr. Ramstad, Chairman of the Subcommittee on 
Oversight.
    Chairman RAMSTAD. Thank you, Mr. Chairman. As Chairman of 
the Subcommittee on Oversight, I look forward to this second 
joint hearing in the last 2 years on the topic of Employer Wage 
Reporting. Thank you, Chairman McCrery, for your leadership in 
this area and for summarizing why we are here today and also 
summarizing the last hearing in 2004, when we heard there was a 
growing problem with the misuse of the SSN and a failure by 
employers to accurately report the names and SSNs of employees. 
As we all know, this was contributing to a growing account of 
mismatched wages at SSA called the Earnings ESF.
    The message of the hearing 2 years ago was that the three 
agencies involved in the process, who are represented very well 
here today--the SSA, the IRS, and the DHS, needed to work 
better together to address the problem.
    We are here today to see in the area of information sharing 
if progress has been made. This is an important problem for a 
number of reasons. When wages are reported to incorrect SSNs, 
it can prevent individuals from receiving the Social Security 
benefits that are due them, creating a number of other problems 
for other government agencies involved, as I think we all 
understand.
    I just want to highlight, briefly, a couple of my concerns 
at the outset of the hearing and look forward to the responses 
from the witnesses. First, why is not more being done to 
enforce the laws and regulations that require accurate wage 
reports from employers. It appears that we have laws on the 
books that are not being enforced. In fact, it also appears 
that the IRS regulations make it virtually impossible to impose 
and collect penalties on employers who report inaccurate SSNs 
for their employees. If this is so, we need to know what can be 
done to correct this problem and remove this barrier to 
enforcement.
    Second, I would like to know if the three Agencies--SSA, 
the IRS, and DHS--are satisfied with the current level of 
information sharing with respect to name and SSN mismatches; in 
other words, if progress is being made and if it is 
satisfactory progress in terms of the all critical information 
sharing. If not, I think this panel needs to know what 
additional information they would like to access and why. 
Finally, there have been proposals to require that employers do 
more to verify the eligibility of their employees for work.
    I also look forward, gentlemen, to your views on the impact 
of expanded verification. Let me again thank the witnesses for 
being here today. I look forward to hearing from you and 
working with you to address these important problems. Thank you 
again, Mr. Chairman, for your leadership.
    [The prepared statement of Chairman Ramstad follows:]

    Opening Statement of The Honorable Jim Ramstad, Chairman, and a 
         Representative in Congress from the State of Minnesota

    Today, the Subcommittees on Oversight and Social Security are 
holding their second joint hearing in the last two years on the topic 
of employer wage reporting. In 2004, we heard that there was a growing 
problem with the misuse of the Social Security number and a failure by 
employers to accurately report the names and Social Security numbers of 
their employees, which was contributing to a burgeoning account of 
mismatched wages at the Social Security Administration called the 
Earning Suspense File. The message of the hearing was that the three 
agencies with a stake in this process--the SSA, the IRS, and the 
Department of Homeland Security--needed to work better together to 
address the problem.
    In many ways, today's hearing seems like, in the words of Yogi 
Berra, ``deja vu all over again.'' Little progress has been made since 
the Subcommittees last met. The Earnings Suspense File continues to 
grow, little enforcement action is being taken, and there is still a 
clear need for the IRS, SSA, and DHS to improve their coordination.
    This is an important subject for a number of reasons. When wages 
are reported to incorrect Social Security numbers it can prevent 
individuals from receiving the Social Security benefits due them and 
create a number of other problems for the government agencies involved. 
In addition, in many cases, employees are providing inaccurate personal 
information to employers because they are illegal aliens, and do not 
have valid Social Security numbers, and do not have permission to work.
    I want to highlight a couple of my major concerns at the outset of 
the hearing.

      First, I want to know why the IRS does not do more to 
enforce the laws that require accurate wage reports from employers. We 
have laws on the books that the IRS has apparently never enforced. In 
fact, IRS regulations appear to make it impossible to impose and 
collect penalties on employers who report inaccurate Social Security 
numbers for their employees. I would like to know why this is so, and 
what the IRS intends to do about it.
      Second, I would like to know if the SSA, IRS, and DHS are 
satisfied with the current levels of information shared about name and 
Social Security number mismatches.

    If not, I would like to know what additional information they would 
like to access, and why.

      Finally, there have been proposals to require that 
employers do more to verify the eligibility of their employees for 
work. I look forward to the witnesses' views on the impact of expanded 
verification.

    I want to thank the witnesses, and I look forward to making some 
progress in addressing this growing problem.

                                 
    Chairman MCCRERY. Thank you, Mr. Chairman. Now, we will 
hear from the Ranking Member of the Subcommittee on Oversight, 
Mr. Lewis.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
The Subcommittee on Oversight joined the Subcommittee on Social 
Security in today's hearing to discuss issues involving SSNs 
that do not match employees' names when submitted to SSA and 
the IRS. The Subcommittee held a similar hearing on this 
subject just 2 years ago. Under current law, employers are 
required to obtain the name and SSN of each worker so that wage 
income and tax withholding amounts can be sent to the IRS and 
SSA for tax and Social Security benefit purposes.
    It is important that this information be correct for the 
processing of tax returns and recording of Social Security 
benefits. The IRS rejects tax returns and SSA puts earning 
records in a ESF when workers' names and SSNs do not match. 
Today, I welcome back Commissioner Everson and Deputy Secretary 
Lockhart to discuss these issues again with us. In addition, I 
welcome Assistant Secretary Baker from DHS, Inspector General 
O'Carroll from SSA, and Barbara Bovbjerg from GAO.
    Some propose that the DHS have access to more SSA and IRS 
information to target employers involving illegal workers for 
immigration enforcement purposes and to mandate that employers 
verify that all individuals they employ are authorized to work 
in the U.S. Mr. Chairman, I look forward to the testimony of 
these witnesses, and I thank them for being here. Thank you, 
Mr. Chairman.
    [The prepared statement of Mr. Lewis of Georgia follows:]

  Opening Statement of The Honorable John Lewis, a Representative in 
                   Congress from the State of Georgia

    The Oversight Subcommittee is joining the Social Security 
Subcommittee in today's hearing to discuss issues surrounding Social 
Security numbers that do not match employees' names when submitted to 
the Social Security Administration (SSA) and Internal Revenue Service 
(IRS).
    The Subcommittee held a similar hearing on this subject two years 
ago. Under current law, employers are required to obtain the name and 
Social Security number of each worker so that wage income and tax 
withholding amounts can be sent to the IRS and SSA for tax and Social 
Security benefit purposes. It is important that this information be 
correct for the IRS's processing of tax returns and the SSA's recording 
of Social Security benefits. The IRS rejects tax returns and the SSA 
puts earning records in a ``suspense file'' when workers' names and 
Social Security numbers do not match. I welcome back IRS Commissioner 
Everson and SSA Deputy Secretary Lockhart to discuss these issues again 
with us.
    An additional witness has been added to our witness list this year. 
I welcome Assistant Secretary Baker of the Department of Homeland 
Security (DHS). Some propose that the DHS have access to more SSA and 
IRS information (1) to target employers involved in hiring illegal 
workers for immigration enforcement purposes and (2) to mandate that 
employers verify all individuals' authorization to work in the U.S. 
before hiring. I will be interested in your views on these and other 
issues raised in your testimony.
    Thank you.

                                 

    Chairman MCCRERY. Thank you, Mr. Lewis. Now, we will 
welcome our first panel of the day: the Honorable Mark W. 
Everson, Commissioner, IRS; the Honorable James B. Lockhart, 
III, Deputy Commissioner of SSA; the Honorable Stewart A. 
Baker, Assistant Secretary for Policy at DHS.
    Welcome, gentlemen. Thank you very much for appearing 
before us today, and if you would, your entire written 
testimony will be submitted for the record, but if you could 
summarize that in about 5 minutes, we would appreciate that. We 
will begin with Mr. Everson.

   STATEMENT OF THE HONORABLE MARK W. EVERSON, COMMISSIONER, 
                    INTERNAL REVENUE SERVICE

    Mr. EVERSON. Thank you Chairman Ramstad and McCrery, 
Ranking Members Lewis and Levin. Now, I mentioned the Oversight 
Committee first, sir, just because that is out of pure self-
interest. I appreciate the opportunity to appear before you 
today. I commend you for your continuing interest in SSN high-
risk issues. Simply stated, there are two important public 
policy interests at issue today. As a former Deputy 
Commissioner of Immigration, I know that a sound system of 
immigration is one which allows only those here legally to 
remain in our country.
    On the other hand, in my job as IRS Commissioner, we want 
our share of your money whether or not you earned it legally or 
illegally. Two years ago, you convened a hearing where we 
talked about the I-10 program. Since that time, the 
improvements to that program, which we spoke about, have had 
the desired effect. I-10s are increasingly associated with the 
filing of tax returns and less a source document for identity 
creation. That is good news for tax administration.
    Nevertheless, while our actions have helped tax 
administration in the sense that individuals who might not 
otherwise do so are filing tax returns and participating in the 
tax system, they have not done anything to reduce SSN 
mismatches. As both Commissioner Lockhart's written testimony 
and my own indicate, there are millions of mismatches each 
year. I would make two points about the mismatches. The first 
is that over 50 percent of the mismatches occur in just four 
states--California, Texas, Florida, and Illinois. Almost 29 
percent of the mismatches take place in California alone; 
whereas, only 12 percent of 1040s are filed in that State.
    Secondly, I would note that about 75 percent of the 
mismatched W-2s report wages of less than $10,000. In fact, the 
average wage of all mismatches is only about $6,700 annually. 
The current process for following up on mismatches lags well 
behind the date of hire for the employee in question. Many of 
the employees generating a mismatch letter have long since 
terminated their employment. The system as it operates today is 
simply not timely. The IRS has been asked whether we could do a 
better job of issuing penalties for employers who fail to 
include accurate SSNs or TINs on their employment returns. 
Under the law, we may impose a penalty of $50 on an employer 
for each W-2 or 1099 that omits the required information or 
includes an inaccurate SSN or TIN, unless the filer shows 
reasonable cause for the omission or inaccuracy.
    The law, however, places the burden on the employee or 
payee to provide the employer or payor with an accurate SSN or 
TIN. This is an important distinction. The GAO and others have 
suggested that we reexamine our due diligence or reasonable 
cause standards. I am also aware that there are calls to 
increase information sharing amongst Federal agencies.
    As Members of Ways and Means well know, the standards of 
6103 pertaining to the protection of taxpayer information are 
quite strict. Any effort to improve employer verification 
through increased information sharing should take into account 
the implications to 6103 and taxpayer privacy. Thank you.
    [The prepared statement of Mr. Everson follows:]

       Statement of The Honorable Mark W. Everson, Commissioner,
                        Internal Revenue Service

    Chairman Ramstad, Chairman McCrery, Ranking Members Lewis and 
Levin, and Members of the Subcommittees on Oversight and Social 
Security, thank you for the opportunity to once again appear before you 
to discuss these issues.
    I would like to do two things this morning. First, I wish to try to 
frame the issues, at least from an IRS perspective. Second, I want to 
discuss in more detail IRS's role in this process and what we have done 
and are doing internally relative to the issues that surround the 
mismatching of Social Security Numbers (SSN).

Framing the Issues
    Perhaps the most difficult part of these issues is framing them 
properly and understanding fully the different, yet sometimes 
complementary, roles performed by the Social Security Administration 
(SSA), the U.S. Department of Homeland Security (DHS) and the Internal 
Revenue Service (IRS).
    We at the IRS support and appreciate the jobs being done at SSA in 
maintaining and protecting the Social Security Trust Funds and at DHS 
in enforcing our immigration laws, but our function is tax 
administration. Our job is to make sure that everyone who earns income 
within our borders pays the proper amount of taxes, even if they may 
not be working here legally. If someone is working without 
authorization in this country, he or she is not absolved of tax 
liability. Instead of an SSN to file a tax return, that person 
frequently uses an Individual Taxpayer Identification Number (ITIN).
    Almost two years ago, these same Subcommittees held a hearing where 
I talked about our ITIN program. While I understand that is not the 
subject of this hearing, it is important to understand that the ITIN 
program is bringing taxpayers into the system. In calendar year 2005, 
we had 1.6 million applications for ITINs, which were accompanied by 
1.4 million returns. The number of returns associated with ITIN 
applications is up 40 percent from calendar year 2004.
    I know many Members of these Subcommittees are vitally concerned 
with the issues surrounding mismatching names and social security 
numbers and I am well aware of various legislative proposals to help 
address this problem. These proposals range from requiring the 
employers to check the validity of a SSN prior to hiring, to increasing 
penalties on employers who fail to submit a proper SSN for an employee, 
to requiring more information sharing between Federal agencies. 
Whatever the ultimate solution, we have to try to minimize the negative 
consequences on employers, employees and our national economy.
    As you know, comprehensive immigration reform--including border 
security, interior enforcement, and a temporary worker program--is a 
top Administration priority. The Administration believes that worksite 
enforcement is critical to the success of immigration reform. Further, 
as immigration laws are enforced, the Administration believes that 
comprehensive immigration reform also requires us to improve those laws 
by creating a temporary worker program that rejects amnesty and 
relieves pressure on the border.
    As the Commissioner of the IRS, it is not my role to advocate 
public policy changes. However, as a former Deputy Commissioner at INS, 
I am sensitive to the need for a system of immigration that functions 
effectively. I can, also, if you like, talk about the impact of various 
proposals on tax administration.

IRS's Role in the Mismatch Program
    Each year, employers send their W-2s and W-3s into the SSA by 
February 28 (or March 31 if filed electronically). The SSA processes 
and then attempts to reconcile any mismatches. They then send the 
information to the IRS on a weekly basis. IRS culls out any unusable 
records and those W-2s which are not related to the current tax year. 
For Tax Year (TY) 2004, the resulting IRS file contained more than 231 
million W-2s from the SSA. This represents a decline of approximately 
6.5 percent from the corresponding file for TY 2000. At this point, we 
are unable to explain this decline in the number of W-2s, but it is an 
area of concern for tax compliance, particularly if it represents 
misclassification of employees as independent contractors or otherwise. 
The decline in the number of W-2s has been accompanied by a 
corresponding decline in the number of mismatches that could not be 
validated.
    Of the 231 million W-2s in IRS's TY 2004 file, approximately 223 
million had matching names and SSNs. Some of these matches resulted 
from SSA's successful use of their techniques for resolving mismatches. 
For the balance of approximately 8 million TY 2004 W-2s for which there 
was no valid match, IRS used several additional methods to match the 
numbers. We were able to match approximately 60 thousand more names 
with SSNs, leaving a balance of about 7.9 million W-2s where there is 
no valid name and social security number match.
    To help correct SSN mismatches, the SSA sends letters to both 
employers and employees asking that they take steps to match the names 
with the SSNs. These letters do not go to all employers. Letters are 
sent to employers who submit a wage report containing more than 10 
Forms W-2 that SSA cannot process, and the mismatched forms represent 
more than one-half of one percent (\1/2\ percent) of the total Forms W-
2 in the report. In TY 03, the SSA sent over 121,000 such letters to 
employers, inquiring about 7.2 million invalid W-2s. Thus, there is no 
letter sent to the employers of the other 0.7 million mismatches
    There are two interesting aspects to these mismatches. The first is 
geographical. Over 50 percent of the mismatches are found in four 
states, California, Texas, Florida and Illinois. California has the far 
greatest number of mismatches totaling nearly 2.3 million, or 
approximately 29 percent of the mismatch total.
    The second is economic. About 75 percent of all mismatched W-2s 
report wages of less than $10,000. If we focus only on those mismatched 
W-2s with no withholding, the percentage increases to 90 percent. Only 
about 2 percent of all W-2s with invalid SSNs report wages greater than 
$30,000. In fact, the average wage for all mismatches is only about 
$6700 annually. Bear in mind, that many employees receive more than one 
W-2 in a tax year, so these numbers may not reflect gross income.
    From a tax administration perspective, we know that for TY 2004 
there were approximately $53 billion in wages reported on W-2s with 
invalid social security numbers, with about a quarter of that amount, 
or $13.3 billion, on W-2s with no withholding. About 56 percent of the 
$53 billion came from W-2s reporting wages between $10,000 and $30,000.
    On the high end, only about 1 percent of the wages ($0.5B) were 
reported on mismatched W-2s showing wages in excess of $100,000. 
Average wages on these W-2s were about $303,000, and about 30 percent 
of the mismatches in this category had no withholding.

Legal Requirements on Employers
    It is important to point out that the SSA has no enforcement power, 
and cannot impose penalties on employers for failure to correct SSN 
mismatches. IRS, however, does have enforcement power and can assess 
penalties. Therefore, it might be helpful if I walk you through our 
legal authority.
    Under section 6041 and 6011 of the Internal Revenue Code (IRC) 
employers and other payors must include correct SSNs or Taxpayer 
Identification Numbers (TINs) on forms W-2 reporting wages or salaries 
paid to employees.
    Under section 6721, we may impose a $50 penalty on an employer for 
each W-2 or 1099 that omits or includes an inaccurate SSN/ TIN unless 
the filer (employer, other payor, etc.) shows reasonable cause for the 
omission or inaccuracy. The maximum penalty for any employer or payor 
in a calendar year is $250,000. If the violation is deemed to be 
willful, the fine is the greater of $100 or 10 percent of the 
unreported amount per violation with no maximum.
    Section 6109 places the burden on the employee or the payee to 
provide the employer or payor with an accurate SSN or TIN. This is an 
important distinction because the employer can have any penalty imposed 
for failing to include an accurate SSN or TIN on the return abated, if 
the employer made an initial and, if necessary, annual request that the 
payee provide an accurate SSN/TIN, or establishes that due diligence 
was otherwise used, such as by obtaining a statement from the employee 
under penalties of perjury that the SSN or TIN is accurate.
    As you can see, what is important here is that the employer or 
payor makes a request, or repeats a request, for an accurate SSN or 
TIN. If he does, he has performed due diligence and has reasonable 
cause to believe the SSN or TIN is correct. As a result, under section 
6724, a penalty assessed against an employer under section 6721will be 
abated. These liberal due diligence standards for employers serve an 
important role in tax administration. Imposing harsh or inflexible 
penalties on employers could drive them into the cash economy, with no 
reporting at all.
    As I indicated when I was before these two Subcommittees in 2004, 
because of the reasonable cause provision in the tax law, I am unaware 
of IRS sustaining any penalty against an employer for failure to 
provide an accurate SSN for an employee. That has not changed.

Problems Associated With Sustaining Penalties
    The fact that we have not sustained a penalty against an employer 
probably shocks many of you. To some extent, it shocks me as well.
    The U.S. Government Accountability Office (GAO) and others have 
suggested that perhaps we should re-examine our due diligence or 
reasonable cause standard and we have pledged to look at that with 
input from SSA and DHS. However, based on what we know now both about 
the employer base and the employees subject to mismatches, we have been 
unable to settle on any specific changes in the reasonable cause 
standard that might be warranted. However, we will continue to look at 
it and evaluate it in light of any new information.
    For example, our Small Business/Self-Employed (SB/SE) division 
recently conducted its own analysis of a small number of employers with 
a high percentage of mismatches. What we found points out some of the 
difficulties associated with either assessing or sustaining a penalty.
    From the information provided by SSA on invalid SSNs, SB/SE 
selected a group of 297 businesses, all of whom had reported invalid 
social security numbers for 75 percent of their employees. In essence, 
these were the worst of the worst in terms of invalid numbers. The 
limited size of this study limits its usefulness, but it does provide 
some interesting information.
    IRS sent a survey to each of these employers with instructions to 
complete it and return it within 30 days. We identified our first 
problem when the address we had for 58 companies on the list was either 
incorrect or the questionnaire was returned as undeliverable.
    Another 48 companies did not respond at all. This was a bad move on 
their part in that we told them in the cover letter that if they failed 
to respond to the questionnaire that they would be subject to 
penalties. We are already in the process of starting these 
examinations.
    That left us with a sample of 191 companies that responded in some 
way to the questionnaire.
    Of these 191 companies, 57 percent were in three industry 
categories, agriculture (30 percent), temporary labor (18 percent) and 
janitorial (9 percent).
    We asked several questions about hiring practices and verification 
procedures. Specifically, 76 percent of the respondents said they asked 
for a social security card. Thirty-eight percent said they would not 
hire someone who did not have a social security card.
    This number in particular intrigues me, as I am sure it does you. 
Remember these are companies in which 75 percent of the SSNs on the 
employee W-2s were invalid. If, in fact, these employers did demand a 
social security card prior to hiring, then it may point to the 
widespread availability of forged or fake social security cards.
    When we asked these employers what steps they took to verify the 
SSN provided by their employees, more than half said they took no 
action at all. Only eight percent said they used the Social Security 
Administration's telephone verification system, and only four percent 
said they used the SSA's electronic verification system.
    On average, companies in the survey had an annual turnover rate of 
125 percent. The highest turnover rate was more than 400 percent. 
Undoubtedly, this makes it very difficult to follow up with employees 
when SSA notifies them of the SSN/name mismatch.
    Contributing to this problem is the lag time between when an 
employee is hired and when the employer learns that he/she has been 
given an invalid number.
    For example, an employee who is hired today will complete his or 
her W-4 form (Employee's Withholding Allowance Certificate) and I-9 
(required by DHS). Typically these are held on file in the employer's 
office.
    At the end of this year, the employer will send the employee's W-2 
along with those of his or her other employees to the SSA. These are 
due at SSA by February 28 (or March 31 if filed electronically). SSA 
begins to sort the forms and within a few weeks concludes that there is 
a mismatch between the name and social security number given by the 
employee. A letter is then sent by SSA, first to the employee and then 
later to the employer (assuming the employer meets the SSA screening 
criteria), telling them that the SSN provided by the employer is 
invalid.
    In this scenario, a year or more has passed before the employer 
learns for the first time that the number given by an employee is bad. 
If a business has a high turnover rate then it is unlikely the employee 
is still with the same company.
    The lag time is even greater for the IRS. The earliest we will know 
of a possible mismatch will be in June when we begin our own efforts to 
correct the mismatches that have been identified by SSA. We will scrub 
the numbers through our filters for the rest of the year to see if we 
can find a match. As a result, two years have passed from the time the 
employee was originally hired before we even begin to think about doing 
some type of examination of the employer.

General Conclusions
    Based on all of the work we have done in the mismatch area, we can 
draw some general conclusions:

      Individuals in the mismatch file tend to be low wage 
earners. Approximately 75 percent earn less than $10,000 and 98 percent 
earn less than $30,000.
      There is withholding on nearly 50% of the wage earners in 
the mismatch file but there tends to be significantly less withholding 
among the mismatches as compared to returns with valid social security 
numbers.
      The analysis of our limited group of 191 companies shows 
that most of the employers (57 percent) fall into three business 
groups, agriculture, temporary employment and janitorial.
      That same small group experienced extremely high 
turnover, making it likely that by the time an employer is advised of a 
mismatch, the employee has already left the company.
      Employers may or may not be notified that there is a 
mismatch, depending on whether they meet SSA's screening criteria.
      There does not appear to be much potential to collect 
significant penalties from employers under the current system because 
they can easily show due diligence.
Considerations Concerning Changes to Current Penalty Program
    We continue to consider ways to improve the current system and 
stand ready to work with our colleagues at SSA and DHS in any manner we 
can. For instance, we just announced a partnership between the IRS and 
the United States Citizenship and Immigration Services (USCIS) to 
conduct a pilot test to identify options to overcome the challenges 
surrounding data sharing between the two agencies. The GAO in a recent 
report indicated that data sharing between IRS and USCIS can help 
improve (1) tax compliance if businesses applying to sponsor immigrant 
workers are required to meet tax filing and payment requirements, and 
(2) the accuracy and timeliness of USCIS's immigration eligibility 
decisions if it obtained tax data from IRS to help insure business 
sponsors meet eligibility criteria. The project has a June 2007 
implementation date.
    In addition, we would, of course, work to execute any changes 
Congress determines to bring into effect. We would, however, call two 
issues to your attention that could be problematic with certain changes 
in the current regime.
    First, any significant change requiring improved information 
sharing between Federal agencies or between Federal agencies and 
employers must account for protections found in section 6103 of the 
Internal Revenue Code. This section protects taxpayers from having 
their tax return information shared with third parties.
    Second, we must make sure that any change in the current system 
encourages the type of behavior that we desire from both employees and 
employers. Imposing procedures on employers that are too stringent or 
requiring too much documentation from employees may have the effect of 
driving certain economic activities ``underground''. At least now we 
are collecting some taxes in these areas and we are working to collect 
even more.
    Thank you for inviting me to testify this morning. I will be happy 
to take any questions you may have.

                                 

    Chairman MCCRERY. Mr. Lockhart.

   STATEMENT OF THE HONORABLE JAMES B. LOCKHART III, DEPUTY 
COMMISSIONER OF SOCIAL SECURITY, SOCIAL SECURITY ADMINISTRATION

    Mr. LOCKHART. Chairman Ramstad, Chairman McCrery, Ranking 
Members Levin and Lewis, and Members of the Subcommittee, thank 
you all for asking me here today to discuss the steps that SSA 
has taken to strengthen the wage reporting process. I will 
summarize my written statement with a focus on our efforts to 
reduce the Earnings ESF and on our cooperative efforts with 
other Federal agencies.
    The primary purpose for the SSN--for assigning a number and 
issuing a card is the same today as when we started doing this 
in 1936: it is to accurately report and record the earnings of 
people who work in jobs covered by Social Security. Earnings 
posted to an individual SSN are used to determine eligibility 
for and the amount of Social Security benefits for that worker 
and for his/her family. In order for wages to be credited, the 
worker's name and SSN on the W-2 must match the name and number 
on our records. We process about 235 million W-2 reports 
annually, coming from about 6.6 million employers, and that 
represents a total wage amount of about $4 trillion.
    To prevent mistakes, we encourage employers to use our 
employee verification system or our newer Social Security 
Number Verification System (SSNVS), the latter system permits 
employers to verify via the Internet the accuracy of employees' 
names and SSNs. This service was expanded to all employers last 
June. We estimate between these two systems and the Basic 
Pilot, which I will talk about later, we have had 67 million 
verifications last year. About one million was from the Basic 
Pilot. After the W-2s are filed, we process them. We have about 
10 percent invalid names and Social Security combinations at 
that point. We have a whole series of computer routines to 
identify commonly occurring errors. Using these routines, we 
post more than half of this 10 percent to the correct SSN. The 
remainder is recorded in the ESF.
    For the latest year, for which we have information, which 
is taxpayer year 2003. As of October 2005, about 8.8 million or 
3.7 percent of the total W-2s remained in the ESF. They 
represent about $58 billion in wages and $7.2 billion in 
payroll taxes. I hasten to add that those payroll taxes have 
been credited to the trust funds. We carry out a number of 
activities to further reduce the ESF. For example, we notify 
all employees when we cannot process their W-2s due to 
mismatches and ask them to work with us to resolve the 
problems. We also notify employers with a significant number of 
mismatches. The intent of these no-match letters is to improve 
the accuracy of wage reporting. We also request the employer to 
submit corrected W-2s so that the future earnings will be 
accurate.
    Beginning in April 2003, we implemented a new process that 
we estimate will electronically find another 30 million 
matches. Already this new process using innovative techniques 
and the worker's detailed earnings record has matched 11 
million W-2s with the correct earnings record. Despite all 
these efforts, the file continues to grow. Our IG, Pat 
O'Carroll, whom you will hear from later, and many others 
believe that this growth is due to unauthorized work by non-
citizens and that stronger worksite enforcement is needed. 
President Bush has called for comprehensive immigration reform, 
including stronger border security, strengthened worksite 
enforcement, and a temporary worker program. Our ability to 
improve our employee wage reporting process depends on 
cooperation with other Federal partners, such as DHS and the 
IRS, who are with us today, and the U.S. Department of State.
    An important cooperative effort is the Basic Pilot, which 
is a nationwide system in which SSA supports DHS in asssisting 
employers to confirm employment eligibility for newly hired 
workers. Participating employers register with DHS to use its 
automated system and to provide employee information to SSA to 
verify the name, date of birth, and SSN. If we cannot also 
verify U.S. citizenship, DHS reviews whether the employee is a 
work-authorized non-citizen. In all cases, they notify the 
employer of the employee's current work status.
    In conclusion, I want to thank you for inviting me here 
today. I look forward to working with you to continue to 
strengthen Social Security's employer wage reporting process, 
and I will be happy to answer any questions.
    [The prepared statement of Mr. Lockhart follows:]

Statement of The Honorable James B. Lockhart, III, Deputy Commissioner 
           of Social Security, Social Security Administration

    Chairman McCrery, Chairman Ramstad, Ranking Members Levin and 
Lewis, and members of the Subcommittees:
    Thank you for asking me to be here today to discuss the steps the 
Social Security Administration (SSA) has taken to improve and 
strengthen the wage reporting processes and our efforts to reduce the 
size of the earnings suspense file, which I will describe in more 
detail later. SSA is committed to ensuring that we maintain accurate 
earnings records for all workers, and we have taken vigorous steps to 
improve our processes.
Purpose of the SSN
    The primary purpose for which SSA assigns a number and issues a 
card is the same today as it was at the program's inception in 1936: to 
accurately report and record the earnings of people who work in jobs 
covered by Social Security. Of course, the key to tracking a worker's 
earnings is the Social Security number (SSN).
    SSA has assigned over 433 million SSNs since 1936. Earnings posted 
to an individual's SSN are used to determine eligibility for and the 
amount of Social Security benefits to which that worker and his or her 
family may be entitled. Ultimately, the SSN is also used to track 
payment of those benefits.
    The Social Security card was not designed to be a personal 
identification document--that is, the card does not establish that the 
person presenting the card is actually the person whose name and SSN 
appear on the card. Although the card itself is counterfeit resistant, 
it does not contain information that would allow the card to be used as 
proof of identity.
    Over time, SSA developed different tools to assist employers in 
verifying a worker's SSN. We encourage employers to use any of these 
processes to improve the accuracy of wage reports so that Social 
Security can properly credit employees' earnings records. In addition, 
the use of verification processes minimizes the employer's processing 
costs and reduces the number of forms that an employer may need to 
submit.
    Initially, SSA used a manual process for verifications, which was 
highly labor-intensive. This process became increasingly cumbersome 
over time as the verification workloads increased.
    Over the years, SSA has worked to offer employers alternative 
methods to verify SSNs. One of those methods is the Employee 
Verification System (EVS). EVS is a free, convenient way for employers 
to verify employee SSNs. It provides employers with several options 
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. Eastern Standard Time. 
Employers may also use this number to get answers to any questions they 
may have about EVS or to request assistance. In Fiscal Year 2004, SSA 
responded to nearly 1.4 million calls.
    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, employers may use a simple registration process to verify 
requests of more than 50 names and SSNs or for any number of requests 
submitted on magnetic media. Currently, almost 17,000 employers have 
registered for this verification service.
    To further increase the ease and convenience of verifying employee 
SSNs, SSA developed the Social Security Number Verification Service 
(SSNVS), which is an internet option that permits employer's to quickly 
verify the accuracy of employees' names and SSNs by matching the 
employee-provided information with SSA's records. SSA expanded this 
service to all employers in June 2005. We processed over 25.7 million 
verifications for over 12,000 employers in 2005.
    On June 2, 2005 the Commissioner of Social Security announced the 
nationwide rollout of the Social Security Number Verification Service 
(SSNVS) at the SSA sponsored National Payroll Reporting Forum in 
Baltimore, Maryland. SSA has publicized SSNVS in various ways. An 
article on SSNVS was placed in the SSA/IRS Reporter that is sent to 
over 6.5 million employers. It was also featured in the SSA wage 
reporting email newsletter, W2News. We have also highlighted SSNVS in 
our many speaking engagements before the employer community. There is a 
special section on SSA's website for employers that highlights and 
explains the use of SSNVS.
    In addition, employers may participate in the Basic Pilot program, 
an ongoing initiative in which SSA supports the Department of Homeland 
Security (DHS) in assisting employers confirming employment eligibility 
for newly hired employees. Participating employers register with DHS to 
use the DHS' automated system to verify an employee's SSN and work 
authorization status. The information the employer submits to DHS is 
sent to SSA to verify that the social security number and name 
submitted match information in SSA records. SSA will also confirm US 
citizenship, thereby confirming work authorization; DHS confirms 
current work authorization for all non-citizens. DHS will notify the 
employer of the employee's current work authorization status. This 
program is also available to all employers, subject to available 
resources.
    In 2005, through the EVS, SSNVS, and Basic Pilot programs, we 
estimate we provided a total of 67 million employer verifications, up 
from 62 million in 2004.

The Wage Reporting Process
    I would now like to discuss the process for reporting and crediting 
wages. Our role in the wage reporting process is to ensure that all 
workers receive credit for the work for which they and their employers 
paid Social Security taxes.
    Employers report wages to SSA on Forms W-2 (Wage and Tax 
Statement). SSA processes the Form W-2 data for tax purposes for the 
Internal Revenue Service (IRS). Self-employed individuals report 
information on self-employment income to IRS on Schedule SE. IRS then 
sends this self-employment information to SSA. SSA uses the SSN to 
record employees' earnings.
    Accurate earnings information is vitally important to our Agency's 
administration of the Social Security program 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 Social Security benefits or the benefit 
amount payable may be wrong.
    Each year, SSA processes approximately 235 million W-2s from 6.6 
million employers that are sent to the SSA either on electronic media 
or on paper. Almost 150 million wage earners work in jobs covered by 
Social Security, which means that many workers worked in more than one 
job during a year. While some employers continue to send us their 
reports on paper, we encourage electronic filing. We work with the 
employer community to educate them on the advantages of this method and 
expect its use to expand as technology improves. In fact, in FY 2005, 
66 percent of W-2s were filed electronically, up from less than 10 
percent in 1999. We believe the increase in electronic filing will 
reduce errors over time.
    SSA also offers a suite of services called Business Services Online 
(BSO). BSO offers Internet services for businesses and employers who 
exchange information with Social Security. Available services for 
registered users include the ability to report W-2s via the internet.
    As you know, SSA mails Social Security Statements to workers over 
age 25 each year (approximately 143 million in 2005). The Statement is 
a concise, easy-to-read personal record of the earnings on which the 
worker has paid Social Security taxes during his or her working years 
and a summary of the estimated benefits the individual and his/her 
family may receive as a result of those earnings. We encourage workers 
to review the Statement to ensure that the information in SSA's records 
is correct and to contact SSA to make any corrections necessary.
    Later in life, when a person files for benefits, an 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, since it may be difficult for the worker to accurately recall 
past earnings or to obtain evidence of them, SSA strives to maintain 
accurate records at the time the wages are reported.

The Earnings Suspense File
    The Earnings Suspense File, or simply suspense file, is an 
electronic holding file for wage items reported on Forms W-2s that 
cannot be matched to the earnings records of individual workers. A 
mismatch occurs when SSA cannot match the name and SSN on the W-2s 
submitted to information in SSA's records. If SSA later resolves the 
mismatch, we can remove the item from the suspense file and credit the 
wages to that person's record.
    Since the beginning of the program in 1936 and through Tax Year 
(TY) 2003, the most recent year for which data is available, the 
suspense file contained about 255 million W-2s. While the suspense file 
represents an accounting of unassociated wage items, the taxes on these 
wages have been paid into to the trust funds. In TY 2003, $7.2 billion 
in payroll taxes were credited to the Trust Funds based on wage items 
placed in the suspense file. This represented approximately 1.3 percent 
of total payroll taxes credited to the Trust Funds.
    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 master record of SSNs assigned, the ``Numident'' file. As I 
discussed earlier, we receive about 235 million W-2 reports annually, 
representing reports from 6.6 million employers that total about $4 
trillion in reported wages.
    Ten percent of the W-2s received by SSA have invalid name and SSN 
combinations when they first come to us. In our initial processing, the 
computer system uses more than twenty automated routines to identify 
commonly occurring errors that, when corrected, enable the W-2 to be 
properly posted.
    A number of these processing routines address discrepancies between 
the name reported on the W-2 and the name on SSA records. For example, 
compound surnames which are hyphenated, such as ``Mary Smith--Jones,'' 
sometimes cause a ``no match.'' Others assume that the reported name is 
correct but that some mistake has been made with the SSN. The reported 
SSN is screened for a variety of prescribed common mistakes, such as 
transposing digits, in an effort to obtain a match.
    For TY 2003, using computer routines we were able to post more than 
half of all W-2s received with invalid name/SSN combinations to the 
correct SSN. The balance, 4.1 percent of total W-2s received for TY 
2003, was initially recorded in the suspense file. As of October, 2005, 
approximately 8.8 million W-2s (3.7 percent of the total) representing 
$57.8 billion in wages remained in the suspense file for TY 2003.
    Subsequent processing reduces this amount further. SSA removes wage 
items from the suspense file on an ongoing basis and posts them to the 
correct worker's record. Reinstatements can occur when a worker 
provides evidence of missing wages after reviewing the Security 
Statement. Over time, the percentage of W-2s for a given year or period 
of years that remain in the suspense file declines as a result of this 
subsequent processing. Historically, approximately 2 percent of all 
wage items for a given year remain in the suspense file.
Removing W-2 Items from the Suspense File
    SSA is dedicated to reducing the suspense file's rate of growth as 
well as to reducing its current size. We want to make sure that 
individuals receive full credit for their earnings and the correct 
benefit amount when the time comes. As part of this effort, SSA 
employees carry out a number of activities in addition to our SSN 
verification services, which we have described earlier, to assure that 
the correct earnings are credited to correct individuals' records.
    For example, SSA sends a letter, called the ``No Match'' letter, to 
employers who submitted a significant number of Forms W-2 that could 
not be matched to an individual's earnings record. The intent of these 
``No Match'' letters is to improve the accuracy of wage reporting and 
the accuracy of Social Security benefits payable to eligible wage 
earners and their families. SSA also requests the employer to submit 
corrected W-2s so that future reports will be accurate.
    In 2005, SSA sent 127,652 of these letters to employers who 
submitted wage reports containing a number of Form W-2s that SSA could 
not process.
    SSA also notifies employees when we cannot process their W-2s due 
to mismatches and asks them to work with us to resolve the problem. In 
2005, we sent 9.6 million such letters to employees, of which 1.5 
million were sent to employers because we did not have addresses for 
the employee.
    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. SSA's previous processes to match the name and SSN 
used only the Numident. The new process also uses the worker's detailed 
earnings record, which includes employer information and the master 
beneficiary record for those who are receiving benefits, to credit the 
missing earnings to the correct worker. This new process also employs 
additional techniques with earnings record patterns to match the 
earnings to the correct individual.
    As a result of this new process, we have removed more than 11 
million W-2s from the suspense file and posted them to the correct 
earnings records. It is estimated that a total of 30 million items will 
be removed from the suspense file and credited to the records of 
individual workers through these new efforts.
    Despite all these efforts, over time the suspense file continues to 
grow. SSA's Inspector General will testify later that this growth is 
due to ``unauthorized work by non-citizens'' and that stronger worksite 
enforcement is needed.
    This growth points to the larger issue of the increase in illegal 
immigration and subsequent illegal employment. To address the security 
risks from illegal entry into the U.S. as well as current challenges 
concerning legal immigration, President Bush has called for a three 
part comprehensive reform of our immigration system to:

    1.  ``Secure the border by catching those who enter illegally, and 
hardening the border to prevent illegal crossings.''
    2.  ``Strengthen enforcement of our immigration laws within our 
country.''
    3.  ``Create a temporary worker program that will take pressure off 
the border, bring workers from out of the shadows and reject amnesty.''

Partnership With Other Agencies
    As I mentioned earlier, our ability to improve our employer wage 
reporting process depends partially on our relationships with the DHS 
and the IRS. I want to highlight several efforts that we have 
undertaken with our federal partners to strengthen the integrity of the 
SSN and improve the wage reporting process.
    For example, we are working with DHS, pursuant to the Intelligence 
Reform and Terrorism Prevention Act, on an interagency task force for 
the purpose of improving the security of Social Security cards and 
numbers. The task force will establish additional security 
requirements, including standards for safeguarding cards from 
counterfeiting, tampering, alteration, and theft; verifying documents 
submitted for the issuance of replacement cards; and increasing 
enforcement against the fraudulent use or issuance of Social Security 
numbers and cards.
    The Enumeration-at-Entry process is a joint effort with DHS and the 
Department of State (DOS). DHS and DOS collect enumeration data as part 
of the immigration process and give it to SSA for use in enumerating 
aliens. This effort to strengthen the integrity of the SSN and improve 
government efficiency began in October 2002.
    Our efforts to collaterally verify documents with the issuing 
agencies significantly improve the integrity of the SSN. SSA works 
closely with DHS to verify all immigration documents submitted in 
support of an application for an SSN and with DOS to verify the 
documents of refugees. We work with the Department of Justice to verify 
the documents of some individuals granted asylum.
    As I mentioned earlier, we also support DHS in its ongoing 
initiative known as the Basic Pilot. The Basic Pilot is a voluntary 
tool used by participating employers to confirm the employment 
eligibility of newly hired employees.
    As of February 14, 2006, DHS and SSA have signed agreements with 
over 5000 employers, representing about 22,500employer sites. This 
represents more than a 50 percent increasesince the expansion of the 
Basic Pilot to employers in all States. On the date of expansion 
(December 20, 2004), there were 2924 participating employers. In FY 
2005, SSA handled over 980,000 Basic Pilot queries. The Basic Pilot 
allows an employer to confirm the validity of a SSN and whether a 
person is authorized to work on the front end of the relationship 
rather than after a W-2 has been filed.
    In addition to these initiatives, SSA participates with DHS in an 
executive level steering committee to oversee and direct cooperative 
activities. This committee was formed in 2003. At its last meeting, the 
committee addressed a number of initiatives to strengthen the processes 
used to assign social security numbers.
    These meetings have stimulated a high level of staff-to-staff 
contacts that occur informally nearly every day. Also, over the past 
year, the two agencies have engaged in a number of informal cooperative 
efforts such as workgroups to address specific requirements of joint 
interest, such as provisions of the Intelligence Reform and Terrorism 
Prevention Act and the Real ID Act.
    We have also established an interagency effort with IRS and are 
working to resolve issues and cooperate on efforts that cross agency 
lines. We meet as necessary to address issues as they come up. Recent 
discussions have focused on developing automated systems to support the 
employer community in the reporting of wages and related matters.
    Each year, SSA hosts the National Payroll Reporting Forum. IRS 
routinely participates in this training endeavor, which focuses on the 
latest changes for the upcoming tax season, how to file electronically, 
SSNVS, etc. Representatives from businesses, payroll providers, and 
other groups attend.  The 2006 forum is scheduled for late May.
    I would like to discuss the Agency's role in identifying and 
reporting fraudulent activities related to the Social Security program. 
The employees in our local offices are instructed to be alert for 
reports of fraudulent activities. When such activities come to their 
attention, they document the problem and refer the matter to the 
Agency's Inspector General. Staff in the local IG office investigate 
the matter further. They then present violations to the local U.S. 
Attorney, who decides whether to bring charges. To facilitate the 
process, the Agency has assigned staff attorneys from the Agency's 
Office of General Counsel to assist US Attorneys in prosecuting 
violations related to the Social Security Act.
    Because of the interdependence of Federal governmental functions, 
it is critically important that Federal agencies work together to 
effectively combat identity theft. SSA currently cooperates with many 
agencies, including the Internal Revenue Service, the Departments of 
Justice, Homeland Security, State, Health and Human Services, 
Education, and Treasury, and the Federal Trade Commission. We share and 
verify information with these agencies, and we work together to improve 
the interfaces between our business processes. We are working with many 
agencies in an Interagency Identity Theft Working Group to broaden and 
strengthen the cooperation among Federal agencies. The Working Group is 
developing a summary of Federal agencies' activities to combat identity 
theft. It will facilitate sharing of best practices and expertise and 
will result in the development of new approaches to combat identity 
theft and solutions to common challenges.

Conclusion
    I would like to conclude by emphasizing our commitment to 
strengthening our wage reporting processes to help ensure the accuracy 
of the earnings records that we maintain for all workers. We continue 
to explore ways to improve the accuracy of our earnings report records 
and to limit the growth of the suspense file. We believe our efforts 
help to ensure that we remain good stewards of the Trust Funds.
    I want to thank you, Chairman McCrery, Chairman Ramstad, and 
members of both Subcommittees for inviting me here today. 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 MCCRERY. Thank you. Mr. Baker.

    STATEMENT OF THE HONORABLE STEWART A. BAKER, ASSISTANT 
   SECRETARY FOR POLICY, U.S. DEPARTMENT OF HOMELAND SECURITY

    Mr. BAKER. Thank you, Chairman McCrery, Chairman Ramstad, 
Ranking Members Levin and Lewis. It is a pleasure to be here. I 
don't think I have testified here since the eighties, when I 
was a private lawyer talking about the then new U.S.-Canada 
Free Trade Agreements. It is great to be back. I would like to 
talk--begin by talking about the border, our Southwest border. 
I think we have all been shocked by the amount of violence that 
we have seen there recently. Assaults--this is not just a 
newspaper phenomenon--assaults on border patrol agents has 
doubled in the last year. The reason we think that that has 
happened is that as our border control efforts have gotten 
stronger, we have begun to interfere with the livelihoods of 
the people who make their living smuggling human beings across 
the border, and they are fighting back.
    We can continue and we will continue to strengthen border 
controls, but that cannot ever be a complete solution to the 
problem of border incursions. The reason that those coyotes are 
making a living smuggling people across the border is because 
once people get across the border, they can get a very good job 
in the United States, with a driver's license and a fake SSN. 
That is, in fact, what many people do.
    Until we can address the problem that is drawing people 
across that border, we will always have difficulties at the 
border. We will always have people slipping across, and then we 
will always have people living in our cities and our 
countryside who are living outside the law, in the shadows, 
afraid to talk to law enforcement, afraid to talk to the 
authorities, afraid to complain when employers abuse them.
    We shouldn't allow people to live in our country under 
those conditions. We need to move them into a temporary worker 
program where they can come out of the shadows, live in the 
light, have a temporary job in the United States, go home with 
a nest egg, and begin a life there.
    They won't do that, however, until we can persuade people 
that it is not easy to get a job in the United States just by 
making up a SSN. That is why we are here today. We believe that 
false SSNs are a major part of the immigration fraud that 
enables people to work illegally in the United States, we are 
very eager to get access to information that SSA has about 
people whose names and birth dates do not match their SSNs.
    The SSA identifies 8, 9 million people in that state every 
year. The SSA does an enormous amount of work to try to clear 
up those mismatches, because it is in the interest of the 
individual to clear that up so that they can actually get their 
benefits. Yet, a very small percentage of people actually clear 
that up, which suggests that for many of them it is not 
possible to clear it up because they have used a false SSN to 
get their job. We think that it could be as high as 90 or 95 
percent of those mismatches are people who have made up their 
SSNs. That is based on our experience with the basic pilot 
initiative.
    Chairman Ramstad asked are we satisfied with the amount of 
data sharing today, and while we have got very good cooperative 
relationships with the IRS and with SSA, we are not fully 
satisfied because current law, section 6103, makes it very 
difficult to share all of the information that we would like to 
have about the mismatches and other aspects of Social Security 
fraud that may also indicate immigration fraud.
    The kinds of things that we could do with that information, 
according to the General Accounting Office, there are dozens of 
employers who have used the same SSN for a hundred employees or 
more. That suggests that this is not just employees who are 
part of the problem, but employers, some employers, of very 
limited number, but they should be at the top of our list for 
enforcement calls. We don't know who they are. We can't know 
who they are under the current interpretations of the law that 
SSA and IRS have, and until there is a cure to that, I think 
that we will not be able to target employers who are probably 
part of the problem. We will not be able to do a completely 
effective job of identifying people who may be engaged in 
immigration fraud who are working in chemical plants, where 
sabotage or even a mistake could kill thousands of Americans, 
or working in the baggage handling area of airports; working in 
nuclear power plants.
    Again, we would like to be able to target our enforcement 
in the places where the problems are to be able to identify 
people, employers, and workers who ought to be at the top of 
our list for enforcement. I recognize that there are legitimate 
privacy and revenue collection concerns at stake here, but we 
face unprecedented levels of immigration as well, illegal 
immigration. We have got to gain control of our borders or some 
day terrorists will use exactly the same kind of coyote service 
that economic migrants are using to get across that border. The 
only way to get control of that border is to get control of 
workplace hiring so that it is not as easy as it is today to 
get a job illegally. Having access to some of the information 
SSA has today would move us a long way down that road. Thank 
you very much.
    [The prepared statement of Mr. Baker follows:]

 Statement of The Honorable Stewart A. Baker, Assistant Secretary for 
              Policy, U.S. Department of Homeland Security

INTRODUCTION
    Chairman McCrery, Chairman Ramstad, Ranking Members Levin and 
Lewis, and Members of the Subcommittees on Oversight and Social 
Security: I would like to thank you for the opportunity to appear 
before you today as you examine the current employment eligibility 
verification process, specifically the mismatching of Social Security 
Numbers (SSNs). I appreciate the Subcommittees' decision to devote 
attention to this issue because mismatching can be an indication of a 
significant problem, namely the use of fraudulent SSNs by unauthorized 
workers. If left unaddressed, this problem risks undermining the 
Administration's efforts to stop illegal immigration.
    In my testimony, I would like to focus on one potential--and 
promising--way of dealing with this problem that the Subcommittees have 
already identified. I speak about improved cooperation between the 
Social Security Administration (SSA) and the Department of Homeland 
Security (DHS) to detect and prevent violations of immigration law.

BACKGROUND
    As the Members of the Subcommittees know, the border with Mexico is 
an increasingly violent place. In part, that is because our efforts to 
restrict illegal crossings are beginning to work. Criminal gangs who 
traffic in drugs or human beings make their profits by illegal 
crossings, and as DHS border enforcement grows, it is not surprising 
that attacks on the Border Patrol have increased.
    The best way to reduce the attacks--and the illegal trade in human 
beings--is to reduce the incentives to cross the border illegally in 
the first place. For one thing, that means relieving pressure on the 
border by creating a temporary work program that provides a legal 
channel for honest workers and employers to support their families and 
our economy without violating our laws. For another, it means reducing 
the ability of illegal immigrants to find easy employment in the United 
States. As Secretary Chertoff stated in his testimony before the Senate 
Judiciary Committee on October 18, 2005, a tough interior enforcement 
strategy is one of the three pillars of the President's strategy for 
comprehensive immigration reform, along with securing the border and 
creating a temporary worker program.
    A vigorous enforcement of our worksite immigration laws is a 
crucial step in moving towards a system where foreign migrant workers 
are employed in this country legally and transparently. Currently, 
people who enter the United States illegally to find employment live in 
the shadows of our society, enjoying no legal protection in the 
workplace. The Temporary Worker Program, which the President proposed, 
will create instead a system where foreign workers necessary for our 
economy can work here legally and without fear. But both employers and 
employees will be slow to move toward such a transparent and open 
system unless they know that we are determined to enforce forcefully 
and faithfully our immigration laws in the workplace. For the Temporary 
Worker Program to be successful, we need to foster a culture of 
compliance with the law among both employers and workers, and we need 
to have the necessary tools to do so.
    The DHS task of effectively enforcing laws that prohibit the 
employment of illegal immigrants depends on the Department's ability to 
obtain and use information indicating potential violations of 
immigration laws. I therefore encourage the Subcommittees to consider 
two questions: first, whether the information already collected by SSA 
suggests a significant problem with our existing enforcement of 
immigration laws; and, second, whether providing such information to 
DHS would improve such enforcement.

SSN MISMATCHING INDICATES WIDESPREAD EVASION OF IMMIGRATION LAWS
    With respect to the first question, the answer seems quite clear. 
Studies conducted by both the SSA Inspector General and the Government 
Accountability Office (GAO) have documented that a significant 
percentage of the SSNs listed on earnings reports filed by employers 
(commonly known as Forms W-2) result in a ``no-match'' against the 
master system of SSNs kept by SSA. As the GAO report submitted on 
February 4, 2005 indicated, approximately 10 percent of the SSNs listed 
on earning reports submitted by employers to SSA initially do not match 
SSA's records. Even after SSA applies a range of validation measures to 
reconcile the existing ``no-matches,'' still about 4 percent of the 
earnings reports remain unattributed to valid SSNs. This number amounts 
to almost 9 million reports per year, representing $57.8 billion in 
earnings for Tax Year 2003. These remaining unreconciled reports are 
then placed in the Earnings Suspense File (ESF).
    SSA then employs additional measures to reconcile these earning 
reports. As a part of these efforts, SSA notifies employers with a 
significant number of mismatches, requesting that these employers 
correct the filed earning reports. SSA also sends similar ``no-match'' 
letters to employees, whose earning reports could not be processed 
because of the mismatch, asking them likewise to correct the error. The 
number of these ``no-match'' letters is considerable. The SSA's 
Inspector General indicated in his September 2002 testimony before the 
Subcommittee on Social Security that earlier that year SSA sent out 
about 800,000 of such letters to employers and some 7 million letters 
to employees. Testifying before the Subcommittee on Oversight in March 
2004, Deputy Commissioner Lockhart indicated that the number of ``no-
match'' notices sent the following year, in 2003, was targeted at 
larger employers: That year, SSA mailed out over 125,000 such notices 
to employers covering 9.5 million employees. In many instances, where 
SSA does not have a valid address for an employee, the employee-
directed notice is sent to the employer.
    These discrepancies are quite easy to correct. All an employer or 
an employee must do is inform SSA of the correct SSN to which the 
earnings should be attributed. If the earnings are legitimate, it is in 
the interests of the worker to ensure that the record is accurate, 
because a worker's future retirement and disability benefits depend 
upon SSA's record of his wages. If some of the worker's wages are not 
recorded, that may imperil his ability to get benefits in the future, 
or may limit the amount of those benefits.
    Despite all of these incentives, the manifest reality is that very 
few employers or employees respond to the ``no-match'' letters. Some of 
this may be explained by confusion about what to do, resulting in 
employers simply not doing anything. Still, given the fact that simple 
errors can be corrected easily by both the employer and the employee, 
the extremely low return rate signals that an overwhelming percentage 
of the ``no-match'' instances cannot be explained by legitimate 
discrepancies and, as the GAO's February 2005 report indicated, 
suggests an attempt to obtain unauthorized employment through means of 
fraudulent SSNs.
    There may, of course, be some innocent explanations for the 
discrepancies. For instance, a mismatch can result from a misspelling 
in the employee's name, from a change of name after marriage or for 
other reasons, from a failure to match correctly the record of an 
employee with a compound last name, or from confusion between the 
worker's last and first names. Notably, however, all of these mistakes 
are easy to correct, yet the stark reality is that, despite all 
incentives to do so, only a very small percentage of workers take the 
necessary action to rectify them.
    A similar situation can be seen with respect to ``no-matches'' that 
result because the SSN listed on the earning report is composed solely 
of zeroes. Some of the SSNs that use all zeros result from instructions 
issued to employers who file their earning reports electronically to 
use all zeros in the SSN field when they do not have a number for their 
worker. Such a mismatch is, again, easy to correct. Yet, as I just 
discussed, very few employers or employees take the necessary action to 
do so.
    The persistent failure of an overwhelming percentage of both 
employers and employees who receive the ``no-match'' letter from SSA to 
correct the reported error strongly suggests that an innocent 
explanation cannot account for all of the mismatches. The evidence 
indicates that there is likely an entrenched and widespread practice of 
using fraudulent SSNs to evade compliance with immigration laws. As the 
SSA's Inspector General acknowledged in his September 2002 testimony 
before the Subcommittee on Social Security, illegal immigrants account 
for a significant portion of items in the ESF. The GAO report, 
completed in February of last year, suggests that the problem has only 
increased in magnitude in the subsequent years.

USE OF SSA'S ``NO-MATCH'' DATA IN THE ENFORCEMENT OF IMMIGRATION LAWS
    DHS sees a clear benefit to receiving portions of the ``no-match'' 
data from SSA in assisting with the Department's mission to enforce 
immigration laws at the workplace. As I already stated, the SSA is 
using a variety of innovative and sophisticated methods to identify the 
SSNs to which the unreconciled earning reports should be attributed 
before sending our the ``no-match'' letters with respect to the 
remaining reports. The database of ``no-match'' letters, therefore, is 
already targeted to those unattributed earning reports that cannot be 
explained by, say, a simple misspelling in the employee's name or a 
typographical error in his SSN. These true ``no-match'' letters could 
aid an U.S. Immigration and Customs Enforcement investigation of an 
employer violating immigration laws. However, due to statutory 
restrictions, DHS is currently not permitted access to the ``no-match'' 
data.
    The GAO report reveals precisely the kind of data that, if made 
available to DHS, would trigger instant attention from our immigration 
enforcers. For example, GAO cited many examples where employers used 
the same SSN for as many as 10 different workers in the same tax year, 
and did so as many as 308 times over a 16-year period studied. 
Astonishingly, GAO discovered over a hundred occurrences where 
employers used the same SSN for more than a 100 earnings reports, and 
even an instance where the same employer used one SSN for 2,580 
different earnings reports in a single tax year. Obtaining information 
about potential immigration violators will allow the immigration 
components of DHS to target its enforcement efforts at such employers--
those with the worst record of submitting compliant SSNs for their 
employees
    Here, I would direct the Subcommittees' attention to the GAO 
finding that, during the period from 1985 to 2000, a relatively small 
percentage of employers--only about 0.2 percent--were responsible for 
over 30 percent of the total number of ESF reports. Moreover, the types 
of employers most frequently associated with incorrect earnings reports 
belonged to industry groups historically known to employ illegal 
immigrants, such as agriculture, food and beverage industry, and 
construction and other trade services. The SSA Inspector General has 
similarly found that employers in these industries are most likely to 
file earning reports with incorrect information. Given this 
correlation, some portions of the ``no-match'' data would assist the 
Department with its enforcement energies.
    On the basis of the ``no-match'' letters, the Department could 
easily identify those employers that have either a large or a 
disproportionate number of employees without a matching SSN. The 
Department could then concentrate its efforts on these employers, 
asking them to indicate whether their employees have corrected the 
inaccurate records, or to explain what steps the employers have taken 
to clear up the ``no-match'' reports, or to provide some other 
satisfactory explanation for the discrepancies.
    We are aware that the vast majority of employers do wish to comply 
with the rules, and we are committed to working with those employers to 
clarify their responsibilities to attempt to resolve ``no-match'' 
letters. Working together would help to ensure that all employers take 
necessary action to correct circumstances that would lead a reasonable 
person to believe that the worker is undocumented, and would further 
eliminate the ability of illegal immigrants to obtain employment.
    Eliminating the use of phony numbers will go a long way toward 
preventing more common immigration violations. But immigration 
violators will look for other ways to beat the system. Instead of phony 
names or numbers, they will use real ones. Adults may use the numbers 
of infants, or a group of workers may share a single valid name and 
number. These frauds, too, can be discouraged by a careful review of 
SSA data, but not by a single-minded focus on ``no-match'' letters. 
That is why DHS would like to further establish a good data-sharing 
relationship with SSA, not a single-shot approach that deals only with 
today's most obvious problem.
    I want to stress that all of the parties here today, including DHS, 
are committed to preserving the privacy of sensitive data. The 
information DHS seeks is the identities and contact information of 
employers and employees whose behavior requires further examination. We 
understand that this is sensitive data, and we will ensure the 
appropriate privacy protections are in place to protect U.S. citizens 
from potential abuse.
    I also want to acknowledge that the current prohibition on sharing 
of the information collected from earning statements reflects a 
legitimate concern about the need to ensure effective tax collection. 
This is an important interest, and it should, of course, be carefully 
considered as we think about the ways to enhance data-sharing between 
SSA and DHS. But we also need to consider carefully the significant 
interest that we have in ensuring effective enforcement of our worksite 
immigration laws and fostering a culture of compliance among both 
employers and employees.

CONCLUSION
    I thank Members of the Subcommittees for the opportunity to address 
them today on this important issue, and I stand ready to answer any 
questions.

                                 

    Chairman MCCRERY. Mr. Baker, this may not be in our 
Committee's jurisdiction, but has your Department proposed any 
specific language to change section 6103 of the Internal 
Revenue Code, which would allow greater sharing of information?
    Mr. BAKER. There is no formal proposal today as I speak, 
but we are certainly working with the rest of the 
Administration on ideas about how to solve that problem.
    Chairman MCCRERY. Should we expect some offering from the 
Administration relatively soon with respect to this problem?
    Mr. BAKER. I certainly hope so.
    Chairman MCCRERY. Is there disagreement among the agencies 
in the executive branch about how to solve this sharing 
problem?
    Mr. BAKER. I think we all recognize the importance of the 
immigration problem and the value that this information could 
provide. We also recognize that there are privacy and revenue 
consequences to making this decision, so it has been a very 
collegial discussion thus far.
    Chairman MCCRERY. Good.
    Mr. EVERSON. Could I comment on that, sir?
    Chairman MCCRERY. Sure.
    Mr. EVERSON. I agree exactly with Secretary Baker's 
characterization of the discussions that have been held. I just 
do want to emphasize that in terms of tax administration, I 
view this as an important discussion, because of the fact that 
we have made progress in having people who are in the country 
illegally and working illegally pay their taxes. That is my 
principal concern as a tax administrator.
    There is, on the other hand, a very important concern, 
which was very eloquently laid out by the Secretary, about 
having a legal system of immigration. I don't understate, 
though, the impact of this on tax administration, should we 
share the information. It is a very important policy choice 
that is how I would phrase it.
    Chairman MCCRERY. In other words, you are saying that were 
we to loosen the current rules with regard to sharing 
information, lest we do it very carefully, it could result in 
lower compliance from a tax standpoint? Is that what you are 
saying?
    Mr. EVERSON. I think that I would be even a little sharper 
on that----
    Chairman MCCRERY. It may be.
    Mr. EVERSON. --to say that right now, as an example, we 
process 2 million returns a year in our volunteer sites around 
the country. These are community-based organizations largely 
working with immigrant groups. There will certainly be a 
chilling effect on participation in the tax system if those 
volunteers say, ``Look, this information will now be 
transmitted to Homeland.'' I am not saying don't do that. 
Please get me right on this. I am just saying if we do this, we 
all have to do it together with our eyes wide open.
    Chairman MCCRERY. That is why I asked the question about 
whether all the agencies are cooperating on this, and if there 
was squabbling among the agencies and the executive branch 
about how to solve this. I probably should have put it more 
positively like you did and said you should all work together 
to make sure that we go in with our eyes wide open and try to 
avert any unforeseen or unintended consequences, I should say, 
of our changes. Mr. Baker, you speak with some enthusiasm about 
getting to this problem and solving this problem. Yet, worksite 
enforcement arrests by DHS have declined, as well as notices of 
intent to fine employers. Do you have reasons for this and will 
your enthusiasm perhaps spread to the rest of the Agency to 
correct this decline?
    Mr. BAKER. I hope so. I am new to the area and maybe that 
is why I speak with such enthusiasm. Yes, there is no doubt 
that there have been difficulties mounting effective worksite 
enforcement programs. In many cases, that is because of the low 
fines and the very substantial administrative law judge 
procedures that have been necessary to follow and difficulty 
actually collecting the fines once they have been imposed. Even 
people who have a pattern and practice of violation, the people 
who are the worst violators, I think the fine is $10,000. It is 
a cost of doing business for the worst employers.
    We do have to have a coherent, comprehensive approach to 
worksite enforcement that addresses those issues as well, but 
as we have begun to work on border enforcement, we have seen 
time and again that we have got to do interior enforcement at 
the same time and also have a temporary worker program for the 
people who will be displaced by our enforcement efforts.
    Chairman MCCRERY. On another matter that could help you do 
your job, some time ago, Congress required SSA to provide what 
was then some other agency, but is now under the DHS, a data 
file called the Non-Work Alien File. The DHS basically says 
this file is so messed up it is unusable. We can't use it. It 
is not good data. What did DHS do to reach that conclusion, and 
why do you think you cannot use the information for immigration 
enforcement purposes?
    Mr. BAKER. I am not prepared to say we can't use it, but 
there were a number of challenges there. We can start with the 
fact that SSA, of course, has an SSN. The DHS ordinarily does 
not have a SSN in its records, because most of the time when we 
encounter an alien, even if we are going to be authorizing him 
to work, he may not have an SSN. Our files are not matched up. 
When we get the information from SSA, our experience is about 
half of the people we can't tell who they are. We can't match 
our records and theirs.
    In addition, SSA data, when it comes to us is pretty far 
out of date. It is about a year, a year and half out of date. 
It is not their fault, because they get the information late, 
but that means that people have moved on. That makes it 
difficult to find people.
    Plus in that year and a half or perhaps even earlier, a 
number of people who originally get a non-work SSN, they are 
here. They may marry a U.S. citizen. They become authorized to 
work by virtue of a change in their status. We find that about 
40 percent of the people on that list actually are legally 
entitled to work. They just are using an old SSN.
    That made it--meant the data was not great for doing 
enforcement. There were other problems. We don't have any 
mainframes at DHS, but SSA works off big mainframe computers 
with big tapes and they--for years they sent over what they 
had, which was their tape, and we didn't what to do with it.
    A lot of these problems have begun to recede. We are 
getting the information on a disk in Excel spreadsheet form, 
which we can manipulate, and we are expecting a new batch of 
data in the next couple of weeks.
    Our analysis of the most recent Excel spreadsheet data that 
we got is that there are things that we can do with it. Even 
though not everybody on there is unauthorized to work, the fact 
is that probably 60 percent of them are not authorized and yet 
they are making contributions.
    So, we have begun to do analysis of well who are the 
employers who have the largest number of non-work aliens 
working for them. Many of them will be authorized, but many of 
them will not be. So you begin to wonder whether some of these 
employers ought to be the first to get the visit from DHS.
    When we get the new data in a week or two, we hope to do a 
more sophisticated analysis of that information and begin to 
use it in prioritizing our investigations.
    Chairman MCCRERY. Thank you. Perhaps when you forward to 
the legislative branch your recommendations for changes in the 
law to facilitate sharing of information, you could also tell 
us whether this particular exercise is still worth it, and if 
it's not, we will junk it. If so, perhaps you can explain how 
we might make it better between the two Agencies--SSA and DHS?
    Mr. BAKER. We will gladly do that.
    Chairman MCCRERY. Mr. Levin?
    Mr. LEVIN. Thank you. Thank you, Mr. Chairman. Let me 
follow up with your salient questions. First ask you, Mr. 
Baker, you mentioned some of the problems with the present laws 
and regulations relating to employer responsibilities. Has DHS 
or its predecessors suggested amendments to the laws that would 
make it easier to enforce employer obligations?
    Mr. BAKER. This is part of the review that we are going 
through right now. As you know, there is legislation that has 
passed the--some legislation on immigration reform has passed 
the House, and there is a companion bill in the Senate being 
marked I think in early March. We are as an Administration 
looking for a way to engage in that process so that we can make 
suggestions for ways to improve worksite enforcement. That is 
an ongoing discussion inside the Administration, which I hope 
will result in action fairly soon.
    Mr. LEVIN. You favor tightening the requirements in the 
enforceability of the employer obligations?
    Mr. BAKER. I certainly believe that if we do not deal with 
the fact that it is so easy to get a job in the United States, 
with a minimum of fake documents that can be purchased for $50 
bucks out in Adams Morgan today, that if we don't solve that 
problem, we won't solve the border problem.
    Mr. LEVIN. I understand that.
    Mr. BAKER. We won't solve the illegals.
    Mr. LEVIN. Your position is there should be a tightening of 
the requirements of the employer?
    Mr. BAKER. I think the employer will have to take more 
responsibility for making sure that his employees are actually 
authorized to work in the United States, and we need to find a 
way to give employers tools to do that.
    Mr. LEVIN. When you say tools, right now you think the main 
problem is that when employers hire people who are not legally 
here, that it is the lack of tools that leads them to hiring 
these people?
    Mr. BAKER. I think, in fact, that is in many cases.
    Mr. LEVIN. You think that is the main problem?
    Mr. BAKER. Yes. In many cases, employers are--have no 
interest in hiring illegal employees. They have a set of 
procedures that they follow that are required by current law, 
but which are not adequate to actually screen out illegal 
immigrants. I have had businesses complain about the large 
number of identification documents that they are required to 
accept as proof of identity.
    In some cases, employers have said you have made it too 
easy for people to engage in fraud.
    Mr. LEVIN. All right. It will be interesting to pursue 
that. Let me--you talk about the data being a year, 2 years 
old. The data that you are suggesting be obtained from SSA and 
IRS would remain that old, would it not?
    Mr. BAKER. It would. It would always be at least a year out 
of date.
    Mr. LEVIN. When you say the reason you haven't used the 
data you now have is because it is too old. What does that mean 
for your request or your suggestion that you receive more old 
data?
    Mr. BAKER. Well, that was one of five significant problems. 
I left out one. One of the other problems was that I think the 
data included everybody who had ever worked since this program 
began in the seventies, even if they hadn't worked in 20 years. 
What we are interested, of course, in receiving is data about 
people who were working last year. It will not be perfect, 
because of the lag, but we still believe that we can use it to 
find information that will allow us to prioritize our 
enforcement efforts.
    Mr. LEVIN. I think my time has expired. Let me just 
mention--you mentioned about the differences among the agencies 
and the Commissioner, IRS Commissioner, responded. I think you 
would agree that there are some competing, at least if not 
competing, different considerations here.
    Mr. EVERSON. Absolutely.
    Mr. LEVIN. I don't think we should characterize this 
discussion of competing interests or needs as kind of--I don't 
think any of us want to minimize them or suggest that it is not 
important for you to have a full-scale intelligent discussion 
of how you mesh competing interests, competing needs; that the 
potential problem of there being less information received by 
IRS if you were to dispose more information to other agencies, 
not that that is the answer, but I think we need to be careful 
to not be--not to--to minimize the importance of this kind of a 
intelligent interagency discussion, which I hope you will share 
with us at some point, when it is appropriate. Thank you.
    Chairman MCCRERY: No, it is an excellent point, Mr. Levin. 
Chairman Ramstad.
    Chairman RAMSTAD. Thank you, Mr. Chairman. Commissioner 
Everson, I just want to clarify a point. I know the IRS has the 
authority to impose penalties on employers who fail to file the 
correct wage information of their employees. Hasn't the IRS 
been imposing penalties and collecting money from employers who 
repeatedly submit mismatched W-2s?
    Mr. EVERSON. Not in any meaningful sense I would say, sir. 
What really happens here is that those penalties are very hard 
to sustain. It is not unlike what Secretary Baker was just 
talking about in terms of the hurdles you have to go through. 
The basic dilemma here is that the employer has to have 
accurate records, but it is the employee who is on the hook for 
providing the accurate information to the employer. If the 
employer has made a reasonable effort, then those penalties are 
going to be abated.
    The second point I would make here involves looking at what 
we are trying to address, and you are, the $345 billion a year. 
In the employment tax area, that is about $60 billion a year. 
We have something like 2,500 frontline auditors and collection 
officers who work on that piece of our business. This is also, 
I would say, not a very profitable corner of our world--to 
chase after those penalties.
    That having been said, the final thing I would say is that 
we have launched a study of some 300 employers who have a 
particularly egregious record here. Three-quarters of their 
employees seem to have mismatches, and we have a number of 
audits going on them on employment taxes generally. If there 
are reasons to impose some of these penalties, we will 
certainly do so. I don't want to mislead you to say that it 
would make sense from a tax administration point of view to 
suddenly ramp this up just to help Secretary Baker.
    Chairman RAMSTAD. Well, just to follow up on Secretary 
Baker's point made during his testimony. As I understand it, if 
that scenario unfolded of an employer hiring a hundred 
employees on the same day and all hundred employees submit 
signed W-4s using the same SSN, it seems to me it would be 
obvious to any employer that he or she was receiving inaccurate 
information. As I understand the situation, under IRS 
regulations, the employer could not be held responsible for 
submitting inaccurate information to the IRS? Is that correct? 
Shouldn't the IRS have the ability to penalize employers for 
this kind of conduct?
    Mr. EVERSON. I think we have the ability, sir. It is a 
question of what procedures they took and then what the 
employees would have presented to them. I think that example is 
obviously a rather extreme instance, which why we have 
concluded the study that we are working on--to see what we can 
do in these most extreme cases. We are following up on that 
basket of the 300. I think it is with 297 that we have seen 
that kind of a conduct.
    I am hopeful that we will sustain some penalties in that 
area. Again, I don't think that is--I don't--I would agree with 
Secretary Baker's characterization of this. That is at the 
fringe. That is not going to change the immigration problem in 
terms of interior enforcement.
    What he seeks to do, which I understand the benefit of and 
think is important, is to have a system potentially that would 
check everybody and then not to follow--if that fellow is 
trying to break the law, the status, or the behavior that you 
are talking about, that is one thing. The vast bulk of this is 
people who have been duped by false documents let us say.
    Chairman RAMSTAD. Well, so pursuant to that study, it is 
conceivable that you would recommend changing the IRS 
regulations so it could take action against employers who 
knowingly submit false information?
    Mr. EVERSON. Yes, sir. I think it would----
    Chairman RAMSTAD. You and or SSA?
    Mr. EVERSON. We have been encouraged to do that. This is a 
tricky area, again, because this is reasonable cause area, but 
I think we will learn something very real from the work we are 
doing.
    Chairman RAMSTAD. When do you expect the results of that 
and when can we learn about them?
    Mr. EVERSON. Assuming you don't do another hearing on this 
for a year, I think we will know quite a bit by then. I don't 
know where we are on each and every one of those audits.
    Chairman RAMSTAD. My time has expired. Let me just make a 
comment: I understand the tax gap, and I think you are doing an 
excellent job overall, Commissioner. I understand the tax gap, 
but I also understand the billions and billions of dollars that 
the American people are spending that we are appropriating for 
DHS and border patrol, and I think closer cooperation, and more 
stringent enforcement are appropriate.
    Yes, we might risk loosing millions of dollars of tax 
revenues, but when you look at the number one function of the 
Federal Government, to keep people safe and now to keep people 
safe from terrorists, it doesn't take a genius to figure out 
how to get into this country illegally and do us harm. God 
knows how many al Qaeda sleeper cells are amongst us. We don't 
know, nor does the CIA or the FBI.
    I would just like to make that point. I am sure you don't 
disagree and I am sure no Member of this panel disagrees.
    Mr. EVERSON. Yes, sir, if I--could I respond?
    Chairman RAMSTAD. Please.
    Mr. EVERSON. I agree with that entirely. I would also note 
that the kind of discussion we are having today about the 
routine sharing of information for this purpose, important as 
that policy objective would be, does not run to the issue of 
terrorism. It is my understanding that in the context of the 
Uniting and Strengthening America by Providing Appropriate 
Tools Required to Intercept and Obstruct Terrorism (U.S.A. 
Patriot) Act of 2001 (P.L. 107-56), there was discussion about 
having more sharing of taxpayer information for anti-terrorism 
purposes, and that proposal was knocked down.
    I would ask that we consider revisiting that issue. If we 
are going to open up this issue for immigration purposes, I 
would hope that we would look at 6103 for the potentially more 
devastating terrorism issue. I would be surprised if Secretary 
Baker is adverse to that.
    Mr. BAKER. I would be delighted.
    Chairman RAMSTAD. Well, again, Commissioner, I think you 
make a very good point in conclusion and thank you again for 
the job you are doing. I appreciate your responses.
    Chairman MCCRERY. Mr. Lewis.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. Chairman. 
Mr. Commissioner, there is a view in certain quarters, maybe in 
Washington, maybe in some other places, that you and the IRS 
have all of this information, just plenty of information on 
unauthorized workers and that you are not sharing this 
information with DHS. Is it your role to locate and identify 
illegal or unauthorized workers and turn them into the DHS or 
immigration officials?
    Mr. EVERSON. No, sir, and I think that is the nub of this 
issue. We run an independent database, and 6103 provides very 
strict standards as to what can be shared. It does not allow 
routine information to be shared at this stage through SSA over 
to DHS. There is a written testimony that indicates last year 
we issued approximately a million six I-10s. An I-10 is a 
tracking number that we use for someone to file tax returns.
    It used to be, the last time I was here, that we had a 
bigger problem with aliens not filing because of concerns over 
identity creation documents. Now, we have a better handle on 
that. These documents are are being used for tax returns, but 
an alien is encouraged through VITA site or elsewhere to come 
in and file a tax return, and they are confident that their 
information is not going across town to Homeland.
    Mr. LEWIS OF GEORGIA. Thank you very much, Mr. 
Commissioner.
    Secretary Baker could tell the Members of the Committee how 
do you reach a happy medium and not violate privacy when you 
are asking DHS or asking IRS for information? I would like for 
you to just elaborate. What are your feelings about people's 
SSN the IRS information being put in a super, super agency made 
available to DHS? I know we need to protect our country, but it 
isn't something about violating the civil liberties, the civil 
rights of people?
    Mr. BAKER. I would be glad to address that. I completely 
agree with you that privacy is part of our country's most 
important values, and we need to protect that. The kinds of 
information that we are asking for here, in this context, is 
not tax return information, the kinds of information that 
people are most concerned about the privacy of. This is 
information, by and large, that says this person with this SSN 
works for this employer, and that is really, in most cases, the 
extent of the information that we are trying to get. That is 
private tax information because it has been reported on a tax 
form to the government, but there is nothing inherently related 
to income tax about that information.
    While it is necessary, I think after 6103 was passed, to 
engage in a privacy discussion about any such information, we 
are trying in our discussion of this to avoid intruding into 
the most private aspects of people's tax returns.
    Mr. LEWIS OF GEORGIA. Mr. Commissioner, as the former INS 
Deputy Administrator, what are your views on?
    Mr. EVERSON. I have to be careful here, sir, because I have 
a current position in this Administration, but I do have some 
experience in this area. These are two very important national 
interests. I say frequently in speeches that we can't allow our 
tax system to become broken the way our immigration laws and 
our drug laws are where they are viewed as optional for people. 
I couldn't agree more with the Secretary and with the 
President, who has said we have to fix our immigration system.
    If we do this, as this President and the Secretary have 
said, we have to go forward with a very strong program which 
gives people a legal vehicle to be here, but, on the other 
hand, has a very strong interior enforcement program to make 
sure if they're not here legally, they don't remain. I 
implemented the '86 act--that was my job in the Reagan days. If 
we fail to do that, and the '86 act didn't have the teeth in it 
to do that, we really won't have helped Secretary Baker, and we 
will make my job or my successor's job worse. If we are going 
to go forward on this, we have to go all the way and do it 
right with a liberal, if you will, employment program, but a 
strict enforcement program on the interior.
    Mr. LEWIS OF GEORGIA. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman MCCRERY. Mr. Johnson.
    Mr. JOHNSON OF TEXAS. Thank you, Mr. Chairman. Let me ask 
the SSA guy one question. Have y'all stopped giving away cards 
on phone calls?
    Mr. LOCKHART. We don't give cards away on phone calls. To 
get a new card, you have to come into the office and present 
identification information and birth certificates or other 
evidence.
    Mr. JOHNSON OF TEXAS. Do you know of people getting more 
than one?
    Mr. LOCKHART. People can get replacement cards, if you mean 
that. They can come in, but the law was changed last year, and 
we are following the new rules.
    Mr. JOHNSON OF TEXAS. No, I just wondered if you all were 
enforcing the law?
    Mr. LOCKHART. We are enforcing the law, and we are tracking 
to make sure that no one gets more than 3 a year and 10 in a 
lifetime.
    Mr. JOHNSON OF TEXAS. Okay. Thank you very much. Mr. Baker, 
I don't agree with you on anything you said. I would like to 
know when you are going to stop the Catch and Release program, 
because that is part of the problem on the border; and, 
furthermore, how do you differentiate between other than 
Hispanic and Hispanics that come across.
    Mr. BAKER. I certainly agree with you that the Catch and 
Release program----
    Mr. JOHNSON OF TEXAS. When are you going to stop it?
    Mr. BAKER. We are--the Secretary has said that we are 
trying to stop it by the end of this fiscal year, which is in 
October. The difficulty with the Catch and Release program--it 
is not a program. Catch and Release arises with non-Mexican 
illegal crossers of the border, whom we cannot simply return 
across the border, as we do with Mexicans. We have to put them 
in detention while we wait for them to have their identity and 
nationality established, and then send them back to their home 
country. That takes a long time, and it fills up an enormous 
number of the detention beds that we have.
    The difficulty, the way Catch and Release began was we ran 
out of beds. We just didn't have any space for people. We had 
to release them. What we are trying to do now is to make sure 
we have enough beds, enough space, to put everyone who crosses 
that border, who is not a Mexican, in detention and send them 
home.
    We are doing that today with Guatemalans, Hondurans, 
Nicaraguans--most of the large numbers of immigrants who come 
across that border illegally and who have begun to do it in 
large numbers. There is still the biggest part of the season 
for crossing that border is still to come, and it is going to 
be a question whether we can continue to have the space to put 
all of them and get them back to their home countries quickly 
enough.
    Mr. JOHNSON OF TEXAS. Well, you keep talking about other 
than Mexican. Are you deporting the Mexicans?
    Mr. BAKER. Yes, the Mexicans are taken back across the 
border. When they are captured, they don't have to be detained. 
They can be taken right back to the border.
    Mr. JOHNSON OF TEXAS. What kind of law change do you need 
to do the same with the others?
    Mr. BAKER. The biggest problem we are facing today, the 
largest numbers that we have not been able to get a handle on 
are Salvadoran immigrants. The reason is that they cannot be 
subject to expedited removal in the same way that other 
nationalities can because of a lawsuit that was filed in the 
eighties--the last time I was here before this Committee that 
lawsuit was pending. We have an injunction against us, along 
with several other injunctions that are that old that make it 
very difficult to move them quickly through the process.
    Mr. JOHNSON OF TEXAS. Well, if you don't have room for 
them, do you let them get out and go to work? Do you give them 
a green card?
    Mr. BAKER. We have no choice but to let them go and in 
general if they are--we essentially give them a court date and 
say please show up for your court date.
    Mr. JOHNSON OF TEXAS. Yes, sure, and they don't come.
    Mr. BAKER. I entirely agree with you. This is not the right 
way to run a system, but we do not always have the space for 
them. We have asked for Congress to take a look at the 
injunction process that affects immigration law so that some of 
these immigration laws that are older than my kids can be taken 
off the--the injunction can be taken off----
    Mr. JOHNSON OF TEXAS. Okay. Well, I hope y'all will get 
with it faster. Let me ask the IRS one question. According to 
the Center for Immigration Studies, in 2004 you only--only 
three employers were fined for hiring illegals--only three. I 
think that is kind of unacceptable. Do you know--are y'all 
trying to rectify that problem? I know you have discussed it a 
little bit already.
    Mr. EVERSON. Well, sir, I think that we want to do more 
here, but again there is this conundrum where the employer has 
to have accurate documents, but the burden is on the employee, 
provide the documents to the employer, not vice versa, so you 
have a reasonable cause exception here. We are looking at 
whether we can tighten it up. These 300 audits or 
investigations that we are doing will help us see this. The 
real answer here, again, is not to have us enforce the 
immigration laws since we are trying to go after the tax gap 
and all those other things, but we are going to do what we can.
    Mr. JOHNSON OF TEXAS. Thank you, sir. Thank you, Mr. 
Chairman.
    Chairman MCCRERY. Thank you, Mr. Johnson. Mr. Becerra.
    Mr. BECERRA. Thank you, Mr. Chairman. Thank you to the 
witnesses. Let me follow up on Mr. Johnson's questions, because 
I think that is very important. Commissioner, is the IRS 
capable of trying to detect employers who are violating our 
immigration laws or those individual employees who may be 
violating immigration laws without having to search for SSA 
records as well as INS or immigration records?
    Mr. EVERSON. Not to any meaningful extent, sir, given the 
press of the tax gap and the other compliance areas. As I 
indicated, I can't recall if you were in the room, we have 
about 2,500 frontline people who work on employment taxes. That 
is out of our frontline enforcement personnel of about 20,000, 
and they have to take care of all employment tax issues where 
you are my employee, which from our point of view, is the 
substantially more important issue. I have come on hard times 
in my small business, so I am taking your Social Security out, 
but I am not sending it over to Jim. That is a problem.
    Mr. BECERRA. Let me ask you this: Is it still the case that 
some $300 to $350 billion of taxes that are owed go unpaid?
    Mr. EVERSON. Yes, sir. We just updated our study on the tax 
gap and refined it from last year, relating to the year 2001, 
and the gross tax gap is about $345 billion.
    Mr. BECERRA. Most of it has nothing to do whether there is 
an undocumented immigrant working in this country paying or not 
paying taxes.
    Mr. EVERSON. That is correct. We have a very high 
compliance rate in this country. It is about 83 and half 
percent, but the amount of money that we could bring in by 
improving that is significant.
    Mr. BECERRA. What happens if all of a sudden we announce 
that the Federal Government is going to allow IRS to share 
information with DHS for immigration purposes to try to track 
down undocumented immigrants? Do you think those undocumented 
immigrants who are here without documents to work but are 
working and actually are filing tax returns, do you think they 
are going to file tax returns?
    Mr. EVERSON. Well, this is the basic concern that I have 
outlined and the situation that as we have these discussions 
that are referenced that I think we all need to consider. 
Because right now, increasingly, people who are here working 
illegally feel comfortable participating in the tax system.
    Mr. BECERRA. We have less compliance, chances are, if we 
found that all of a sudden IRS is complying with DHS on sharing 
information about people's tax filing?
    Mr. EVERSON. I agree with that in the short term. However, 
if Secretary Baker is able to really fix this problem and the 
people in the country are here legally, over the long term, we 
will get it right. Where we can't go is not fix that situation 
and hurt tax administration.
    Mr. BECERRA. Well, let's turn to Secretary Baker. Before I 
leave you, Mr. Commissioner, I want to thank you for your quick 
action recently on this Refund Freeze program that you have. 
Once the taxpayer advocate indicated that there were some real 
problems in the way some low-income individuals were having 
their legitimate refunds suspended for over a period of 8 
months to more than a year in some cases.
    I want to thank you for the action you have taken to make 
sure that folks who exist on $13,000 a year are able to get 
their refund that they legitimately earned. I want to thank you 
for that.
    Mr. EVERSON. Yes, sir. Thank you.
    Mr. BECERRA. Will we have now notice go out for this filing 
period coming up?
    Mr. EVERSON. Yes, the notices will go out. We are putting 
that in place this filing season.
    Mr. BECERRA. How about all those folks who still haven't 
received their refunds who legitimately earned them who are 
still waiting?
    Mr. EVERSON. We are going to have to work through the old 
inventory probably after we get out of this filing season. We 
will do that as quickly as we possibly can.
    Mr. BECERRA. Can we chat about that, because there are a 
whole bunch of folks who are existing on meager incomes who are 
still waiting.
    Mr. EVERSON. We are going to do it as quickly as we can, 
sir.
    Mr. BECERRA. Thank you. Mr. Secretary, let me ask you a 
couple of questions, and also I think Mr. Johnson touched on 
this. We have a number of folks that we have acted on to deport 
from this country because they don't have the permission to be 
here, and that is the way we should handle it. We have a whole 
bunch of folks who are employing these individuals and creating 
this tremendous magnet for people from across the world to come 
into this country to work, because even if they are working at 
substandard wages here in this country, they are still making 
more than they could have ever hoped to have made in their home 
country.
    If we are not prosecuting folks who are hiring folks who 
don't have the right to work in this country, and if we allow 
people to make the excuse that they reasonably relied on 
documents of someone who is a clear immigrant to work in this 
country, how will we ever solve the problem of legitimately 
allowing only those entitled to work in this country to do so?
    Mr. BAKER. I think you make a good point. There is no doubt 
the vast majority of people who have employed illegal 
immigrants don't know it, obeyed the law, and were the victims 
of someone who gave them false documents. I think there are 
also people whose business model is violating the immigration 
law. We need tools to go after them, whether it is criminal law 
or higher fines, and ability to attack pattern or practice, we 
do need authority to do that.
    Mr. BECERRA. Would you agree with the Commissioner that if 
we give you better tools, you can do a better job than if you 
necessarily went out and started getting information from the 
IRS to try to help you track down that information through some 
indirect way?
    Mr. BAKER. We do need the information. There is no doubt 
about that. We have not asked for tax return information, so we 
are not asking for the kind of information that would directly 
impinge on people's willingness to file tax returns. There is 
no doubt, as Mr. Johnson suggests, we would also need the 
ability to put people in detention while we are trying to get 
them out of the country.
    Mr. BECERRA. Absolutely. Absolutely. Thank you very much. 
Thanks, Mr. Chairman.
    Chairman MCCRERY. Yes, sir. Mr. Hayworth.
    Mr. HAYWORTH. Mr. Chairman, thank you for holding this 
joint hearing. My gratitude is exceeded only by my 
disappointment and that is putting it mildly for the ample 
display of what can only be described as a schizophrenic policy 
concerning our borders and the presence of illegal aliens, not 
undocumented workers--that is Orwellian newspeak--workers who 
have documents galore coming in to our system.
    What distresses me most is the complete and utter lack of 
urgency inherent in all the remarks and testimony we have 
received this morning. Secretary Baker, please pass along to 
Secretary Chertoff, who I am sure is here testifying in other 
areas this morning, my genuine concern that the evaluation he 
proffered in Houston in November when he said it was his goal 
to gain operational control of our borders in 5 years time. For 
a Nation at war, that is wholly unacceptable.
    Commissioner Everson, thank you for coming, sir, and I 
realize you have worn both hats at different times in history. 
To suggest on one hand that we can have strict enforcement at 
the same time liberal employment, which it is not my intent to 
put words in your mouth, sir, but I take as well, basically, 
the status quo. Let us continue to let businesses gainfully 
employ illegals or perhaps more accurately in terms of keeping 
with the stated policy of the Administration create a new type 
of program that the intent may not be amnesty, but that is 
really what it is.
    Mr. EVERSON. If I could, sir, I want to clarify this.
    Mr. HAYWORTH. Please do.
    Mr. EVERSON. I am saying if you clearly clamp down on the 
illegal, you will want to expand legal. That is all I am 
saying.
    Mr. HAYWORTH. Okay. Well, I thank you. Reclaiming my time, 
let me also get you to clarify granted the fact that revenue is 
the middle name of the organization that you so ably represent, 
Commissioner, if you had the opportunity to have bank robbers 
file returns and gain that revenue, do you think that would be 
helpful for paying the Nation's bills? Would you suggest that 
as a policy action? If we could get the identity of bank 
robbers and other thieves in our society and get the revenue, a 
portion of that revenue that they have attained through ill-
gotten gains, would that be helpful to solve the revenue 
challenges we confront?
    Mr. EVERSON. Well, sir, we obviously pursue illegal source 
income, and it is an important part of criminal prosecution. 
Again, as I stated at the top of the hour, we want our share, 
our tax share, whether the income was earned legally or 
illegally.
    Mr. HAYWORTH. Yes, again--but again, I want to understand 
this. Revenue is the final notion. However you can get your 
hands on it, however it is earned, the bottom line with your 
organization is getting that revenue?
    Mr. EVERSON. That is correct, sir.
    Mr. HAYWORTH. It would follow that if there are criminal 
enterprises, we want that revenue as well, and if we just have 
to look the other way on the criminal enterprise at hand to 
gain the revenue, well, so be it.
    Mr. EVERSON. No. That is not what we are doing. I don't 
agree with that at all. That is a mischaracterization.
    Mr. HAYWORTH. Good. Mr. Commissioner, please, please. 
Reclaiming my time, I offer the mischaracterization 
purposefully, Mr. Chairman, and with your indulgence, because 
it points out the inherent schizophrenia of the policy the 
Administration and quite frankly many on the right and left--on 
the right for cheap labor, on the left for cheap votes--are 
trying to create for a Nation at war.
    It is inherently disappointing and inherently dangerous, 
and it is the wrong path at the wrong reasons for the wrong 
times. I have heard from all three of you gentlemen words to 
the effect that we have to bring people out of the shadows.
    I believe, gentlemen, we will be far better off shining the 
lights on employers and employees alike, enforcing existing 
laws, beefing those laws up where we need to, and I will just 
tell you I appreciate the spirit in which you come, but whether 
it is 5 year's time to get control of the border or a year's 
time to come back with an incisive report, gentlemen, the 
legislative branch can only do so much. The executive branch 
exists, of course, to administer and execute the laws.
    We may have imperfection in laws. There is testimony that 
exists today in some ways that we can help streamline and 
improve it, but please understand, and convey to all of your 
cohorts in the Administration though we may, for the most part, 
share a letter of affiliation politically, there is deep 
dissatisfaction across the Nation with the continued pursuit of 
a schizophrenic policy that is wholly impractical. I thank you 
for your time and your indulgence. I thank you, Mr. Chairman.
    Chairman MCCRERY. Yes, sir. Thank you, Mr. Hayworth. 
Gentlemen, we have a couple of votes on the floor, so if you 
don't mind, we are going to recess the Subcommittee just long 
enough for us to go over and vote and return. If the first 
panel wouldn't mind staying, there are still Members who would 
like to address questions to you. Is that satisfactory?
    Mr. EVERSON. I never like taking questions from Earl 
Pomeroy, if that is who you mean?
    [Laughter.]
    Chairman MCCRERY. Well, I don't know if he will come back, 
but the Committee is in recess.
    [Recess.]
    Chairman MCCRERY. The Committee will come to order. Thank 
you, gentlemen, for being patient and waiting as we completed 
those votes on the floor. Now, we will resume questioning with 
Mr. Pomeroy.
    Mr. POMEROY. I thank the Chair and especially note my 
feelings of appreciation to Commissioner Everson. Now that I am 
not Ranking Member anymore, I did not expect such courtesy as 
to have you wait. The--you will forgive my confusion, but in 
reading the testimony, I am having a little trouble 
understanding where principally this worksite enforcement 
business falls. I have listened very closely to the discussion 
earlier in this hearing. I think it was Congressman Johnson, 
who noted that worksite enforcement actions were three last 
year. That is from a number of 417 in 1999; three in 2004.
    Now, this worksite enforcement of the immigration law, Mr. 
Baker, is principally DHS Immigration; right?
    Now, I note in your testimony you state a vigorous 
enforcement of our worksite immigration laws is a crucial step 
in moving toward a system where foreign migrant workers are 
employed in this country legally and transparently.
    Can you describe to us how this jibes? It looks to us like 
worksite enforcement has not been something that has been 
subject to much attention at DHS.
    Mr. BAKER. I am glad to address that. There has been a 
shift in the way in which we have approached worksite 
enforcement, including a focus on critical infrastructures, as 
I said earlier. We are particularly concerned about people who 
are not here legally working in baggage handling facilities at 
airports or at chemical plants where they could do real damage 
with an act of sabotage or just an accident.
    There has also been an increased focus on trying to find 
ways to work with employers to get employers to do some more 
work, take more responsibility for doing some of the screening; 
getting employers to join the basic pilot so that they can 
check people at the intake point rather than afterward when we 
are trying to get access to no-match records.
    I think there is no doubt that we need to expand our 
enforcement efforts. We need better tools to be able to do 
that. I am hoping that the Administration shortly will be 
proposing new ways of doing enforcement so that we can improve 
our record.
    Mr. POMEROY. The DHS is having a tough week, and let me 
acknowledge that I think you have a very difficult job, an 
impossible job, in light of some of the circumstances--various 
laws and then circumstances on the ground leave you to resolve.
    Sometimes I think that from the dais here we don't 
appropriately recognize the extraordinary difficulty of your 
mission. Having said that, it seems to me that this is a time 
where DHS, this enormous Agency, that obviously has yet to 
figure out how to effectively use all the wherewithal at its 
disposal, be it natural disaster response in Katrina, as we are 
seeing in the Senate this week, or worksite immigration law 
enforcement, which has dropped to three actions last year, even 
though your testimony this morning says it is a crucial step--
your words. We have got some hesitation about now you want to 
get all this IRS data. I don't know that you have fully figured 
out how to use the data you have already got.
    Now that is--maybe in the rest of my time we can get to the 
bottom whether or not we think that there is quite the treasure 
trove of information here that you think there is. You indicate 
that there is a--this SSN mismatch is all about evasion of 
immigration laws.
    Commissioner Everson, do you think--or Commissioner 
Lockhart--are there other explanations? Do you conclude that 
all of these mismatches represent a fraudulent effort to hide 
illegal immigration or sometimes do people just screw up, and 
it is inadvertent error or attributed to other reasons?
    Mr. LOCKHART. You want me to go?--Well, certainly the 
mismatch file, which, as I said, confirms about 8.8 million was 
for tax year 2003, is composed of a lot of different pieces. We 
do a lot of scrubbing to try to correct typographical errors 
and other things, but certainly people change their names. 
People get married, change their names, and--or the people use 
the wrong name with the employer, or they mainly use a nickname 
that doesn't match the name in our records. There is a lot of 
activity in the suspense file that is not related to 
undocumented workers. On the other hand, there is probably a 
significant number that is related to undocumented workers.
    Mr. POMEROY. Fifty-fifty. Ninety-ten? Any idea?
    Mr. LOCKHART. We really don't have good data on that. I 
would say it is less than the 90 to 95 percent that DHS has 
said, but I don't know how much less.
    Mr. POMEROY. Okay. My time is up, Mr. Chairman. I thank 
you. Mr. Everson, next time.
    [Laughter.]
    Mr. EVERSON. I will look forward to it, sir.
    [Laughter.]
    Chairman MCCRERY. Ms. Tubbs Jones.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. Good afternoon, 
good morning, gentlemen. It is still morning. Let me start with 
Secretary Baker. How are you, sir?
    Mr. BAKER. Very good. Thank you.
    Ms. TUBBS JONES. Good. I need my glasses, because this 
print is too little. Maybe that is why your employers don't 
want to fill this out. The OMB Form 1615-0047, Employment 
Eligibility Verification, are you familiar with that form?
    Mr. BAKER. I am not sure that I am.
    Ms. TUBBS JONES. Okay. Novena. It is called an I-9?
    Mr. BAKER. Yes.
    [Laughter.]
    Ms. TUBBS JONES. All I have to do is give you the right 
number; right?
    Mr. BAKER. Yes, exactly.
    Ms. TUBBS JONES. Okay. The I-9 has a section that gives 
employee information and verification, and the employee is 
required to fill that out with an SSN. Then Section Two is an 
Employer Review and Verification and has several sections to 
it. Then it gives the employer--it gives the employer as well 
as you a list of acceptable documents to document the employee 
eligibility and the like. Now, this is the same information 
that you are asking that the IRS provide to you, or you would 
like to have from the IRS for purposes of preventing terrorism 
or whatever; right?
    Mr. BAKER. Much of it, yes.
    Ms. TUBBS JONES. Now, when you receive this form the 
employers, what do you do with it?
    Mr. BAKER. We actually, as I remember, we ask them to hang 
onto that. I am not sure that we are asking them to file that.
    Ms. TUBBS JONES. Okay. You ask the employer to hang onto 
it, so it is information that is within your grasp, since it is 
a form required by your Department?
    Mr. BAKER. We could ask for it, yes.
    Ms. TUBBS JONES. Right. Have you ever used this information 
in order to reach the compliance that you are trying to get 
from the IRS?
    Mr. BAKER. The difficulty with that information is it is in 
the hands of the employer, and the question is which employer--
if we went to an employer, we could say we would like to see 
your I-9 forms.
    The difficulty is in choosing which employer we are going 
to devote scarce investigative resources to, and what we are 
hoping is that access to the Social Security information will 
allow us to say, well, here is a place we ought to look as 
opposed to----
    Ms. TUBBS JONES. Well, now, let me ask you this: 
Historically, before you ever had this form, you have a group 
of employers who you believe historically have not complied 
with or have been--what is the better word--consistently 
employing people without verifiable or legitimate papers to be 
in the United States; right?
    Mr. BAKER. Right. Yes.
    Ms. TUBBS JONES. It clearly is more than the three that you 
have investigated since 1999; right?
    Mr. BAKER. I am sure there are more people than that.
    Ms. TUBBS JONES. Wouldn't that be a logical place to start 
with the employers, just to--even if you just want to try it 
out and see if it would work and that you wouldn't use scarce 
resources in order to do that?
    Mr. BAKER. The difficulty is picking the right people; 
picking companies where we are most likely to find abuses. This 
is a tool that would allow us to identify people who are mostly 
likely to have abuses to find.
    Ms. TUBBS JONES. The IRS has suggested to you that the 300 
worst companies are in agriculture, restaurant, and day labor 
groups. Is that a logical place for you to start your search?
    Mr. BAKER. Yes. Certainly, we could look in those 
industries, but then we would be picking blind among an 
enormous number of restaurants.
    Ms. TUBBS JONES. I am a former prosecutor, and one of the 
offenses that we deal with--we couldn't catch the person 
stealing the car, but they were driving the car, so there is an 
offense called receiving stolen property, other than theft. 
There is something in the course of what you do that you don't 
have to necessarily establish the underlying offense, but you 
could look at the fact that these people were there or whatever 
in order to reach some compliance. I hate I am running out of 
time with just you.
    I would just hope that there will be other processes by 
which you would try to figure out how you handle that. I am not 
necessarily totally in support of the IRS not having to provide 
the information. I am still angry that when I pick up the phone 
and call--dial my bank I have to give my SSN in order to reach 
my money. It is clearly we have gone outside of the traditional 
private area or what we call private in the sake of tapping my 
telephone and so forth and so on.
    Maybe there would be an opportunity to do what you want to 
do without reaching into the private area--private information 
of people.
    Mr. BAKER. We are not asking for authority to tap your 
telephone.
    Ms. TUBBS JONES. Oh, I know you personally are not doing 
that, but somebody is. Not my personal phone, but I mean--well, 
we won't--what I am talking about? Everybody does. It has been 
all over TV.
    I yield back my time. Thanks--if I have any.
    Chairman MCCRERY. Thank you. Mr. Everson, Mr. Lockhart, and 
Mr. Baker, thank you very much for your testimony, and your 
answering our questions. We look forward to having you back in 
not too many more months to get an update on this important 
issue. Thank you.
    Mr. BAKER. Thank you.
    Chairman MCCRERY. Now, I would call the second panel. The 
Honorable Patrick P. O'Carroll, Inspector General, SSA; Barbara 
D. Bovbjerg, Director, Education, Workforce, and Income 
Security Issues, General Accountability Office (GAO).
    Thank you, both, for being patient, as we worked our way 
through the first panel and the votes like the first panel, 
your written testimony will be admitted to the record in its 
entirety, and we would like for you to summarize your testimony 
in about 5 minutes. We will begin with Mr. O'Carroll.

  STATEMENT OF THE HONORABLE PATRICK P. O'CARROLL, INSPECTOR 
            GENERAL, SOCIAL SECURITY ADMINISTRATION

    Mr. O'CARROLL. Good afternoon, Chairman McCrery, Chairman 
Ramstad, and Members of both Subcommittees. Thank you for the 
invitation to be here today. Today's issue is one of the most 
persistent we have faced in our 11 years as an organization--
SSN misuse as it pertains to the reporting of wages. As you 
know, SSA receives wage reports, W-2 forms from employers, and 
posts the wages to workers' accounts.
    When a wage report contains errors and cannot be properly 
posted to a worker's account, it is instead placed in the ESF. 
As of November 2005, there were 255 million wage items placed 
in the ESF, representing $520 billion in wages through Tax Year 
2003. In 1998, SSA's first IG testified before Congress and 
identified the major challenges facing SSA. After solvency, the 
first challenge on his list was the ESF. In 2002, SSA's second 
IG testified that the ESF remained one of the great challenges 
facing SSA. He also placed particular emphasis on immigration, 
and on the impact unauthorized workers have on the ESF.
    Now, I stand before you, as SSA's third IG. The ESF remains 
one of SSA's greatest challenges, and the most significant 
impediments to resolving that challenge are unchanged: first, 
the lack of sanctions against the most egregious employers; 
and, second, legal obstacles that prevent SSA from sharing data 
with employers and immigration authorities. It would be an 
unfortunate neglect of the trust placed in us if SSA's fourth 
IG someday testifies that the same two obstacles remain in 
place.
    Last year, we issued two audit reports that highlighted the 
need for an effective program of sanctions against employers 
who repeatedly submit high volumes of erroneous wage reports: 
the first report noted significant problems in the restaurant, 
service, and agriculture industries, and repeated prior 
recommendations for SSA to intensify talks with the IRS aimed 
at convincing IRS to make more effective use of existing 
sanctions.
    The second report recommended more outreach to employers as 
part of the issuance of ``no-match'' letters by SSA. However, 
SSA responded that with no fear of retribution, employers had 
generally determined that their current practices met their 
needs.
    A high proportion of ESF entries results from wages 
reported for work performed by non-citizens who do not have 
work authorization from DHS. Unfortunately, SSA and the IRS 
interpret current law so as to prohibit SSA from sharing 
information from the ESF with the DHS, even as it pertains to 
the most consistently egregious employers. Information that 
could help address the ESF problem is in SSA's hands, but SSA 
must remain mute. The authority to sanction and deter employers 
is in the IRS' hands, but the IRS rarely exercises that 
authority.
    While the ESF is the largest repository of misinformation, 
another file exists that is similarly troubling. Each year, SSA 
is required by law to submit to DHS the names and SSNs of all 
employees with wages reported under the ``non-work'' SSNs.
    While SSA shares this information with DHS, little has been 
done to analyze and utilize the information, and, more 
importantly, the disclosure laws I mentioned earlier also 
prohibit SSA from informing employers that they have illegal 
workers in their employment.
    In summary, disclosure laws handcuff SSA and DHS and keep 
them from making meaningful progress with respect to 
unauthorized non-citizens, and with regard to the ESF, this 
difficulty is exacerbated by the lack of sanctions against 
employers who have been given no reason to comply with the law.
    Without meaningful change, you will likely hear the same 
frustration from my successor that you have heard from my 
predecessors and from me.
    Thank you again for inviting me to be here today, and I 
will be happy to address any questions you may have.
    [The prepared statement of Mr. O'Carroll follows:]

  Statement of The Honorable Patrick P. O'Carroll, Inspector General,
                     Social Security Administration

    Good Morning, Chairman McCrery, Mr. Levin, Chairman Ramstad, Mr. 
Lewis. It's a pleasure to be here today to discuss these important 
issues of mutual interest. I was disappointed when I was unable to 
testify at the first hearing in this ``SSN High-Risk Issues'' series 
due to a previously scheduled trip abroad, but I understand that the 
hearing went very well, and I'm pleased to be here for the second 
hearing in the series.
    Since this is our first time together since I was sworn in as the 
Social Security Administration's (SSA) Inspector General, I'd like to 
take just a moment to familiarize you with our organization. We were 
established on March 31, 1995, the day SSA became independent of the 
Department of Health and Human Services (HHS) by virtue of the Social 
Security Independence and Program Improvements Act of 1994. Prior to 
that, the Inspector General for HHS was charged with stewardship 
responsibilities over SSA's programs and operations. Last year, we 
marked the completion of our first decade of service as an 
organization, and I believe that our accomplishments over that first 
decade are a testament not only to our talented and hard-working staff, 
but to SSA and its leadership, who have been ceaselessly supportive of 
our efforts.
    Our office, like all Federal offices of Inspector General, has two 
statutory components:
    Our Office of Investigations is comprised of 388 Special Agents and 
support staff, located in about 70 cities across the country. By 
conducting independent criminal investigations into violations of the 
Social Security Act and the U.S. Criminal Code, we protect SSA funds, 
SSA programs, and most importantly, SSA employees on a daily basis. We 
also work closely with other Federal agencies to ensure homeland 
security, and provide for disaster relief and integrity in recovery 
operations, such as in the aftermath of Hurricane Katrina last year. In 
Fiscal Year 2005, the Office of Investigations opened over 9,500 
criminal investigations, resulting in well over 2,000 convictions, and 
almost a quarter billion dollars in restitution orders, repayment 
agreements, fines, recoveries and savings. Our Special Agents are among 
the most talented and committed law enforcement officers in the land, 
and I'm enormously proud of the work they do.
    Our Office of Audit is equally impressive. Across the country, some 
154 auditors and support personnel conduct in-depth audits and reviews 
of Social Security programs and operations to ensure that tax dollars 
are wisely spent and benefits are properly paid. In Fiscal Year 2005, 
the Office of Audit issued 108 reports, identifying potential savings 
of about $375 million, and over $187 million in funds that could be put 
to better use.
    In addition to these statutory components, our Office of Chief 
Counsel, in addition to providing legal advice and guidance to me and 
my staff, administers the Civil Monetary Penalty (CMP) program. Through 
their efforts, imposing civil penalties on those who would defraud SSA, 
or would use SSA's good name to deceive the American public, we 
assessed more than $700,000 in penalties and assessments in Fiscal Year 
2005.
    Finally, our Office of Resource Management makes all of our work 
possible. By providing budget, human resource, information technology, 
and other critical services, they keep the Office of the Inspector 
General running.
    Over the course of what is now almost 11 full years, we have seen 
issues resolved and, more often, new issues arise, but there are issues 
that we inherited on Day One that are still with us after all this 
time. The challenges we are discussing today are among those that have 
persisted.
    As you know, SSA receives wage reports from employers and posts the 
wages to workers' accounts. This enables SSA to make accurate benefit 
eligibility determinations and administer its programs. But when a wage 
report contains errors, and cannot be properly posted to a worker's 
account, it is instead placed in the Earnings Suspense File, or ESF, 
until it can be resolved. As of November 2005, there were 255 million 
wage items placed in the ESF, representing $520 billion in wages 
through Tax Year 2003. Looking at ESF entries on a yearly basis, the 
number of entries increased significantly during the decade between 
1993 and 2003, but starting in 2001, the increases stopped, and began 
holding steady. While this is a hopeful sign, we do not believe it 
means that a solution has been found. To the contrary, while hard work 
by my office and by SSA has slowed the tide, the same obstacles to 
truly meaningful improvement in the ESF that existed a decade ago 
remain in our paths today.
    In 1998, less than 3 years after the formation of our office, SSA's 
first confirmed Inspector General testified before Congress and 
identified the eight greatest challenges facing SSA. After identifying 
solvency as the first issue, he stated that ``Second is the problem of 
erroneous wage reports held in SSA's Suspense Account. At the end of FY 
1997, the cumulative balance of employee wages held in SSA's suspense 
account exceeded $240 billion, and it continues to grow. Unless 
corrected, suspended wages could reduce the amount of Title II benefits 
paid to individuals and their families. SSA must implement its newly 
established tactical plan to resolve suspended wages and evaluate its 
effectiveness.'' In the years that followed, we made many 
recommendations through our audit work and provided evidence through 
our investigations of a need to implement those recommendations, but 
the issue remained largely unresolved.
    More than 4 years later, in 2002, SSA's second confirmed Inspector 
General appeared before Congress and testified that the ESF remained 
one of the great challenges facing SSA. In that testimony, he 
identified the two most significant obstacles to improvement in the 
ESF. First, he pointed out that without a robust program of sanctions 
against employers who habitually misreport earnings for their 
employees, there is no incentive for employers to comply with the law, 
and that the authority to impose such sanctions rested with the 
Internal Revenue Service (IRS). Second, he emphasized the role that 
unauthorized non-citizens play in the increases in the ESF, and the 
fact that IRS disclosure laws limited the data sharing necessary to 
bring about significant improvement. Again, our efforts, and SSA's 
efforts, continued, but these two obstacles remained in place.
    Now, 4 more years have passed, and I stand before you as SSA's 
third confirmed Inspector General. More recommendations have been made 
to SSA; some have been agreed to, some have even been implemented. 
Nevertheless, the ESF remains one of SSA's greatest challenges, and the 
most significant impediments to resolving that challenge are unchanged: 
the lack of a meaningful program of sanctions against the most 
egregious employers, and legal obstacles that prevent SSA from sharing 
meaningful data with immigration authorities and employers.
    I would submit that it would be an unfortunate neglect of the trust 
placed in all of us if, when my tenure is over, SSA's fourth confirmed 
Inspector General walks through these doors and tells the same story.
    Last year, we issued two audit reports that highlighted the need 
for effective sanctions against problem employers. One of these reports 
addressed the issue of misreported wages in some of the most 
problematic industries--the restaurant, service, and agriculture 
industries--and repeated yet again the need to collaborate with the IRS 
on an effective sanctions program. Unfortunately, talks with the IRS 
have been ongoing for years, and even with respect to the nation's most 
egregious violators of the wage reporting laws, sanctions are rarely 
imposed. We have recommended in the past that SSA seek legislative 
authority to create an SSA-based sanctions program, but they have 
responded that this authority is properly with the IRS. We have 
recommended repeatedly that SSA intensify talks with the IRS to bring 
about a robust IRS-based sanctions program using long-existing 
authority, and SSA has generally followed our recommendations, but to 
no avail. Whether through the creation of new authority or more active 
use of existing authority, sanctions are an absolutely critical element 
of any plan that hopes to reduce the size of the ESF in a meaningful 
way.
    The second report we issued last year sought new approaches to the 
problem, recognizing that while sanctions and expanded disclosure 
authority were the keys to significant progress, other measures could 
be taken that would at least bring about some degree of improvement. We 
looked at SSA's process for notifying employers and wage-earners of 
misreported wages, a process known as ``DECOR,'' or Decentralized 
Correspondence. When name and SSN information on a W-2 form do not 
match, and the wages must be posted to the ESF, SSA sends a ``no-match 
letter'' to either the employee or, if there is no proper address for 
the employee, to the employer, pointing out the discrepancy and 
requesting a correction. Since prior recommendations dealing with 
encouraging IRS to make better use of its authority to impose sanctions 
had not yet borne fruit, this report instead focused on actions that 
SSA can take with the information in the DECOR database to bring about 
some degree of improvement in the wage reporting process.
    We made several recommendations to SSA aimed at improving outreach, 
education, and trend analysis. While SSA agreed with many of our 
points, they returned to the issue that has become a central theme in 
looking at the ESF, stating that employers would still have little 
reason to change their ways. In its comments, SSA stated that 
``educational outreach is not a strong motivator for change with 
employers who have found their current wage reporting methods meet 
their needs without fear of any retribution.''
    The disclosure issue is similarly daunting. We believe the chief 
cause of wage items being posted to the ESF instead of an individual's 
earnings record is unauthorized work by noncitizens. Under existing 
law, as interpreted by SSA and the IRS, SSA cannot share data from the 
ESF with the Department of Homeland Security (DHS). For example, these 
laws make it impossible for SSA to provide DHS information regarding 
even the most egregious employers who routinely submit large numbers of 
inaccurate wage statements in which employee SSNs and names do not 
match SSA records. We believe disclosure limitations such as these 
perpetuate illegal work, erroneous wage reports, and the growth of the 
ESF. Most of the information necessary to address the ESF problem is in 
SSA's possession, but SSA must remain mute; all of the authority to 
sanction employers and deter continued violations is in the IRS' hands, 
but the IRS chooses not to act. The only greater surprise than this 
bureaucratic gridlock is the fact that the ESF is not even larger than 
it is.
    While the ESF is by far the larger indicator of unauthorized 
noncitizens working in the U.S., another indicator which involves a 
smaller population of individuals engaged in unauthorized work is the 
Nonwork Alien, or NWALIEN File, and here again, disclosure issues pose 
an obstacle. We have issued multiple reports, and are on the verge of 
issuing yet another, that address the impact that non-citizens without 
authorization to work in the United States are having on SSN integrity, 
the Agency's future responsibility to pay benefits and, even more 
disturbing, improper employment in sensitive and critical industries. 
In 2000, 2001, and again in 2005, we examined SSN misuse and wage 
reporting issues with a focus on wages improperly earned by non-
citizens without authorization to work in the United States--those whom 
SSA has assigned ``nonwork'' Social Security numbers. Each time, we 
identified as a significant obstacle in addressing this issue the 
limited ability of SSA to share information. SSA is required by law to 
annually share with DHS the NWALIEN File, a file of noncitizens who 
have received earnings using a non-work Social Security number. 
However, since this law was enacted in 1996, little has been done by 
SSA and DHS to analyze, attempt to reconcile and/or correct, and use 
this information for immigration enforcement purposes. Additionally, 
SSA believes privacy provisions of the Internal Revenue Code prohibit 
SSA from notifying employers when employees with non-work SSNs, who may 
not have DHS authorization to work, are in their employ. While SSA and 
DHS have extensive information at their disposal, they have been unable 
to find a way to work with the information to prevent, detect, and 
enforce unauthorized employment.
    In short, our work has shown, over the course of more than a 
decade, that until these obstacles are removed, either through 
legislation or cooperation, there is unlikely to be a truly meaningful 
reduction in the size of the ESF. Unless and until employers are either 
required to verify SSNs prior to submitting wage reports, or faced with 
stiff penalties for erroneous wage reports, there is no incentive for 
employers to do anything differently. And with limited ability to share 
meaningful information with immigration authorities and employers, 
there is relatively little SSA can do alone to address the significant 
impact non-citizens have on the ESF, the NWALIEN file, and ultimately, 
SSN integrity.
    The information is at our fingertips. We can identify the most 
egregious employers with respect to wage reporting irregularities, but 
no action is taken against them by IRS, and no action can be taken 
against them by our office or by SSA. We can identify the employers 
with the most unauthorized non-citizens on their payrolls, but we 
cannot tell the employers who the unauthorized employees are. We know 
the scope of the unauthorized non-citizen issue is significant, but SSA 
cannot share adequate information with DHS to provide truly useful 
information.
    We will, of course, continue our work aimed at quantifying and 
identifying discrete issues and proposing program improvements, but 
these improvements will likely continue to be relatively minor when 
viewed against the size of the ESF. We stand ready, however, to work 
with you and other members of Congress to bring about truly meaningful 
change.
    Thank you again for inviting me to speak with you today, and I'd be 
happy to answer any questions.

                                 

    Chairman MCCRERY. Thank you, Mr. Inspector General. Ms. 
Bovbjerg.

    STATEMENT OF BARBARA D. BOVBJERG, DIRECTOR, EDUCATION, 
WORKFORCE, AND SECURITY ISSUES, U.S. GOVERNMENT ACCOUNTABILITY 
                             OFFICE

    Ms. BOVBJERG. Thank you, Mr. Chairman. Good afternoon, Mr. 
Chairman, Ms. Tubbs Jones. I am happy to be back today, this 
time to discuss the use of SSN data to reduce unauthorized 
work. No one is lawfully permitted to work in the U.S. without 
a valid SSN and either citizenship or work authorization. Yet, 
non-citizens work without such authorization and gain 
employment using false information. How such unauthorized work 
can be detected and prevented clearly continues to challenge 
the agencies involved.
    Today, I would like quickly to discuss two things: the 
Social Security data that can help identify unauthorized 
employment and issues for improving the usefulness of the data. 
First, let me talk about the Social Security data. The SSA has 
two types of data useful to preventing and detecting 
unauthorized work: the Participant Records and the Earnings 
Reports. Participant records that include the name, date of 
birth, and SSN, among other things, can be used to verify that 
a worker seeking employment is providing the SSN assigned to 
someone of that name.
    The SSA uses these data to provide both batch and web-based 
verification services for employers' use on a voluntary basis. 
The service is designed to assure accurate employer wage 
reporting and discourage hiring of unauthorized workers are 
offered free of charge. The SSA also uses Participant Records 
in a verification system developed by DHS--DHS offers 
electronic verification of worker status by a program called 
the Basic Pilot.
    This program sends employee data through SSA to verify name 
and SSN, and, for non-citizens, also through DHS to verify that 
the person is both legally present and authorized to work. This 
system too is voluntary and has only recently been available 
nationwide. None of these verification systems is widely used 
by employers.
    The SSA's earnings data provide a different sort of 
information. There are two SSA data files for these records 
that Mr. O'Carroll mentioned. The first, SSA's Non-Work Alien 
File, contains earnings reports that are posted under non-work 
authorized SSNs. These records are thought to belong to a group 
of people who may be in the U.S. legally that may also be 
working without authorization. Under law, SSA passes this file 
to DHS annually, but, as Mr. O'Carroll stated, little has been 
done with that information.
    The second type of earnings data is found in the ESF. The 
ESF holds earnings reports where the name and SSN cannot be 
matched to records in SSA's Participant Files. The GAO has 
reported that this file, which contains almost 300 million 
records, appears to include an increasing number of earnings 
records associated with unauthorized work, but is not regularly 
used as a DHS enforcement tool because the file contains 
legally protected taxpayer information. Let me turn now to the 
usefulness of the data in addressing unauthorized work.
    Under the current arrangement with the Non-Work Alien File, 
DHS staff believe they would have to invest significant 
resources to determine which workers are truly still 
unauthorized; a number of those whose records are in the Non-
Work Alien file may have been authorized but have not informed 
SSA of the change in status. Also, the lack of a common 
identifier for records in DHS and SSA files makes the matching 
process difficult and time consuming, and the lack of industry 
codes associated with the employers prevents DHS from targeting 
employers in the critical infrastructure areas that are 
important to homeland security.
    The ESF, on the other hand, potentially has employer 
information that is more useful to DHS, but some of the same 
difficulties that pertain to the Non-Work File could also 
affect the Suspense File's usefulness, and the sensitivity of 
sharing taxpayer records means the case for their use outside 
SSA must be truly compelling. If the challenges of the ESF can 
be overcome, authorizing transmittal of at least some of that 
protected information to DHS might be warranted. It is likely 
that producing accurate and useful unauthorized work data from 
these records could require a continued effort on the part of 
SSA, DHS, and IRS, but these efforts will be of little value 
without credible and coordinated enforcement programs in place.
    The three agencies will still need to improve employer 
reporting and worksite enforcement efforts, if measures to 
improve the usefulness of existing data are to bear fruit.
    In conclusion, the Federal Government can make better use 
of information it already has to support enforcement of 
immigration, work authorization, and tax laws. The Suspense and 
Non-Work Alien Files have promise. The best information in the 
world won't make a difference if the relevant Federal agencies 
cannot work together to improve employer reporting compliance 
and conduct targeted and effective worksite enforcement. That 
concludes my statement. I welcome your questions.
    [The prepared statement of Ms. Bovbjerg follows:]

 Statement of Barbara D. Bovbjerg, Director, Education, Workforce, and 
     Income Security Issues, U.S. Government Accountability Office
    Messrs. Chairmen and Members of the Subcommittees:

    I am pleased to be here today to discuss Social Security numbers 
(SSNs) and their use in preventing and detecting unauthorized work. To 
lawfully work in the United States, individuals must have a valid SSN 
and, if they are not citizens, authorization to work from the 
Department of Homeland Security (DHS). Noncitizens seeking work are 
required to provide both an SSN and evidence of work authorization to 
their employers. Yet individuals without these required authorizations 
can gain employment with false information. How these instances of 
unauthorized work can be identified or prevented challenges the federal 
agencies involved.
    In prior GAO work on these issues, we have reported on the use of 
Social Security Administration (SSA) data for identity and employment 
eligibility verification. Although SSA's verification systems have 
improved, use of SSA information in worksite enforcement continues to 
be challenging. Today I will discuss two issues: (1) the Social 
Security data that could help identify some unauthorized employment and 
(2) coordination among SSA, DHS, and the Internal Revenue Service (IRS) 
to improve the accuracy and usefulness of such data.
    My statement is based primarily on prior GAO work on these topics. 
We are presently conducting additional work for these subcommittees 
examining the use of SSA data for detecting unauthorized work. To 
determine how SSA and DHS are coordinating to improve earnings data, we 
conducted interviews with officials from SSA, the SSA Office of the 
Inspector General, and DHS. In addition, we obtained and reviewed data 
from SSA on individuals who had reported earnings under a nonwork SSN, 
and we reviewed other documentation provided to us by these agencies. 
We began this review in October 2005 in accordance with generally 
accepted government auditing standards, and our work is ongoing.
    In summary, SSA has two types of data that could be useful for 
addressing unauthorized work--Social Security records for individuals 
and earnings reports. Individual Social Security records include name, 
date of birth, and SSN, among other things. SSA uses these data to 
provide SSN verification services free of charge to employers wishing 
to assure themselves that the names and SSNs that their workers 
provided match SSA's records. SSA also uses Social Security records in 
a work authorization verification system called the Basic Pilot program 
developed by DHS, which offers electronic verification of worker 
status. These systems are voluntary and not widely used by employers. 
SSA's earnings records provide a different sort of information that 
could be used for identifying unauthorized work. SSA uses such records 
to produce two relevant files. SSA's Nonwork Alien File contains 
earnings reports that are posted to SSNs that were issued for nonwork 
purposes, which suggests individuals are working without DHS work 
authorization. By law, SSA provides nonwork alien information to DHS 
annually, and our ongoing work for you suggests that a number of these 
records are associated with people who became work authorized some time 
after receiving their nonwork SSNs. A second file of interest, the 
Earnings Suspense File (ESF), contains earnings reports in which the 
name and SSN do not match SSA's records. We have reported that this 
file, which contained 246 million records as of November 2004, appears 
to include an increasing number of records associated with unauthorized 
work.
    Improving the usefulness of SSA data could help identify some 
unauthorized work and ensure that limited enforcement resources are 
targeted effectively. Ensuring that the most useful data are available 
requires close coordination among the three federal agencies involved 
in collecting and using the data--SSA, IRS, and DHS. We have previously 
recommended that IRS work with DHS and SSA as it considers 
strengthening its employer wage reporting regulations, as such action 
could improve the accuracy of reported wage data, and that DHS, with 
SSA, determine how best to use such wage data to identify potential 
illegal work activity.

Background
    The Social Security Act of 1935 authorized the SSA to establish a 
record-keeping system to help manage the Social Security program and 
resulted in the creation of the SSN. SSA uses the SSN as a means to 
track workers' earnings and eligibility for Social Security benefits. 
Through a process known as enumeration, each eligible person receives a 
unique number, which SSA uses for recording workers' employment history 
and Social Security benefits. SSNs are routinely issued to U.S. 
citizens, and they are also available to noncitizens lawfully admitted 
to the United States with permission to work. Lawfully admitted 
noncitizens who lack DHS work authorization may qualify for an SSN for 
nonwork purposes when a federal, state, or local law requires that they 
have an SSN to obtain a particular welfare benefit or service. In this 
case, the Social Security card notes that the SSN is ``Not Valid for 
Employment.'' As of 2003, SSA had assigned slightly more than 7 million 
nonwork SSNs. Over the years, SSA has tightened the requirements for 
assigning nonwork SSNs.
    In 1986, Congress passed the Immigration Reform and Control Act 
(IRCA), which made it illegal for individuals and entities to knowingly 
hire and continue to employ unauthorized workers. The act established a 
two-pronged approach for helping to limit the employment of 
unauthorized workers: (1) an employment verification process through 
which employers are to verify newly hired workers' employment 
eligibility and (2) a sanctions program for fining employers who do not 
comply with the act. Under the employment verification process, workers 
and employers must complete the Employment Eligibility Verification 
Form (Form I-9) to certify that the workers are authorized to work in 
the United States. Those employers who do not follow the verification 
process can be sanctioned.

SSA Individual Records and Earnings Reports Can Identify Some 
        Unauthorized Work
    SSA has two types of data useful to identifying unauthorized work--
individual Social Security records and earnings reports. Its individual 
records, which include name, date of birth, and SSN, among other 
things, can be used to verify that a worker is providing the SSN that 
was assigned to a person of that name. These records are used in 
verification services that are available free of charge to employers on 
a voluntary basis. SSA's earnings reports could also be used to 
identify some unauthorized work by reporting noncitizens who may have 
worked without authorization and employers who have a history of 
providing SSN/name combinations that do not match SSA records.

SSA Records Provide Verification Services to Improve Wage Data
    SSA uses individual Social Security records in its Employee 
Verification Service (EVS) and the Web-based SSN Verification Service 
(SSNVS), which employers can use to assure themselves that the names 
and SSNs of their workers match SSA's records. The services, designed 
to ensure accurate employer wage reporting, are offered free of charge. 
Employer use is voluntary. Although these systems only confirm whether 
submitted names and SSNs match, they could help employers identify 
workers who provide an SSN with fictitious information.
    Over the years, SSA has developed several different verification 
methods under EVS. For example, employers may submit lists of workers' 
names and SSNs by mail on a variety of media, such as magnetic tapes or 
diskettes. Alternatively, employers may call a toll-free number or 
present a hard-copy list via fax, mail, or hand delivery to a local SSA 
office. SSA verifies the information received from employers by 
comparing it with information in its own records. SSA then advises the 
employer whether worker names and SSNs match. EVS offers the benefit of 
verifying name and SSN combinations for a company's entire payroll. 
However, the system would
not be able to detect a worker's misuse of another person's name and 
SSN as long as the name and SSN matched. Employers do not widely use 
this service.
    In an attempt to make verification more attractive to employers, in 
2005, SSA implemented the Web-based SSNVS. It is designed to respond to 
employer requests within 24 hours. Requests of up to 10 worker names 
and SSNs can be verified instantaneously. Larger requests of up to 
250,000 names can be submitted in a batch file, and SSA will provide 
results by the next business day. While this new system is attracting 
more employer interest, it is still not widely used.
    SSA also uses its records in a work eligibility verification system 
developed by DHS called the Basic Pilot, which offers electronic 
verification of work authorization for newly hired workers. Use of this 
program by employers is also voluntary, and the service has been 
available nationwide only since December 2004. Employers who agree to 
participate must electronically verify the status of all newly hired 
workers within 3 days of hire, using information that a new hire is 
required to provide. Under this program, an employer electronically 
sends worker data through DHS to SSA to check the validity of the SSN, 
name, date of birth, and citizenship provided by the worker. SSA 
records are used to confirm information on citizens. For noncitizens, 
SSA confirms SSN, name, and date of birth, then refers the request to 
DHS to verify work authorization status against DHS's automated 
records. If DHS cannot verify work authorization status for the 
submitted name and SSN electronically, the query is referred to a DHS 
field office for additional research by immigration status verifiers. 
If SSA is unable to verify the SSN, name, and date of birth or DHS 
record searches cannot verify work authorization, a tentative 
nonconfirmation response is transmitted to the employer. After checking 
the accuracy of the information and resubmitting the information, if 
necessary, the employer must advise the worker of the finding and refer 
him or her to either DHS or SSA to correct the problem. During this 
time, employers are not to take any adverse actions against those 
workers related to verification, such as limiting their work 
assignments or pay. When workers do not contest their tentative 
nonconfirmations within the allotted time, the Basic Pilot program 
issues a final nonconfirmation. Employers are required to either 
immediately terminate employment or notify DHS of their continued 
employment.
    Like SSA's verification services, the Basic Pilot is voluntary and 
is not widely utilized. As of January 2006, about 5,500 businesses 
nationwide had registered to participate, although a significantly 
smaller number of these are active users. Active participants have made 
about 4.7 million initial verification requests over a 5-year period 
(981,000 requests were made in fiscal year 2005). DHS reported on 
actions taken to address weaknesses in the program that had been 
identified during the early years of the program. They included delays 
in updating immigration records, erroneous nonconfirmations, and 
program software that was not user friendly. We subsequently reported 
on additional challenges, specifically, the capacity constraints of the 
system, its inability to detect identity fraud, and the fact that the 
program is limited to verifying work authorization of newly hired 
workers.
SSA Earnings Data May Be Used to Identify Some Unauthorized Work
    SSA's earnings records can also provide information on unauthorized 
work. There are two sets of data that are relevant to unauthorized 
work. The first set, the Nonwork Alien File, contains earnings reports 
for SSNs that were issued for nonwork purposes. The second set, the 
Earnings Suspense File, contains earnings reports in which the name and 
SSN do not match. Both could help identify some unauthorized work.

SSA's Nonwork Alien File
    SSA is required by law to provide its Nonwork Alien File to DHS 
since it suggests a group of people who are in the United States 
legally but may be working without authorization. Since 1998, SSA has 
provided DHS annual data on over half a million persons with earnings 
listed under nonwork SSNs. The file includes annual earnings amounts, 
worker names and addresses, and employer names and addresses as well.
    DHS has found this file to be of little use to enforcement 
activities, however. According to DHS officials, the file is currently 
not an effective tool for worksite enforcement due in part to 
inaccuracies in the data and the absence of some information that would 
help the department efficiently target its enforcement.
    In fact, because SSA only updates work authorization status at the 
request of the SSN holder, individuals in the file may now be U.S. 
citizens or otherwise legal workers who simply have not updated their 
status with SSA. Our ongoing work in this area suggests that a number 
of these records are indeed associated with people who later obtained 
permission to work from DHS. SSA policy is to update work author-
ization status when the SSN holder informs the agency of the status 
change and provides supporting documentation. Unless the individual 
informs SSA directly of the status change, SSA's enumeration records 
will continue to show the person as unauthorized to work and will 
record his or her earnings to the Nonwork Alien File. Currently, the 
extent to which such noncitizens are included in the file is unknown, 
but SSA and DHS officials have both acknowledged that the file may 
include a number of people who are currently authorized to work.
    DHS officials said that the file would be of greater value if it 
contained DHS's identifying numbers--referred to as alien registration 
numbers. According to DHS officials, because persons in the file do not 
have an identifier in common use by both agencies, they cannot 
automatically be matched with DHS records. As a result, DHS officials 
told us that they use names and birth dates to match the records, which 
can result in mismatches because names can change and numbers in birth 
dates may be transposed. SSA officials have said that generally they do 
not collect alien registration numbers from noncitizens. Collecting the 
alien registration number and providing it in the Nonwork Alien File is 
possible, they stated, but would require modifications to SSA's 
information systems and procedures. They also noted that SSA would only 
be able to collect the alien registration number when noncitizens are 
assigned an SSN or when such an individual updates his or her record. 
As part of its procedures, SSA is required to verify the immigration 
status of noncitizens before assigning them an SSN, which requires 
using alien registration numbers. However, some noncitizens, such as 
those who have temporary visas, (e.g. students) may not have an alien 
registration number. In these cases, SSA would not be able to include 
the number in the Nonwork Alien File.
    The time it takes SSA to validate earnings reports and convey the 
Nonwork Alien File to DHS also makes the file less effective for 
worksite enforcement. When SSA finishes its various processes to ensure 
that the file includes the appropriate data, the reported earnings can 
be up to 2 years old. By that time, many of the noncitizens included in 
the file may have changed employers, relocated, or changed their 
immigration status, resulting in out-of-date data on individuals or 
ineffective leads for DHS agents.
    A DHS official told us that if the Nonwork Alien File were to 
contain industry codes for the reporting employers, DHS could target 
those in industries considered critical for homeland security purposes, 
which would be consistent with DHS's mission and enforcement 
priorities. Having information about the industries the employers are 
in would help them better link the data to areas of high enforcement 
priority, such as airports, power plants, and military bases.

Earnings Suspense File
    Another SSA earnings file, referred to as the Earnings Suspense 
File, contains earnings reports in which the name and SSN do not match 
SSA's records, suggesting employer or worker error or, potentially, 
identity theft and unauthorized work. We have reported that this file, 
which contained 246 million records as of November 2004, appears to 
include an increasing number of records associated with unauthorized 
work. SSA's Office of the Inspector General has used the ESF to 
identify employers who have a history of providing names and SSNs that 
do not match.
    When SSA encounters earnings reports with names and SSNs that do 
not match, it makes various attempts to correct them using over twenty 
automated processes. However, about 4 percent of all earnings reports 
still remain unmatched and are electronically placed in the ESF, where 
SSA uses additional automated and manual processes to continue to 
identify valid records. Forty-three percent of employers associated 
with earnings reports in the ESF are from only 5 of the 83 broad 
industry categories, with eating and drinking establishments and 
construction being the top categories. A small portion of employers 
also account for a disproportionate number of ESF reports. For example, 
only about 8,900 employers--0.2 percent of all employers with reports 
recorded in the ESF for tax years 1985-2000--submitted over 30 percent 
of the reports we analyzed.
    Our past work has documented that individuals who worked prior to 
obtaining work authorization are a growing source of the unmatched 
earnings reports in the ESF that are later reinstated to a worker's 
account. Once workers obtain a valid SSN, they can provide SSA evidence 
of prior earnings reports representing unauthorized employment prior to 
receiving their SSN. Such earnings reports can then be used to 
determine a worker's eligibility for benefits.
    DHS officials believe that the ESF could be useful for targeting 
its limited worksite enforcement resources. For example, they could use 
the ESF to identify employers who provide large numbers of invalid SSNs 
or names and SSNs that do not match. They told us that these employers 
may knowingly hire unauthorized workers with no SSN or fraudulent SSNs 
and that employers who are knowingly reporting 
incorrect information about their workers might also be involved in 
illegal activities involving unauthorized workers.
    However, it is not clear that the ESF, which is much larger than 
the Nonwork Alien File, would be manageable or allow for targeted 
enforcement. The ESF contains hundreds of millions of records, many 
unrelated to unauthorized work, making it difficult to use for 
targeting limited resources. While the ESF may help identify some of 
the most egregious employers of unauthorized workers, in terms of poor 
earnings reporting, its focus is not on unauthorized workers. Our work 
has shown that most of the reinstatements from the file belong to U.S.-
born citizens, not to unauthorized workers. In addition, because the 
ESF contains privileged taxpayer data, SSA cannot share this 
information with DHS without specific legislative authorization. SSA's 
Office of the Inspector General has recommended that SSA seek 
legislative authority to share this data with DHS, but SSA responded 
that it is beyond the agency's purview to advance legislation to amend 
the Internal Revenue Code in order to allow DHS access to tax return 
information. IRS officials have also expressed concern that sharing 
this data could decrease tax collections and compliance. We are 
examining the usefulness of SSA data to DHS for these subcommittees, 
and will consider ESF issues as part of this work.

Closer Coordination by SSA, IRS, and DHS Could Improve Usefulness of 
        SSA Earnings Data
    Improving the usefulness of the data could help ensure that limited 
enforcement resources are targeted effectively. SSA data could help 
identify areas of unauthorized work, but closer collaboration among 
SSA, IRS, and DHS can help to ensure that the most useful data are 
available in a form that can be used efficiently for enforcement.
    Under the current data-sharing arrangement, DHS officials believe 
the agency would have to invest significant resources to determine 
whether employers it targets are really hiring persons who are not work 
authorized. DHS has stated that determining which nonwork SSN holders 
are now authorized to work may not be cost-effective and would pull 
resources from other national security-related initiatives. Neither SSA 
nor DHS is able to easily and quickly update work status because they 
lack a common identifier for their records. Updating status without a 
common identifier may not be practical because different spellings or 
name variations confound large-scale matching efforts. For example, an 
August 2005 report from the SSA's Office of the Inspector General 
highlights a substantial proportion of cases in which names were 
inconsistent between SSA and DHS. In at least six reports in recent 
years, SSA's Office of the Inspector General has recommended or 
mentioned prior recommendations that SSA work with DHS to update 
information about work authorization. SSA officials maintain that it is 
their policy to make changes to the Social Security record only if the 
SSN holder initiates the changes and provides evidentiary documents 
from DHS. SSA further states that a ``resolution of the discrepant 
information between DHS and SSA would require more than a simple 
verification.''
    Despite the many problems with the data, there are steps that could 
be taken to improve them. For example, the employers who submit the 
most earnings reports for nonwork SSNs might be good candidates for 
outreach and education about verifying work eligibility. SSA's Office 
of the Inspector General officials suggested that DHS send letters to 
employers of persons with nonwork SSNs. These letters could encourage 
persons listed as having nonwork SSNs, who are now authorized to work, 
to update their records. The ESF also has the potential to provide 
useful information to DHS, but this information has protected tax 
status. Although some of the same difficulties that pertain to the 
Nonwork Alien File could also affect the usefulness of the ESF to DHS 
enforcement efforts, if these challenges could be overcome, authorizing 
transmittal of at least some of the ESF information to DHS might be 
warranted.
    Producing accurate, useful data will require substantial continued 
effort on the part of SSA, DHS, and the IRS: these efforts will be of 
little value, however, if the data are not used for enforcement and to 
stimulate changes in employer and employee behavior. We have reported 
previously that the IRS program of employer penalties is weak, because 
of limited requirements on employers to verify and report accurate 
worker names and SSNs; we have recommended that IRS consider 
strengthening employer requirements, a course that could over time 
improve the accuracy of wage data reported to SSA. We have also 
reported that, consistent with DHS's primary mission in the post-
September 11 environment, DHS enforcement resources have focused mainly 
on critical infrastructure industries in preference to general worksite 
enforcement. In such circumstances, coordination to leverage 
usable and useful SSA data is essential to ensure that limited DHS 
worksite enforcement resources are targeted effectively.

Conclusing Observations
    The federal government likely can make use of information it 
already has to better support enforcement of immigration, work 
authorization and tax laws. The Earnings Suspense and the Nonwork Alien 
files have potential, but even the best information will not make a 
difference if the relevant federal agencies do not have credible 
enforcement programs. In fact, sharing earnings data to identify 
potential unauthorized workers could unnecessarily disclose sensitive 
taxpayer information if the data are not utilized by enforcement 
programs. To address unauthorized work more meaningfully, IRS, DHS and 
SSA need to work together to improve employer reporting, develop more 
usable and useful data sets for suspicious earnings reports, and better 
target limited enforcement resources. We look forward to contributing 
to this endeavor as we continue to conduct our work on using SSA data 
to help reduce unauthorized work.
    This concludes my prepared statement. I will be happy to answer any 
questions you may have.

                                 

    Chairman MCCRERY. Thank you, Ms. Bovbjerg. To both of you, 
you both mentioned in your testimony how the recent trends in 
the ESF seems to indicate an increase in illegal work and SSN 
fraud and misuse. I wonder if I can get you to expound upon 
that a little bit. You have obviously, both offices, done 
extensive examination of the composition of the ESF. Can you, 
for example, describe the characteristics of employers with the 
largest number or highest percentage of wage reports in the 
ESF, or the characteristics of employees whose earnings are in 
the ESF?
    Mr. O'CARROLL. I will respond first. What has come out in 
previous testimony is that sort of the trends that we are 
coming up with are that the three employment groups with the 
largest number of wage reports in the ESF are the service 
industry, the restaurant industry, and the agriculture 
industry.
    In one of our previous testimonies, we indicated that the 
states with the most wage reports in the ESF are California, 
Texas, and Illinois. What we are finding is that about the same 
number of wage reports go into the ESF every year, which is 
about 9 million reports. Although the number of wage reports 
going into the ESF is level over the last several years, we are 
finding that the number of problem employers is increasing. 
Therefore, although we have identified these problem employers, 
they keep posting more and more wage reports into the ESF, 
which is problematic.
    Ms. BOVBJERG. We took a little different cut at the ESF. We 
looked at records between 1985 and the year 2000. There were 85 
million records. We found certain types of errors come up all 
the time. Nine million of the records had SSNs of all zeros. 
For 3.5 million of the records, employers used the same SSN for 
multiple workers in the same year. One and half million had 
SSNs had never been issued. There were a lot of these types of 
problems. We found an industry concentration similar to the IG 
findings we saw eating and drinking establishments, and, we 
found construction was the second largest industry in the group 
of records that we looked at. We also found that 8,900 
employers--this is out of the 6 million who send information 
annually to SSA--8,900 were responsible for more than 30 
percent of the ESF records we reviewed.
    The reason that we think that there could be more 
unauthorized work coming into the ESF is that we looked at 
reinstatements. You really can't tell from looking at the ESF 
records where people were born and who they are. That 
information wouldn't be in the ESF. You can tell something by 
looking at information on those records that were reinstated to 
someone's Social Security account. We looked at 265 numbers 
that came up more than a thousand times in the period that we 
examined.
    Of those, there were 13 million reinstatements to almost 12 
million different people on these most frequently used numbers. 
What we found was that in 1986, about 8 percent of those people 
who received reinstatements were foreign-born. The vast 
majority was U.S.-born. By 2000, the majority was still U.S.-
born, but we were up to about 20 percent of the reinstates 
being foreign-born. Of those, almost half involved earnings 
received prior to the individual getting a work authorized SSN. 
We thought that while it is a tremendous exaggeration to say 
that the ESF represents unauthorized work, I think it is fair 
to say that there is an increase in mismatches that are the 
result of unauthorized work.
    Chairman MCCRERY. Thank you. Ms. Bovbjerg, you are familiar 
with, I am sure, the bill that the House recently passed. It 
hasn't passed the Senate, so it is not law, just a House-passed 
bill. That bill would require employers to verify SSNs and 
employment eligibility through an electronic system modeled on 
the Basic Pilot program.
    Your organization, the GAO, though, in a 2005 report stated 
that the Basic Pilot program has some serious weaknesses. It 
does not detect identify theft. The DHS databases are not up to 
date. Employers may use the verification service to engage in 
discriminatory practices, and verifications may be delayed if 
system use increases substantially. Based on the GAO's 
research, if the Basic Pilot were to be made mandatory, as 
under the provisions of the House bill, would this system have 
the capacity to handle some 6 million employers in this 
country?
    Ms. BOVBJERG. We have some concern about that. When we did 
that work last year and looked at the processes at DHS, one of 
our recommendations was to assess the feasibility and cost of 
correcting the weaknesses in the Basic Pilot. This is a 
recommendation that the Department has accepted and said that 
they will pursue. Simply doing that is a big job. Making sure 
that those things are corrected is an even bigger job. I don't 
know whether they will be ready or not, but it would be 
something that I think DHS should be concerned about. SSA, 
however, says that they are ready for their part in a mandatory 
Basic Pilot.
    Chairman MCCRERY. How many employers now are covered under 
the Basic Pilot?
    Mr. O'CARROLL. I have that figure. About 8,000 employers 
are under the Basic Pilot.
    Chairman MCCRERY. Eight thousand.
    Mr. O'CARROLL. Out of 6.5 million employers.
    Chairman MCCRERY. Eight thousand. We go from 8,000 to 6.5 
million. Have you have any thoughts on if the Basic Pilot were 
made mandatory, would we see an increase in the use of 
counterfeit documents, like the SSN card or would we see an 
increase in identity theft, because people would know that they 
are being checked?
    Ms. BOVBJERG. If everything is up and running, and we are--
we as a government--are able to run a verification process like 
that----
    Chairman MCCRERY. Right.
    Ms. BOVBJERG. --I think it would undermine the value of the 
fake identity information. You would have to have a working 
system with a credible enforcement program behind it.
    Chairman MCCRERY. Which may involve changes to the SSN card 
itself, to make it tamper proof or less subject to theft, or--
--
    Ms. BOVBJERG. It depends really on what kind of role that 
the Social Security card would have in the whole I-9 process, 
which I know is under review at DHS.
    Chairman MCCRERY. Are you concerned that we are not ready 
as a government to move forward with making this program 
mandatory for all employers?
    Ms. BOVBJERG. I always like to try things out before we go 
to a full implementation, and I know we have been running the 
Basic Pilot as a pilot program. I think what we found is that a 
significant portion of the verifications have to be done by 
hand. That concerns me for opening it up to 6 million 
employers. Does that mean we can't do it? No. I think it means 
that we would have to really plan how we go forward and how 
long it is going to take to be ready to do that. I would be 
concerned if we went ahead with a mandatory verification where 
the government is not really prepared to provide the 
verifications that are required.
    Chairman MCCRERY. Mr. O'Carroll, do you have any thoughts 
on this?
    Mr. O'CARROLL. I concur. The reason we endorse pilots is to 
test a process to see how it is working. As I noted before, 
what we are getting from employers in terms of the Basic Pilot 
from our surveys is that employers like it. They feel it is 
working well. It is getting a great response. I think our 
responsibility and the GAO's responsibility is to monitor these 
pilots; give them some time to work out; and then report back. 
We have been working on surveys in relation to the Basic Pilot, 
and in relation to SSNVS to get more information for the 
Subcommittee as to the viability of rolling the Basic Pilot out 
to all 6.5 million employers.
    Chairman MCCRERY. Okay. Thank you. Mr. Lewis.
    Mr. LEWIS OF GEORGIA. Thank you, Mr. Chairman. Ms. 
Bovbjerg, your testimony implies that you think that the IRS 
should share tax return information with DHS. Are you saying or 
suggesting that the law should be changed?
    Ms. BOVBJERG. I am not ready to suggest that today. We have 
work underway for these Subcommittees looking at the Non-Work 
Alien File and how useful that might truly be to DHS 
enforcement efforts and what alternatives exist. Certainly the 
Earnings ESF could be an alternative, and it is something that 
we will also look at. I would say that even if there are data 
that could help DHS, if DHS is not ready to use that 
information in a credible enforcement program, that would not 
meet our criteria for providing tax access.
    Mr. LEWIS OF GEORGIA. Do you happen to know the views or 
the position of the Comptroller General?
    Ms. BOVBJERG. On this particular issue?
    Mr. LEWIS OF GEORGIA. Right.
    Ms. BOVBJERG. I do not. I have not spoken to him directly 
on this exact issue. I know that when we ask for 6103 authority 
ourselves, we only do it when we are positive that we need 
access to that information to do something in particular that 
we have already figured out what we are going to do. I am just 
a little concerned about going forward and saying DHS needs 
this information. When I am not sure they are ready to use it 
in an enforcement program.
    Mr. LEWIS OF GEORGIA. Thank you very much. Mr. O'Carroll, 
do you believe employers should have a greater responsibility 
to verify the identity, SSN, and immigration status of their 
employees? Where should the burden be?
    Mr. O'CARROLL. Mr. Lewis, I believe that employers do have 
such a responsibility. For example, we have noted in one of our 
audits that a certain employers are reporting the same SSN for 
900 different employees. There are trends, and I think that is 
the important part.
    Mr. LEWIS OF GEORGIA. Let me--you are saying a certain 
employer----
    Mr. O'CARROLL. Yes. One employer.
    Mr. LEWIS OF GEORGIA. One--the same SSN----
    Mr. O'CARROLL. Nine hundred times.
    Mr. LEWIS OF GEORGIA. Is that widespread or just one of the 
tools?
    Mr. O'CARROLL. I am using that as an egregious example, Mr. 
Lewis. What we are also finding is that certain employers are 
using sequential SSNs numerous times. They will submit an SSN 
for an employee. Then for the next employee, use the next SSN 
in the sequence. There are egregious employers out there. We 
think that it should be brought to their attention that they 
are incorrectly reporting the SSNs so that they can take 
corrective actions.
    Mr. LEWIS OF GEORGIA. Are you prepared today to make any 
particular recommendation for additional employer 
responsibility? If so, who supports your position?
    Mr. O'CARROLL. I believe what we noticed from the first 
panel today was that we have got three agencies that have equal 
concerns in terms of information that is being supplied by the 
employers. Each one has mentioned it in one way, shape, or 
form. We all have concerns as to the information we are getting 
from employers and we need to have methods to encourage 
employers to verify the SSNs they are reporting. Yes, I think 
that employers should--the laws that we have now should be used 
to force employers use better scrutiny in terms of the SSNs 
they are reporting.
    Mr. LEWIS OF GEORGIA. Thank you very much. Thank you, Mr. 
Chairman.
    Chairman MCCRERY. Mr. Ramstad.
    Chairman RAMSTAD. Thank you, Mr. Chairman. I want to thank 
both the witnesses for their testimony. Director Bovbjerg?
    Ms. BOVBJERG. Bovbjerg.
    Chairman RAMSTAD. Bovbjerg. I would like to ask you a 
question, if I may please? The GAO's 2005 report on immigration 
enforcement, are you familiar with that report?
    Ms. BOVBJERG. Yes, I am.
    Chairman RAMSTAD. The report found that the number of 
notices of intent to fine, as well as worksite enforcement 
arrests, by DHS had decreased considerably since 1999 in that 
6-year period. In fact, the report found that worksite 
enforcement arrests had declined by 84 percent between 1999 and 
2003. Shouldn't we be concerned with this lack of enforcement 
and since the GAO released its report last year, have you 
noticed any changes or improvements made by DHS in fulfilling 
its responsibilities?
    Ms. BOVBJERG. We know that what we were told about the drop 
off in the intention to fine and in the arrests had to do with 
not only a shift of focus to the anti-terrorism efforts that 
Secretary Baker spoke about in critical infrastructure areas; 
airports; power plants; and so on, that the agency is also 
looking at alternatives to making arrests and fines; that they 
are looking more at civil settlements as a way of more 
effective use of their resources.
    Whether they have taken actions that would change that 
approach I do not know. Our report was released at the end of 
the summer, in August, so there hasn't been a lot of time for 
DHS response to it.
    I do think that DHS has been very clear with us that there 
is a shift in priorities. They have limited enforcement 
resources, and we--in always looking at any kind of 
enforcement--I look at pension enforcement, too--we always say 
it is better to target the limited resources that you have.
    I think the question here is it only critical 
infrastructure enforcement that the Congress wants to see or 
does the Congress want to see a more general worksite 
enforcement, in which case those priorities would need to be 
reordered.
    Chairman RAMSTAD. Doesn't that mean enforcement is 
essentially a joke? An 84 percent decrease. I understand the 
reordering of priorities, but I also understand the laws and 
the regulations, and it seems to me that we shouldn't be 
picking and choosing which laws to enforce. You haven't really 
seen any changes or improvements by DHS in this regard since 
that report; is that a correct statement?
    Ms. BOVBJERG. I cannot really answer that question because 
I am not an expert on the immigration issue.
    Chairman RAMSTAD. I understand. Let me ask you for the 
remaining minute or two I have, IG O'Carroll, about information 
sharing between SSA and DHS. I know in a 2001 report, the SSA 
IG recommended that SSA collaborate with INS, which, of course, 
was then incorporated in DHS, to develop a better understanding 
of the extent that immigration issues contribute to SSN misuse 
and the growth of the ESF. Also, the SSA IG recommended that 
the SSA, reevaluate its application of existing disclosure laws 
or come to Congress for legislative authority to remove 
barriers that pertain to information sharing.
    Given the fact that this information sharing issue has been 
studied exhaustively I know by the SSA IG and so forth, do you 
have any conclusion or observations as to which data would you 
recommend SSA share with DHS?
    Mr. O'CARROLL. Yes, Chairman Ramstad. There is some very 
basic information that I believe would be useful, and it ties 
into my answer to Mr. Lewis. We have information on chronically 
bad employers, the ones that are hiring the vast majority of 
employees posting bad wages or using bad SSNs to post their 
employees wage reports. We feel that that is important that we 
should be able to inform those employers that one, we will be 
employing and notifying DHS of the trends in that employment 
industry, and the most egregious employers that are involved in 
the industry and posting bad wage reports and two, as part of 
SSA's employer outreach programs and let them know that they 
are one of the worst violators in forms of the posting bad 
wages reports. I think that would have a very positive effect 
in terms of the education of employers as well as enforcement.
    Chairman RAMSTAD. Again, I want to thank both the 
witnesses.
    Chairman MCCRERY. Ms. Tubbs Jones.
    Ms. TUBBS JONES. Thank you, Mr. Chairman. I always have to 
take myself back to other jobs when I start thinking about some 
of this. When I first became the elected DA in Cuyahoga County, 
Ohio, we had no computer system connecting the prosecutor, the 
courts, the sheriff. It was the craziest thing, and I sat and 
said, it can't be that all these smart people can't figure out 
what they are supposed to do with all this information.
    I am stunned in your statement--I think it is Ms. 
Bovbjerg's statement--let me check and make sure before I--no, 
I am sorry--Mr. O'Carroll's statement at page 5, you say while 
SSA and DHS have extensive information at their disposal, they 
have been unable to find a way to work with the information to 
prevent, detect, and enforce unauthorized employment.
    How many people do you have allocated to figuring out a way 
you work with all this information to get an answer?
    Mr. O'CARROLL. Being in the IG's office, we have made 
recommendations to SSA and to DHS to work those issues out. 
What was stated in the earlier testimony this morning from DHS 
is that they have problems with the SSA information they are 
given. For example, SSA tracks the individuals by their SSN, 
while DHS indicated that it tracks the individual by their 
Alien Number. Because of that, they have had difficulties in 
matching the SSA information.
    We have made numerous recommendations asking for the two 
agencies to work with each other. I agree with you, 
Congresswoman Tubbs Jones, I think technology has caught up to 
a point now that with the other information that is in that 
file, even though one agency tracks under one number, and 
another agency tracks under a different number, that they 
should be able to find a commonality to be able to identify 
which person is which, and pick up the trends. It ties in with 
what my colleagues from GAO have found that there is a lot of 
useful information that is going over to DHS that they can be 
using for their trend analysis if they have inclination to use 
the available computer technology to be able to make that 
information viable.
    Ms. TUBBS JONES. The money that comes from--okay. I am an 
employee, and I am in an ESF. The dollars, the FICA dollars 
that I pay, where do they sit? Do they collect interest? What 
happens with those dollars if I am in the ESF mode? The 
employer had to pay it, whether it was right or wrong; right?
    Ms. BOVBJERG. Yes. We--the government have already spent 
that money. It is just cash into the Treasury.
    Ms. TUBBS JONES. It is just cash into the Treasury?
    Ms. BOVBJERG. Yes. Yes. The record of that contribution of 
yours--SSA doesn't know it is yours, or it wouldn't be in the 
ESF.
    Ms. TUBBS JONES. Right. Understand.
    Ms. BOVBJERG. It is still there, with your earnings record.
    Ms. TUBBS JONES. What would you--what is your 
recommendation? Take your--can you take your hat off as an 
employee of the Federal Government----
    Ms. BOVBJERG. Never.
    Ms. TUBBS JONES. --let's see. I give you immunity. With 
what the heck should we be doing? This is outrageous that we 
can't work out a system in which to address this. I am big on 
privacy. I don't want you to invade my privacy, and I have 
already claimed that my SSN is used for everything but my 
Social Security. What would you do? You have been in this 
business a long time. Let us figure it out. What can we do? I 
have got probably 2 minutes, so each of you get a minute left.
    Ms. BOVBJERG. Okay. Well, I will talk fast. I can never 
take my GAO hat off.
    Ms. TUBBS JONES. Okay. Pretend. I want to put another hat 
on top of the GAO hat. Consultant to the Subcommittee on Social 
Security.
    Ms. BOVBJERG. We have said before that we need to improve 
the data that are reported at the worksite; that that would 
help SSA. It would also help discourage unauthorized work.
    Ms. TUBBS JONES. Then better thing we need to do is have 
one location? If you want to go work for ABC Company, you come 
to this location. You give us the information, and we send all 
that information to ABC company, then we already have a place 
where we collect all the information about workers. Has anybody 
ever thought about that?
    Ms. BOVBJERG. Well, in some ways, a verification system----
    Ms. TUBBS JONES. The lady behind you is frowning. Come on 
you can tell me.
    Ms. BOVBJERG. --in some ways a verification system that 
does go to SSA and DHS is going to a central repository.
    I think that really what I am talking about is that we have 
not established a credible system of penalizing employers for 
misreporting. That is something that the IRS is working on I 
understand. That is something that they need to work on with 
SSA and DHS. It is not only a tax issue, and it is something 
that would help reduce suspense file mismatches. It is very 
fundamental. The other side is that we need to devote some 
resources, whether existing resources or additional resources I 
don't know, but we need to devote some resources to general 
worksite enforcement at DHS.
    Ms. TUBBS JONES. Begging your indulgence, Mr. Chairman, can 
I get a 1-minute response from Mr. O'Carroll?
    Mr. O'CARROLL. Probably the most valuable lesson that I 
learned from the first panel today was when the Commissioner of 
IRS asked for 1 year to come back and report to you to see what 
has changed in that year. One of those things I would like to 
see changed in that year is that IRS would use their 
enforcement capabilities to penalize the employers that are 
chronically misreporting wage information.
    The other thing that I would like to see happen in this 
year regarding the information that we have been giving to DHS, 
which is identifying problem employers for non-work aliens 
would be, for DHS to initiate some action on the information. 
Hopefully, in my tenure as the IG, we will see that these three 
agencies are talking to each other and that we get synonymous 
databases where we can all be working off of the same 
information.
    Ms. TUBBS JONES. My guess is the employers know what a hard 
time we are having trying to figure this out, and they said, 
the heck with y'all. We will just go on and do our thing, and 
when you all catch up with us, we will have gotten our workers, 
made our money, and probably gone bankrupt or whatever.
    Thank you, Mr. Chairman.
    Chairman MCCRERY. You are quite welcome. Mr. Levin.
    Mr. LEVIN. Thank you. I am sorry I was at another meeting, 
and I missed the testimony. I guess I think I know enough about 
it to ask a couple quick questions. Your comment about wishing 
that we would penalize employers for false information more 
effectively. This has been an issue we have been discussing for 
a long time. The assumption underlying that statement is that 
in many cases, we know enough, we have enough information, to 
put to employers who are not meeting the law. Is that a correct 
statement?
    Ms. BOVBJERG. In my belief, we do. The reasonable cause 
standard that the IRS uses is waived if there is intentional 
disregard. I still do not understand why intentional disregard 
is not used more frequently because, as Mr. O'Carroll reported, 
we have employers who time after time after time use the same 
SSN for all their employees. That is a little different I would 
submit than goofing up and mis-reporting once.
    Mr. LEVIN. I think it is important for us to take that into 
account because if the focus is mainly on the data, we may not 
understand the full picture, because what you are saying is in 
many cases where we have the data, and much of it relates to a 
smaller number of states, and I think you testified a 
relatively small number of companies, there hasn't been 
effective action vis a vis those companies.
    Secondly, if all this data pours in, how do you think it is 
disaggregated by DHS so that they can go after their main 
target and that is potential terrorists? Has anyone figured out 
what the relationship would be between more data available to 
DHS and the implementation of their basic function?
    Ms. BOVBJERG. That is a concern we have, and that is 
something that we are going to look at as part of the work that 
we are doing for the Subcommittees on the non-work alien file 
and other sources of data that might be useful to DHS.
    Mr. LEVIN. Okay. Thank you, Mr. Chairman.
    Chairman MCCRERY. Thank you, Mr. Levin. Thank you, Mr. 
Ramstad, Mr. Lewis, and thank you, Mr. O'Carroll and Ms. 
Bovbjerg, very much for your testimony. This is an issue that 
does require I think a lot of thought, and we are looking 
forward to receiving at some point from the Administration some 
concrete proposals as to how to tighten this system to say the 
least. Thank you very much.
    Ms. BOVBJERG. Let us know if we can help.
    Chairman MCCRERY. The hearing is adjourned.
    [Whereupon, at 12:43 p.m., the Subcommittee was adjourned.]

    [Questions submitted by Chairman McCrery to the Honorable 
James B. Lockhart and his responses follow:]

    Question: The SSA sends letters to employers who report more than 
10 W-2s with a name/SSN mismatches, representing at least one-half of 
one percent of all W-2s, reported by the employer. The SSA also sends a 
letter to each employee who has earnings with a name/SSN mismatch. What 
is the impact of these letters on removing wage reports from the 
earnings suspense file?
    Answer: The SSA has ongoing efforts, such as the No Match Letter 
and the Social Security Statement, that provide individuals with an 
opportunity to review and correct their earnings records. In addition 
to SSA's initiatives, a worker may discover an error in his/her 
earnings when s/he gets a Form W-2 with incorrect information, or even 
when the IRS withholds an expected income tax refund. Once an error is 
identified, there are several ways the worker can notify SSA to correct 
the earnings record. However, we cannot quantify the number of wage 
reports removed from the earnings suspense file as a result of any one 
of these ongoing efforts.
    As noted, the employer and employee No Match letters are one way 
SSA tries to notify a worker of the possibility of errors in his/her 
Social Security record. Letters sent to employees include a scannable 
form on which the worker may submit corrections to SSA. For tax year 
(TY) 2003, we removed 206,000 records from the earnings suspense file 
based on these scannable forms. We cannot tell how many records were 
corrected by employees contacting SSA in another way, for example by 
contacting a local filed office.
    Similarly, the employer No Match letter asks employers to submit a 
corrected Form W-2 if the original information that the employer 
submitted was incorrect. Our best proxy for gauging responses to the 
employer no match letter is the number of corrected Forms W-2 (W-2C) 
SSA receives that correct only name and/or SSN. For TY 2003, we 
received 241,000 such corrected W-2s. However, of those, approximately 
196,000 provided corrected information on wage items SSA had already 
been able to correct and post to the worker's record. Generally, this 
occurs because the employee No Match is sent prior to the employer's No 
Match letter, allowing the employee to take action to correct his/her 
record before the employer submits a Form W-2C. Fewer than 7,000 
records were actually removed from the suspense file as a result of 
corrected Forms W-2. The remaining Forms W-2C submitted did not provide 
correct information.
    It should be noted that, in some cases, the employee's information 
on the submitted Form W-2 is more current than the information in SSA's 
records (for example, when an employee gives her married name to her 
employer but has never notified SSA to report her legal name change). 
It is the employee's responsibility to update his or her information 
with SSA. Once SSA's records have been updated to reflect the most 
current information, the wages can be posted to the individual's 
record. A corrected Form W-2 is not needed.

    Question: In 2002, rather than send letters to employers with more 
than 10 W-2s with name/SSN mismatches, SSA sent letters to each 
employer with even one W-2 with a name/SSN mismatch. Why did SSA not 
continue that policy?
    Answer: In calendar year 2001 (Tax Year (TY) 2000), SSA sent 
109,157 letters to employers. In calendar 2002 (TY 2001), SSA sent 
950,000 letters to employers. Every employer with even one name/SSN 
combination that did not match SSA records received a letter. In 
evaluating the effectiveness of this activity, we determined that the 
total cost to SSA, including the cost of producing and mailing the 
letters and handling follow-up calls to employers, was approximately 
$1.3 million. For reasons discussed above, we estimate that only about 
35,000 items were actually removed from the suspense file. As a result, 
SSA determined that sending letters to all employers with W-2s that 
could not be posted was disruptive and not a cost-effective use of 
resources. In calendar year 2003 (TY 2002), SSA instituted our current 
threshold for sending employer No Match letters, sending 126,000 such 
letters to employers. However, though the number of letters was greatly 
reduced, the No Match letters that were sent to employers covered 7.6 
million out of a total of 9.8 million mismatches, at a savings of 
approximately $1 million from the previous year. In addition, employers 
received 1.9 million individual letters for employees, for whom we did 
not have valid addresses.

    Question: Several bills introduced this Congress would require 
employers to verify the employment eligibility of new hires through a 
database that combines data from the SSA's SSN applications and DHS's 
immigration records. Currently, in the Basic Pilot program, the two 
sources of data are kept separate, and each agency independently 
verifies the information without sharing it with the other agency. Is 
there any particular advantage or disadvantage to combining the 
databases? Would it increase the accuracy of the data? Would it 
increase the speed of verifications? Would it improve program 
administration? What effect might it have on the privacy of personal 
information?
    Answer: The Basic Pilot Program matches the information submitted 
by an employer against the information in SSA databases and DHS 
databases. Each agency maintains the data necessary for the 
administration of its programs. By specializing, each agency focuses on 
its respective primary mission. Each must be responsible for its own 
business processes, including the collection, integrity and accuracy of 
certain information. If these databases were to be combined, one agency 
would be burdened with the management of data which it does not 
collect, cannot verify and which is not related to its business 
purposes. Also, it would require additional resources for that agency. 
Further, a combined data base would be less accurate than two separate 
data bases since combining the data would involve transmitting updated 
information from the source data base. At any point in time, some data 
on the combined data base would be out of sync with the source data 
base that contains the most current information.
    Since the current process is online, the increase in the speed of 
verifications would probably be negligible. Creating a database 
maintained by one agency might well increase the length of time to 
correct information because each agency would retain the applicable 
business process to ensure that policy was followed in entering and/or 
correcting the data.
    With regard to the effect on the privacy of personal information, 
combining the databases could undermine certain privacy interests 
currently recognized in the Privacy Act 1974 (P.L. 93-579). For 
example, the Privacy Act protects the principle of minimization, which 
ensures that agencies retain only such information necessary to 
accomplish a program mission. In addition, the Privacy Act also 
suggests that information be collected to the extent possible from the 
subject of the record, as opposed to other sources such as Federal 
agencies. However, if Federal statute required combining the databases, 
every effort would be made to assure that the newly created system of 
records would conform to Privacy Act principles and standards for 
security, just as the separate databases are protected today.

    Question: In a 2001 report, Obstacles to Reducing SSN Misuse in the 
Agriculture Industry, the SSA IG recommended proposing legislation that 
would provide SSA with authority to require chronic problem employers 
to use the Agency's SSN verification services. At the time, SSA 
disagreed, saying the IRS already had authority to penalize employers 
who do not comply with wage reporting requirements. However, as the IRS 
has no record of penalizing even employers with high name/SSN mismatch 
rates in their wage reports, would SSA rethink its position?
    Answer: We continue to believe that the ability to impose sanctions 
on employers who fail to provide matched names and SSNs for their 
employees should be the sole responsibility of the IRS. Sanctions 
against employers serve as a tool to obtain compliance with employment 
tax withholding and reporting requirements which are under the 
jurisdiction of the IRS. Unlike the IRS, SSA does not have the tools to 
enforce a compliance program against employers. Attempting to establish 
such a program within SSA would take resources away from SSA's primary 
mission and could adversely affect public trust and confidence in the 
program.
    We note that the Administration recognizes worksite enforcement as 
a critical component of comprehensive immigration reform, and it 
supports mandating an employment eligibility verification system in a 
manner that is not overly burdensome to employers. The Administration 
looks forward to working with Congress to ensure that implementation of 
such a system makes efficient use of technology, is operationally 
effective, and gives employers the tools they need to verify work 
eligibility quickly and accurately.

    Question: In a February 2005 report, GAO said that SSN verification 
services for paper or phone requests require the worker's date of 
birth, but that electronic requests do not. Why is the date of birth 
required only for verification through certain media? Would correcting 
this inconsistency in SSN verification services help prevent 
individuals from using the SSNs of children to engage in unauthorized 
work?
    Answer: The SSA has always offered name/SSN verification services 
to employers to ensure that an employee's name/SSN matches for wage 
reporting purposes. The telephone and paper listing versions of the 
Employee Verification Service, and our Field Office procedures, have 
been in use for many years, and require four fields for verification: 
name, SSN, date of birth (DOB), and gender.
    SSA's new SSNVS was designed as a quicker and more convenient 
verification service for employers. During its development, we obtained 
input from potential users. Employers advised SSA that requiring DOB 
and gender presented an additional, and perhaps unnecessary, burden, 
since this information is not needed for wage reporting and is not 
included on the Form W-2. In response to that feedback, SSA designed 
SSNVS to include the DOB and gender as optional fields to help 
employers to distinguish between, for example, two Pat Smiths.
    The SSA did not change the other verification services which 
require the DOB and gender field when SSNVS was developed. However, we 
continue to examine the requirements in our verification systems to 
determine whether changes may be needed.

    Question: The SSA requires employers to register to use the 
Agency's SSN verification services if the employer is requesting more 
than 50 verifications, or any number of verifications using magnetic 
media. Therefore, employers calling the Agency's toll-free 1-800 number 
to verify up to five names and SSNs are not required to register, nor 
is anybody requesting verification of up to 50 names by submitting the 
request on paper. What does the registration agreement require of 
employers? Why does the Agency have different registration requirements 
based on the number of requests and the media used, especially since 
the GAO noted in February 2005 report that some SSA officials believe 
that some larger employers with significant turnover have dedicated 
staff whose job is to call the 1-800 number throughout the day to 
bypass the five-worker per call verification limit?
    Answer: Through our toll-free numbers, SSA offers Employee 
Verification Service (EVS) for up to five name/SSN combinations at a 
time. For purposes of this activity, the employer's EIN (Employer 
ldentification Number) is verified, but we do not require registration. 
In addition, up to 50 name/SSN combinations can be submitted on paper 
to our local field offices for EVS. Again, registration is not 
required.
    For large scale EVS requests, that is, over 50 name/SSN 
combinations, a registration process is required. To register for EVS, 
employers must complete a registration form and have it signed by a 
manager or authorized official of the company. The title of the signer 
must follow the signature. The employer must also sign and date a 
Federal privacy act statement. These forms (and explicit instructions) 
are available in the Employee Verification Service Handbook at http://
www.ssa.gov/employer/ssnvadditional.htm The registration form and the 
privacy act statement must be mailed or faxed to SSA. Once SSA has 
processed the registration request, SSA mails the employer a Requester 
ldentification Code. This code must be displayed on the paper or 
magnetic media submission and on any EVS correspondence with SSA.
    The Federal Privacy Act Statement makes it clear that anyone who 
obtains SSN verification information under false pretenses, or uses it 
for a purpose other than for which it was requested, may be punished by 
fine, imprisonment or both. It also makes it clear that any employer 
that uses the information SSA provides regarding name/SSN verification 
as a pretext for taking adverse action against an employee may violate 
state or Federal law and be subject to legal consequences.
    We are studying the issue you raise regarding different 
registration requirements to determine whether procedures are needed to 
advise employers calling the 800 number of the sensitivity of the 
verification information they are requesting and the importance of 
using it carefully.

    Question: The SSA currently does not have authority to pursue civil 
or criminal penalties for employers who submit wage reports with name/
SSN mismatches. Similarly, SSA does not have the authority to require 
employers with a high number of percentage of name/SSN mismatches in 
their wage reports to confirm employees' information using the Agency's 
verification services. Would you recommend that Congress give SSA such 
authority? If Congress were to give such authority to SSA, how might 
the Office of the Inspector General utilize it? Could you provide your 
recommendations for specifying such authority?
    Answer: Currently, the U.S. Department of the Treasury and, 
specifically, the IRS have enforcement authority over employers with 
respect to the submission of wage reports and payment of employment and 
income taxes both for the employer and the employee.
    The SSA processes wage reports (W-2s) as an agent for the IRS. 
These tax documents are submitted each year by employers. The IRS is 
aware of any errors in these reports. The IRS has full enforcement 
authority over employers with regard to the submission of erroneous tax 
information, including the submission of erroneous W-2s. In addition, 
DHS has sole authority to enforce worksite compliance with immigration 
laws.
    The SSA is not an enforcement agency. The SSA IG does investigate 
cases where, for example, individuals defraud the Social Security 
system of funds or submit false information in order to claim benefits. 
Any information developed by the IG is then turned over to appropriate 
SSA employees or to a U.S. attorney for appropriate action. However, 
SSA does not have expertise in enforcement of tax reporting 
requirements. Before making such a fundamental change in SSA's mission 
from that of a benefit paying agency to tax reporting enforcement 
agency with concurrent jurisdiction with IRS, I believe Congress would 
want to carefully consider the impact of such a change on SSA 
priorities and costs. Such a change would alter the perception of the 
Agency in the eyes of the public as well as diminish the enforcement 
effectiveness of the IRS and DHS.

    Question: The Commissioner of the IRS expressed concern in his 
testimony about the effect of increased enforcement of wage reporting 
accuracy on tax compliance. What are your thoughts on the potential 
implications for your Social Security's finances? In other words, do 
you believe increased enforcement would result in more payroll taxes 
being collected, or less? Also, please provide any information you have 
on the effect of non-payment of payroll taxes on the wages of tax 
paying workers. In other words, if employers can hire employees while 
avoiding payroll taxes, does that depress wages for all employees?
    Answer: By law, the OASDl trust funds are ultimately credited with 
amounts reflecting tax liability due for all wages in OASDl covered 
employment reported by employers on Forms 941 and W2 (and not with 
amounts actually collected). The IRS and SSA have programs in place to 
resolve inconsistencies in total wages reported by employers on the 
forms. Hence, an increase in enforcement of wage reporting accuracy on 
employers would influence OASDl revenue only to the extent that it 
affects the amount and timing of wages reported by employers.
    With regard to whether increased enforcement activity in this area 
would result in a decrease in wage reporting and therefore a decrease 
in wage tax receipts, SSA would defer to the expertise of the IRS in 
evaluating the impacts of this type of change on wage reporting and tax 
compliance.
    The SSA would defer to IRS and the U.S. Department of Labor with 
respect to the impact of nonpayment of payroll taxes on the wages of 
taxpaying workers.

    Question: The Immigration Reform and Control Act (IRCA) of 1986 
(P.L. 99-603) prohibited the hiring of illegal alliens and mandated 
fines for violators. Why then are employers not permitted to use the 
SSA's SSN verification services to screen potential workers before they 
are hired? Would it require a change in law to allow employers to use 
the SSA's SSN verification services to verify information on potential 
hires? What would Congress need to do to be sure that applicants are 
screened before they start working?
    Answer: There would need to be a change in law in order for SSA to 
verify information on potential hires. Under existing law, the purpose 
for which SSA verifies SSNs for employers is not for employment 
verification purposes. The only system that verifies work authorization 
is the Basic Pilot. SSA's employee verification service is for employer 
wage reporting purposes under the provisions of section 232 of the 
Social Security Act (P.L. 74-271). In these situations, there is an 
established relationship between the employers and the individuals.
    Under the Privacy Act 1974 (P.L. 93-579) routine use provision (5 
U.S.C.  552a (b)(3)), SSA may disclose information for a purpose which 
is compatible with the purpose for which we collect and maintain 
information. SSA's disclosure regulations that implement the Privacy 
Act (20 C.F.R.  401.150) provide that we may disclose information 
where necessary to carry out SSA's programs. Under the Social Security 
Act, SSA collects enumeration information in order to assign SSNs so 
that SSA can post wage credits to the appropriate worker. The SSA 
verifies SSNs for employers solely for the purpose of accurately 
completing the Internal Revenue service's Forms W-2 (Wage and Tax 
Statement). Forms W-2s are submitted to SSA for the purpose of posting 
earnings to an individual's record, which will be used to determine 
future Social Security benefits. Absent a change in law, SSA lacks 
authority under the Privacy Act to disclose the information prior to 
the creation of the employer-employee relationship.
    Concerning SSN verification for 'potential' employees (e.g., when 
an individual has filed an application for employment but the employer 
has not made a commitment to hire hirnlher), we note that there is no 
established relationship between the employer and the individual, i.e., 
there is no basis to assume that the employer will hire and submit a 
wage report for himlher. Thus, the employer has no need to verify the 
SSN for wage reporting purposes. In such cases, we cannot establish the 
requisite Privacy Act and regulatory compatibility criteria to justify 
verifying SSNs for the employer. In addition, our understanding is that 
individuals are not required to complete the Form 1-9 (which requires 
their SSNs) until after they are hired. Pertinent language on the 1-9 
form indicates that it is ``To be completed and signed by the employee 
the time employment begins.'' (Our emphasis.) We believe a change in 
law may be necessary in order to verify the SSN before the person is 
hired.
    An employer may use DHS' Basic Pilot or SSA's SSNVS services 
immediately after hiring an individual. If the employer submits 
information about an employee that does not match information in DHS or 
SSA records, the employers should ask the employee to contact SSA and/
or DHS to correct its records.

    [Questions submitted by Chairman McCrery to the Honorable Patrick 
P. O'Carroll and his responses follow:]

    Question: In a 2001 report, the SSA IG recommended that SSA 
collaborate with the U.S. Immigration and Naturalization Service (INS) 
(which was incorporated into DHS to develop a better understanding of 
the extent to which immigration issues contribute to SSN misuse and 
growth of the ESF. Also, the SSA IG recommended that SSA reevaluate its 
applications of existing disclosure laws or seek legislative authority 
to remove barriers that would allow the Agency to share information 
regarding chronic problem employers with the INS. Given that the SSA IG 
has extensively studied the ESF, what data would you recommend SSA 
share with the DHS?
    Answer: The SSA has information related to suspended wages, 
including information reported by the employer during the Annual Wage 
Reporting process and information provided by the IRS. As part of the 
Agency's efforts to resolve employee name and SSN discrepancies, SSA 
places suspended wage data into a Decentralized Correspondence (DECOR) 
mailer file so notices can be sent to employees and employers. This 
information includes:

      Employee's name as reported on the Wage and Tax Statement 
(Form W-2);
      Employee's SSN as reported on the W-2;
      Employee's address as reported on the W-2;
      Employer's Employer Identification Number (EIN) as 
reported on the W-2;
      Address associated with the EIN taken from SSA's Employer 
Identification File supplied by the IRS;
      Employee's wages as reported on the W-2; and
      Tax year associated with the wages on the W-2.

    We believe DHS representatives are in a better position to 
determine the full extent of SSA information that would assist them in 
properly enforcing the Nation's immigration laws. However, initially, 
DHS may be most interested in a list of employers who repeatedly and 
egregiously file incorrect wage reports, because it appears to indicate 
the employment of unauthorized noncitizens. For example, SSA could 
provide DHS information regarding the top 100 employers with the 
largest number or percentage of wage items in the ESF. To pursue 
possible investigation and enforcement actions against these employers, 
DHS would need the employer's name and address, the number of employees 
with mismatched names/SSNs, the percent of reported payroll that these 
suspended items represent, and the tax year(s) in question. If DHS 
determined a more in-depth investigation was necessary, it might also 
need individual taxpayers' names and reported SSNs to assist them in 
reviewing employee files. The SSA obtains this information through the 
wage reporting process and IRS records. Accordingly, the employee wage 
information is subject to privacy protections afforded by section 6103 
of the Internal Revenue Code. As such, any data sharing would likely 
require discussions between SSA, DHS and IRS to ensure a proper 
understanding of the data and compliance with existing laws.

    Question: In a 2001 report, Obstacles to Reducing SSN Misuse in the 
Agriculture Industry, the SSA IG recommended introducing legislation 
that would provide SSA with authority to require chronic problem 
employers to use the Agency's SSN verification services. At the time, 
SSA disagreed, saying the IRS already had authority to penalize 
employers who do not comply with wage reporting requirements. Given the 
fact that the IRS has no record of penalizing even employers with the 
largest number or percentage of name/SSN mismatches on W-2s reported, 
would you encourage SSA to rethink its position?
    Answer: We made this recommendation to SSA for the purpose of 
addressing employers who frequently and egregiously report wages for 
employees with name and SSN discrepancies. We continue to believe that 
to significantly stem the growth of SSA's ESF, chronic problem 
employers should be required to use a verification service. At the time 
of our 2001 report, the SSA/DHS Basic Pilot was not widely available. 
However, this program is now open to all employers nationwide. This 
program has an advantage over SSA's enumeration verification services 
in that it also provides information to employers regarding an 
employee's work authorization status. Accordingly, we would now 
encourage the use of this program.
    We certainly recognize the implications of requiring employers to 
use such a service--including the impact on labor availability for 
employers who are reliant on the unauthorized noncitizen workforce. 
However, in lieu of IRS penalties and DHS workplace enforcement, we 
believe requiring chronic problem employers--who do not already do so--
to use the SSA/DHS Basic Pilot could be the best method to address ESF 
growth. Given that IRS and DHS currently have primary enforcement 
authority, many of these employers may also be hiring individuals in 
violation of the Immigration and Naturalization Act (P.L. 99-603), and 
the Basic Pilot is primarily maintained by DHS, we believe DHS may now 
be in a better position to enforce a provision such as the one we 
recommended in our 2001 report.

    Question: The SSA currently does not have authority to pursue civil 
or criminal penalties for employers who submit wage reports with name/
SSN mismatches. Would you recommend that Congress give SSA such 
authority? If Congress were to give such authority to SSA, how might 
the Office of the IG utilize it? Could you provide your recommendations 
for specifying such authority?
    Given that many of these employers may also be hiring individuals 
in violation of the Immigration and Naturalization Act and misreporting 
wages in violation of the Internal Revenue Code, we believe IRS and DHS 
may be in a better position to pursue civil or criminal penalties for 
employers who submit wage reports with name/SSN mismatches.
    However, if Congress were to afford SSA with the authority to 
pursue civil or criminal penalties for employers who submit wage 
reports with name/SSN mismatches, the Office of the IG could utilize 
such authority under section 1129 of the Social Security Act for false 
statements and/or representations made to SSA, the felony fraud 
provisions of the Act found in Title II (42 U.S.C.  408(a)(1)-(8) and 
Title XVI (42 U.S.C.  1383a(a)(1)-(4)), and various Title 18 criminal 
provisions. With such authority, we recognize that potential 
jurisdictional issues with IRS will need to be resolved.

    Question: In a February 2005 report, GAO said that SSN verification 
services for paper or phone requests require the worker's date of 
birth, but that electronic verification requests do not. Would 
correcting this inconsistency in SSN verification services help prevent 
individuals from using the SSNs of children to engage in unauthoirzed 
work?
    We agree that requiring the employee's date of birth in SSA's 
electronic employee verification services would offer an additional 
level of assurance concerning the identity of the employee and 
potentially prevent individuals from misusing the SSNs of children. The 
employee's date of birth is currently an optional field in SSA's 
Employer Verification Service for Registered Users and SSNVS. As a 
result, these systems are already capable of verifying an employee's 
date of birth when it is provided by an employer. Furthermore, SSA 
participates in the joint SSA/DHS Basic Pilot program, which requires 
the employee's date of birth as part of the overall verification 
process.

    [Questions submitted by Chairman McCrery to Barbara Bovbjerg and 
his responses follow:]

    Question: If the Basic Pilot were made mandatory, is it likely that 
we would see an increase in the use of counterfeit documents like the 
SSN card? Would we see an increase in identity theft?
    Answer: In our August 2005 report on employment verification and 
worksite enforcement efforts, we said that the Basic Pilot Program has 
potential to help enhance the verification process and substantially 
reduce document fraud (use of counterfeit documents) but is unable to 
detect identity fraud (fraudulent use of valid documents or information 
belonging to others). A mandatory Basic Pilot verification could make 
some counterfeit documents more difficult to use to falsely demonstrate 
work authorization. For example, if an unauthorized worker presented 
counterfeit documents containing false information, the Basic Pilot 
program would not confirm the worker's eligibility because the 
Employment Eligibility Verification Form I-9 information, such as a 
false name or SSN, would not match the SSA's and DHS database 
information. An increase in counterfeit Social Security cards, 
specifically, seems unlikely because the Social Security card is only 1 
of 15 documents that can be used to prove eligibility to work. While 
workers are required to provide an SSN, they are not required to show 
the card to obtain employment. In addition, use of a counterfeit Social 
Security card with a false name or number could be detected by 
employers using the Basic Pilot.
    On the other hand, the Basic Pilot's verification system cannot 
detect identity fraud. The fraudulent use of documents containing the 
real names, SSNs, and alien identification numbers of work-authorized 
persons could be used to demonstrate work eligibility and would not be 
detected through Basic Pilot's verification system. An unauthorized 
worker could present valid documentation belonging to a work-authorized 
person or could present counterfeit documentation that contains valid 
information and appears authentic. In either instance, the Basic Pilot 
may verify the employee as work-authorized because the documentation 
matched SSA and DHS data. It is possible, therefore, that identity 
fraud could increase with mandatory verification, as unauthorized 
workers could have new incentives to use identities of work-authorized 
individuals. However, the extent to which identity fraud might increase 
and unauthorized work might decrease is unknown. The DHS is currently 
considering possible ways to enhance the Basic Pilot Program to help 
detect cases of identity fraud.
    The requirements established in the REAL ID Act of 2005 (P.L. 109-
13) for the issuance of state driver's licenses and identification 
documents, have the potential to improve identity verification. 
However, this form of identification is 1 of 20 documents acceptable 
for proving identity in the I-9 process, and identity fraud could still 
be possible.

    Question: Several bills introduced this Congress would require 
employers to verify the employment eligibility of new hires through a 
database that combines data from the SSA's SSN applications and the DHS 
immigration records. Currently, in the Basic Pilot program, the two 
sources of data are kept separate, and each agency independently 
verifies the information for employers without sharing it with the 
other agency. Is there any particular advantage or disadvantage to 
combining the databases? Would it increase the accuracy of the data? 
Would it increase the speed of verifications? Would it improve program 
administration? What effect might it have on the privacy of personal 
information?
    Answer: Combining DHS's immigration records and SSA's cardholder 
data likely would not improve the employment eligibility verification 
process because the existing problems in the verification process are 
not related to the data sources being kept separate. Using two 
different databases to verify different pieces of information does not 
hinder the verification process, as long as the employment verification 
program is able to query the appropriate databases to verify the 
relevant information. Delays identified in Basic Pilot's verification 
process are often the result of delays entering data into DHS's 
database after DHS makes its initial work eligibility determinations. 
Since its database is not up-to-date, DHS employees need to verify some 
work authorizations manually. Combining the databases would not 
increase the speed of verifications if the speed of DHS's data entry 
remains unchanged.
    Combining the databases would also not improve the accuracy of 
results provided to the employer because the source of the information 
would remain the same. The SSA's cardholder identification file is used 
to verify name, SSN, and citizenship, and DHS's immigration records are 
used to verify employment authorization using an alien identification 
number. The SSA's database contains demographic information collected 
when the SSN was issued or updated, as with a name change, its database 
does not reliably contain up-to-date information on the work 
authorization status of noncitizens. Although combining the two could 
update SSA's work authorization data, combination is unnecessary for 
establishing work authorization.
    The SSA's program administration might be slightly improved by 
linking the databases and updating some SSA information on work 
authorization, but combining them would not be necessary to achieve 
these improvements. For example, if DHS's data could be used to 
automatically update SSA's work authorization information, SSA's 
Nonwork Alien file could potentially become more accurate. However, 
linking the two databases may be challenging due to the lack of a 
common identifier. It is not clear how difficult the task of linking 
the two databases might be, but our ongoing work for the Subcommittee 
on coordination between SSA and DHS will address these issues.
    In addition to providing little, if any, advantage in terms of 
speed or accuracy, there are possible disadvantages to combining the 
databases. These databases were developed to aid in the administration 
of two different programs. Combining them could detract from their 
intended purposes and could prove costly.

    Question: In an August 2005 report, GAO said that document and 
identity fraud have undermined the ``Form I-9'' process--the process 
required under immigration law by which employers verify the identity 
and employment eligibility of newly hired employees. The GAO 
recommended a reassessment of the Form I-9 process, including the 
possibility of reducing the number of acceptable work eligibility 
documents. Some bills have been introduced this Congress that would 
make the SSN card the sole identity and employment eligibility document 
employers could accept, or alternatively would use a combination of an 
SSN card and a state driver's license or ID card that complies with 
standards established in the REAL ID Act or a federally-issued ID 
document. Do you have any thoughts or recommendations on how to reduce 
the documents employees are required to present to prove identity and 
employment eligibility?
    Answer: The DHS is currently assessing possible revisions to the 
number of acceptable work eligibility documents but has not established 
a target timeframe for completing this assessment. Completion of this 
assessment and issuance of final regulations on acceptable work 
eligibility documents should strengthen the current employment 
verification process and make it simpler and more secure. In addition 
to a reduction in the number of acceptable work eligibility documents, 
enhancing the integrity of identity and work eligibility documents is 
also an important consideration in making the employment verification 
process more secure. We have previously reported on the possible use of 
biometrics in verification and identification processes. Biometrics can 
theoretically be very effective personal identifiers because the 
characteristics they measure are thought to be distinct to each person. 
While biometrics show promise in enhancing verification and 
identification processes, we have also reported on the tradeoffs for 
using biometric indicators, such as concerns regarding the protections 
under current law for biometric data and the absence of clear criteria 
governing data sharing.
    The Social Security card is of limited use in proving eligibility 
to work and does not verify identity at all, it is a weak document in 
the I-9 process, which requires employers to verify the identity and 
work authorization of newly hired employees. The Social Security card 
is 1 of 15 documents that may be used to establish an individual's 
eligibility to work. The card has had many different versions and is 
easily counterfeited. There is also a history of vulnerabilities in the 
process of issuing numbers to noncitizens, including limited 
verification of identity and work authorization documents. In addition, 
while Social Security cards issued for nonwork purposes carry the label 
``Not Valid for Employment,'' nonwork cards issued before May 1982 do 
not include this statement. We have work ongoing on Social Security 
card enhancement that will be issued later this month.
    Under the REAL ID Act, state-issued driver's licenses and 
identification documents could improve the identity portion of the 
employment eligibility verification process. The licenses will be 
required to include physical security features to prevent 
counterfeiting and tampering, these identification documents could make 
the I-9 process less vulnerable to fraud and counterfeiting. However, 
even under REAL ID Act standards, identity theft could be possible, and 
each additional document permitted to establish identity and 
eligibility to work is another opportunity for document fraud and 
identity theft.

    Question: In a February 2005 report, the GAO said that the SSN 
verification services for paper or phone requests require the worker's 
date of birth, but the electronic requests do not. Would correcting 
this inconsistency in SSN verification services help prevent 
individuals from using the SSNs of children to engage in unauthorized 
work?
    Answer: Requiring the worker's date of birth for SSN verification 
services could help prevent use of children's SSNs for unauthorized 
work if employers used the services more frequently and if they refused 
to hire persons with name, SSN, and birth date combinations that 
obviously belonged to children. Requiring the date of birth could also 
help identify other types of fraud, wherein the worker is young, but 
the SSN is assigned to someone who would be much older or vise versa. 
The birth date is one additional piece of information that would have 
to match SSA's data, persons using this information fraudulently would 
need more than a name and SSN.

    [Questions submitted by Chairman McCrery to the Honorable Mark W. 
Everson and his responses follow:]

    Question: The SSA IG has recommended in the past that SSA seek 
legislative authority to create an SSA-based sanctions program for 
employers submitting wage reports with mismatched names and SSNs. What 
are your thoughts about giving SSA such authority?
    Answer: We believe that the ability to impose sanctions on 
employers who fail to take appropriate steps to provide matched names 
and SSNs for their employees is an essential tool in the effort to 
obtain high rates of compliance with employment tax withholding and 
reporting rules. We caution, however, that only a portion of mismatches 
are due to willful or negligent disregard by employers of current law 
requirements, the cases where sanctions are likely to be reasonable and 
effective. The details of an additional, SSA-based sanctions program 
are unspecified at this point, we do not have a view about whether such 
a program would reduce mismatches and improve compliance with the tax 
law. However, since the institutional roles of the IRS and SSA are 
different, it is possible that a well-designed compliance program 
administered by SSA could complement the IRS's current program.

    Question: In your testimony, you said that about half of wage 
reports in the suspense file had income tax withheld, and that the 
withholding tends to be significantly less compared to returns with 
valid SSNs. Does this mean increased enforcement will yield little 
taxes? What about Social Security and Medicare taxes? Also, how can you 
be certain that correct withholding rates are being applied to workers 
with mismatched wage reports and that they do not have additional 
earnings being reported under other incorrect SSNs?
    Answer: Although we estimate the total income tax impact of the W-
2s with invalid SSNs is significant, the benefit of pursuing the 
associated employees with enforcement resources would be very low. Our 
analysis found that the estimated average tax impact per invalid W-2 is 
only about $170 for those with withholding and about $90 on those 
without withholding. In addition, with about 98% of these W-2s with 
invalid SSNs reporting less than $30,000 in wages, many of the 
associated employees may not even be required to file tax returns.
    Our primary means of dealing with egregious underwithholding is 
through our Withholding Compliance Program (WCP). For this program, we 
aggregate the wages and withholding on all W-2s reporting the same SSN, 
whether valid or invalid, and subject these amounts to our WCP 
criteria. (Employees who use more than one invalid SSN may be in the 
program more than one time since we have no way to aggregate these W-
2s.) If an employee's aggregated W-2 information shows egregious 
underwithholding, we send a withholding ``lock-in'' letter to each of 
his/her employers. This letter is intended to ensure the employers 
withhold the correct amount of taxes on future wages paid to the 
employee. This is one of our most effective and least costly 
enforcement programs. Provided the employer complies with the lock-in 
letter, the IRS will receive close to the correct amount of income 
taxes, regardless of whether the employee files a return or not. WCP 
also will identify the small percentage of employees with invalid SSNs 
that are egregious under-withholders.
    In our TY 2004 study of W-2s with invalid SSNs, we did not include 
any analysis of withholding rates for Social Security and Medicare 
taxes. However, the IRS and SSA use the Combined Annual Wage Reporting 
(CAWR) program to identify discrepancies between the amounts of 
withheld Social Security and Medicare taxes that employers report to 
SSA on W-2s and the amounts reported to the IRS on Forms 941. The SSA 
corresponds with the employer on cases that do not balance. Any cases 
not resolved after this reconciliation are sent to the IRS for further 
action.

    Question: In your testimony, you discuss a survey of 297 employers 
the IRS has recently concluded. You said it points out the difficulties 
associated with assessing or sustaining a penalty for employers with 
high rates of name/SSN mismatches in their wage reports: document 
fraud, high employee turnover, and the lag time from when an employee 
earns wages and when the IRS notifies an employer of the mismatch. 
Given these difficulties, would it be a better solution to allow the 
IRS to share some limited amount of tax information with the DHS so 
that they could target immigration law enforcement, rather than pursue 
IRS penalties?
    Answer: As you know, comprehensive immigration reform--including 
border security, interior enforcement, and a temporary worker program--
is a top Administration priority. The Administration believes that 
worksite enforcement is critical to the success of immigration reform. 
I am well aware of various legislative proposals to help address this 
problem, including requiring more information sharing between Federal 
agencies. Whatever the ultimate solution, we have to try to minimize 
the negative consequences on employers, employees and our national 
economy. As a former Deputy Commissioner at INS, I am sensitive to the 
need for a system of immigration that functions effectively. Having 
said that, any significant change requiring improved information 
sharing between Federal agencies or between Federal agencies and 
employers must account for protections found in section 6103 of the 
Internal Revenue Code. This section protects taxpayers from having 
their tax return information shared with third parties. We must make 
sure that any change in the current system encourages the type of 
behavior that we desire from both employees and employers.

    Question: Given the current difficulties of correcting wage reports 
due to high employee turnover and the lag time between when an employee 
earns wages and when the IRS notifies an employer of a mismatch, would 
a better solution be to require employers with high mismatch rates to 
participate in the Basic Pilot?
    Answer: The intent of the Basic Pilot program, developed by DHS, is 
to inform employers whether their employees are authorized to work in 
the United States. From a tax administration perspective, however, 
there is no distinction between taxpayers who are authorized to work in 
this country and those who are not. Further, the ability of an employer 
to verify an employee's work eligibility does little to ensure that the 
employee will file an income tax return.

    Question: The SSA testimony stated that SSA and the IRS have 
established an interagency effort and are working to resolve issues and 
cooperate on efforts that cross agency lines. Could you describe what 
these interagency Committees have discussed, and what have been some of 
the results of their deliberations?
    Answer: We believe the SSA testimony refers to a group of 
executives from the IRS and SSA that meets semi-annually to discuss 
issues of mutual interest and to determine how the two agencies can 
best work together to address these issues. The most recent meeting 
occurred in November 2005 and included discussions on:

      The long-term viability of the electronic reporting 
system for ERISA reports sent to SSA (agreed to convene joint group to 
pursue solutions)
      Allowing IRS employees outside of the Philadelphia campus 
to have electronic access to wage reporting data maintained by SSA 
(agreed that the IRS would submit a formal proposal)
      Providing SSA with regular updates of the IRS file which 
they use to authenticate users of SSNVS, a SSN verification system for 
employers (agreed to get appropriate individuals from both agencies 
together to discuss the issues)

    Question: Some bills have been introduced that would prohibit 
employers from deducting business expenses for wages paid to 
unauthorized workers. What are your views on that option? Would it 
serve as an incentive for employers to use the Basic Pilot to verify 
their workers' employment eligibility? Would it make sense to expand 
that prohibition to any wages reported under mismatched names and SSNs?
    Answer: While the intent of such proposals is to reduce the number 
of unauthorized workers and to create an incentive for employers to 
make additional efforts to correct mismatched names and SSNs, a rule 
prohibiting employers from deducting these wages would be difficult to 
administer and would also have a negative effect on tax compliance. We 
anticipate that it would be difficult to determine whether a business's 
deductions were attributable to wages paid to an unauthorized worker, 
even in an audit. Moreover, disallowing the deduction might make it 
less costly for employers to pay employees ``under the table,'' thereby 
reducing employment taxes collected from the employer and providing 
more opportunity for employees to evade taxation. The Tax Code 
currently provides for penalties for failure to file correct 
information returns and payee statements. (Sections 6721-6725).

    Question: Has the IRS audited employers who use day-laborer sites 
to determine if they are withholding income taxes and paying Social 
Security and Medicare payroll taxes on their employees? If employers 
are hiring people under the table and not paying the appropriate taxes, 
does it depress wages for other American workers?
    Answer: The IRS does not specifically target day-laborer sites in 
its employment tax examinations. However, all W-2s are subject to 
review for appropriate income tax withholding through our Withholding 
Compliance program. We address issues related to proper payments of 
Social Security and Medicare payroll taxes through the Combined Annual 
Wage Reporting program. (See response to #2 above.) Although the IRS 
uses such programs to address the issues of withholding and payment of 
appropriate taxes, we are not in a position to comment on the impact 
that nonpayment of these taxes may have on wages paid to other American 
workers.

    Question: Section 6013 of the Internal Revenue Code was enacted to 
prevent the inappropriate use of confidential taxpayer information. It 
is based on the presumption that confidential taxpayer information 
should not be used for non-tax reasons except in compelling 
circumstances. In your opinion, to what extent does enforcement of 
immigration or other laws justify an exception to that presumption? 
What safeguards would you recommend to ensure that the use of 
confidential taxpayer information be limited to compelling 
circumstances?
    Answer: We believe that any use of confidential taxpayer 
information for non-tax purposes carries a risk of reducing voluntary 
compliance with the tax laws, undermining the primary objective of the 
IRS and reducing the availability and utility of the information 
sought. Administering the tax system is the responsibility of this 
Agency, it is institutionally difficult for us to weigh other 
objectives against the value of high rates of compliance with the tax 
law.
    Similarly, it is not within our expertise to advise on the 
mechanisms that should be utilized to balance objectives, such as the 
value of enforcing the immigration laws, against the value of voluntary 
compliance with the tax laws.
    For an analysis of the appropriate balance between taxpayer privacy 
and other important policy concerns, we refer you to a study produced 
by the Treasury Department. The report states that ``additional 
exceptions to the confidentiality of taxpayer information under section 
6103 should be granted in rare circumstances and only where the Agency 
can demonstrate, using established criteria, a need for the information 
that clearly outweighs taxpayer privacy interests and concerns about 
the effects on voluntary tax compliance.'' Report to The Congress on 
Scope and Use of Taxpayer Confidentiality and Disclosure Provisions, 
Office of Tax Policy, Department of the Treasury, at 69 (October 2000), 
available at http://treas.gov/offices/tax-policy/library/confide.pdf

    [Questions submitted by Chairman McCrery to the Honorable Stewart 
A. Baker and his responses follow:]

    Question: If the Basic Pilot were made mandatory, is it likely that 
we would see an increase in the use of counterfeit documents like the 
SSN card? Would we see an increase in identity theft?
    Answer: In our August 2005 report on employment verification and 
worksite enforcement efforts, we said that the Basic Pilot Program has 
potential to help enhance the verification process and substantially 
reduce document fraud (use of counterfeit documents) but is unable to 
detect identity fraud (fraudulent use of valid documents or information 
belonging to others).\1\ A mandatory Basic Pilot verification could 
make some counterfeit documents more difficult to use to falsely 
demonstrate work authorization. For example, if an unauthorized worker 
presented counterfeit documents containing false information, the Basic 
Pilot program would not confirm the worker's eligibility because the 
Employment Eligibility Verification Form I-9 information, such as a 
false name or Social Security number (SSN), would not match the Social 
Security Administration's (SSA) and the Department of Homeland 
Security's (DHS) database information. An increase in counterfeit 
Social Security cards, specifically, seems unlikely because the Social 
Security card is only one of 15 documents that can be used to prove 
eligibility to work. While workers are required to provide a Social 
Security number, they are not required to show the card to obtain 
employment. In addition, use of a counterfeit Social Security card with 
a false name or number could be detected by employers using the Basic 
Pilot.
---------------------------------------------------------------------------
    \1\ GAO, Immigration Enforcement: Weaknesses Hinder Employment 
Verification and Worksite Enforcement Efforts, GAO-05-813 (Washington, 
D.C.: August 31, 2005).
---------------------------------------------------------------------------
    On the other hand, the Basic Pilot's verification system cannot 
detect identity fraud. The fraudulent use of documents containing the 
real names, SSNs, and alien identification numbers of work-authorized 
persons could be used to demonstrate work eligibility and would not be 
detected through Basic Pilot's verification system. An unauthorized 
worker could present valid documentation belonging to a work-authorized 
person or could present counterfeit documentation that contains valid 
information and appears authentic. In either instance, the Basic Pilot 
may verify the employee as work-authorized because the documentation 
matched SSA and DHS data. It is possible, therefore, that identity 
fraud could increase with mandatory verification, as unauthorized 
workers could have new incentives to use identities of work-authorized 
individuals. However, the extent to which identity fraud might increase 
and unauthorized work might decrease is unknown. DHS is currently 
considering possible ways to enhance the Basic Pilot Program to help 
detect cases of identity fraud.
    The requirements established in the Real ID Act of 2005 for the 
issuance of state driver's licenses and identification documents, have 
the potential to improve identity verification.\2\ However, this form 
of identification is one of 20 documents acceptable for proving 
identity in the I-9 process, and identity fraud could still be 
possible.

    \2\ P.L. 109-13, 49 U.S.C 30301 note.

    Question: Several bills introduced this Congress would require 
employers to verify the employment eligibility of new hires through a 
database that combines data from the Social Security Administration's 
(SSA's) SSN applications and the U.S. Department of Homeland Security's 
(DHS's) immigration records. Currently, in the Basic Pilot program, the 
two sources of data are kept separate, and each agency independently 
verifies the information for employers without sharing it with the 
other agency. Is there any particular advantage or disadvantage to 
combining the databases? Would it increase the accuracy of the data? 
Would it increase the speed of verifications? Would it improve program 
administration? What effect might it have on the privacy of personal 
information?
    Answer: Combining DHS's immigration records and SSA's cardholder 
data likely would not improve the employment eligibility verification 
process because the existing problems in the verification process are 
not related to the data sources being kept separate. Using two 
different databases to verify different pieces of information does not 
hinder the verification process, as long as the employment verification 
program is able to query the appropriate databases to verify the 
relevant information. Delays identified in Basic Pilot's verification 
process are often the result of delays entering data into DHS's 
database after DHS makes its initial work eligibility determinations. 
Because its database is not up-to-date, DHS employees need to verify 
some work authorizations manually. Combining the databases would not 
increase the speed of verifications if the speed of DHS's data entry 
remains unchanged.
    Combining the databases would also not improve the accuracy of 
results provided to the employer because the source of the information 
would remain the same. SSA's cardholder identification file is used to 
verify name, SSN, and citizenship, and DHS's immigration records are 
used to verify employment authorization using an alien identification 
number. Because SSA's database contains demographic information 
collected when the SSN was issued or updated, as with a name change, 
its database does not reliably contain up-to-date information on the 
work authorization status of noncitizens. Although combining the two 
could update SSA's work authorization data, combination is unnecessary 
for establishing work authorization.
    SSA's program administration might be slightly improved by linking 
the databases and updating some SSA information on work authorization, 
but combining them would not be necessary to achieve these 
improvements. For example, if DHS's data could be used to automatically 
update SSA's work authorization information, SSA's Nonwork Alien file 
could potentially become more accurate. However, linking the two 
databases may be challenging due to the lack of a common identifier. It 
is not clear how difficult the task of linking the two databases might 
be, but our ongoing work for the Subcommittee on coordination between 
SSA and DHS will address these issues.
    In addition to providing little, if any, advantage in terms of 
speed or accuracy, there are possible disadvantages to combining the 
databases. These databases were developed to aid in the administration 
of two different programs. Combining them could detract from their 
intended purposes and could prove costly.

    Question: In an August 2005 report, the U.S. Government 
Accountability Office (GAO) said that document and identity fraud have 
undermined the ``Form I-9'' process--the process required under 
immigration law by which employers verify the identity and employment 
eligibility of newly hired employees. The GAO recommended a 
reassessment of the Form I-9 process, including the possibility of 
reducing the number of acceptable work eligibility documents. Some 
bills have been introduced this Congress that would make the SSN card 
the sole identity and employment eligibility document employers could 
accept, or alternatively would use a combination of an SSN card and a 
State driver's license or ID card that complies with standards 
established in the REAL ID Act (P.L. 109-13) or a federally-issued ID 
document. Do you have any thoughts or recommendations on how to reduce 
the documents employees are required to present to prove identity and 
employment eligibility?
    Answer: DHS is currently assessing possible revisions to the number 
of acceptable work eligibility documents but has not established a 
target timeframe for completing this assessment. Completion of this 
assessment and issuance of final regulations on acceptable work 
eligibility documents should strengthen the current employment 
verification process and make it simpler and more secure. In addition 
to a reduction in the number of acceptable work eligibility documents, 
enhancing the integrity of identity and work eligibility documents is 
also an important consideration in making the employment verification 
process more secure. We have previously reported on the possible use of 
biometrics in verification and identification processes.\1\ Biometrics 
can theoretically be very effective personal identifiers because the 
characteristics they measure are thought to be distinct to each person. 
While biometrics show promise in enhancing verification and 
identification processes, we have also reported on the tradeoffs for 
using biometric indicators, such as concerns regarding the protections 
under current law for biometric data and the absence of clear criteria 
governing data sharing.
---------------------------------------------------------------------------
    \1\ GAO, Technology Assessment: Using Biometrics for Border 
Security, GAO-03-174 (Washington, D.C.: Nov. 15, 2002).
---------------------------------------------------------------------------
    Because the Social Security card is of limited use in proving 
eligibility to work and does not verify identity at all, it is a weak 
document in the I-9 process, which requires employers to verify the 
identity and work authorization of newly hired employees. The Social 
Security card is one of 15 documents that may be used to establish an 
individual's eligibility to work. The card has had many different 
versions and is easily counterfeited. There is also a history of 
vulnerabilities in the process of issuing numbers to noncitizens, 
including limited verification of identity and work authorization 
documents. In addition, while Social Security cards issued for nonwork 
purposes carry the label ``Not Valid for Employment,'' nonwork cards 
issued before May 1982 do not include this statement. We have work 
ongoing on Social Security card enhancement that will be issued later 
this month.
    Under the Real ID Act of 2005, state-issued driver's licenses and 
identification documents could improve the identity portion of the 
employment eligibility verification process. Because the licenses will 
be required to include physical security features to prevent 
counterfeiting and tampering, these identification documents could make 
the I-9 process less vulnerable to fraud and counterfeiting. However, 
even under Real ID Act standards, identity theft could be possible, and 
each additional document permitted to establish identity and 
eligibility to work is another opportunity for document fraud and 
identity theft.

    Question: In a February 2005 report, the GAO said that the SSN 
verification services for paper or phone requests require the worker's 
date of birth, but the electronic requests do not. Would correcting 
this inconsistency in SSN verification services help prevent 
individuals from using the SSNs of children to engage in unauthorized 
work?
    Answer: Requiring the worker's date of birth for SSN verification 
services could help prevent use of children's SSNs for unauthorized 
work if employers used the services more frequently and if they refused 
to hire persons with name, SSN, and birth date combinations that 
obviously belonged to children. Requiring the date of birth could also 
help identify other types of fraud, wherein the worker is young, but 
the SSN is assigned to someone who would be much older or vise versa. 
Because the birth date is one additional piece of information that 
would have to match SSA's data, persons using this information 
fraudulently would need more than a name and SSN.

    [Questions submitted by Chairman Ramstad to the Honorable Mark W. 
Everson and his responses follow:]

    Question: During the hearing, I asked you if an employer hired 100 
hundred employees on the same day and they all submitted signed W-4s 
using the same SSN would the IRS have the ability to penalize the 
employer. You responded that you thought the IRS would have the ability 
to penalize the employer. Tresury Regulation 301.6724-1(g) indicates 
that if an employer receives a signed W-4 from an employee that the 
employer would have satisfied due diligence requirements, and therefore 
would not be penalized. Given this provision in the regulations, please 
explain why you think the IRS would have the ability to sustain 
penalties in the case I described.
    Answer: An information return penalty is waived for reasonable 
cause if the filer made an initial and, if necessary, annual request 
that the payee provide an accurate SSN/TIN, or establishes that due 
diligence was otherwise used. An information return filer may establish 
reasonable cause for failure to include required information by showing 
that the failure was due to events beyond the filer's control, 
including actions of the payee providing the necessary information, and 
that the filer acted in a responsible manner. Acting in a responsible 
manner means that the filer exercised reasonable care, which is that 
standard of care that a reasonable prudent person would use under the 
circumstances in the course of its business in determining its filing 
obligations and undertook significant steps to avoid or mitigate the 
failure to provide correct information. Accepting the same SSN for 100 
employees on the same day would not qualify for penalty waiver under 
the prudent person standard.

    Question: In your testimony you said that increased enforcemnt of 
accurate reporting of names and SSNs could have a negative revenue 
impact by driving workers into the underground economy. Has the IRS 
done any empirical studies to determine the effect of increased 
enforcemnt?
    Answer: We have not specifically measured the impact of enforcement 
efforts targeting name/SSN mismatches on Forms W-2. However, based upon 
our recent compliance check of a limited number of employers, we found 
that employers relied upon information provided by employees. Although 
employers unknowingly reported mismatched names and numbers, many 
withheld and paid Social Security and employment taxes on behalf of 
their employees. Anecdotal evidence suggests that employees who 
deliberately provide false information to employers do so to remain 
anonymous to the IRS. Any enforcement effort may impact worker 
classification from employee to independent contractor, resulting in 
lost withholding opportunities. Additionally, such efforts could prompt 
a cash-based workforce to avoid information reporting entirely, since 
it is more likely that cash payments are not reported on information 
documents.

    Question: It has been the law since 1996 that a person who receives 
a Social Security number solely for the purpose of receiving federal 
benefits is not supposed to be able to receive the Earned Income Tax 
Credit. However, it is my understanding that because of the failure to 
share information between SSA and IRS, that these individuals have been 
receiving the EITC every year. Do you have an estimate as to how much 
Earned Income Tax Credit dollars have been improperly paid out to 
individuals who have a Social Security number solely for the purpose of 
receiving federal benefits?
    Answer: The IRS cannot estimate the amount of EITC dollars paid in 
error to individuals who have a SSN solely for the purpose of receiving 
Federal benefits. Although information passed on to the IRS from SSA 
since 1980 contains an indicator showing that an SSN recipient is not 
authorized to work in the United States, the data does not distinguish 
between those who receive an SSN in order to obtain government benefits 
from those who obtain an SSN for other purposes that currently may 
allow a person to qualify for EITC.

    Question: There is a proposal in the President's Budget that would 
address the issue of individuals improperly receiving EITC refunds with 
an SSN issued solely for the purposes of receiving Federal benefits. 
How would the proposal address this problem?
    Answer: In 1996, Congress enacted a provision (IRC sec. 32(m)) that 
was intended to deny the EITC to individuals who were not authorized to 
work in the United States. This provision requires EITC claimants to 
provide a valid SSN for themselves and their qualifying children. It 
explicitly denies the EITC to noncitizens who are not authorized to 
work in the United States but who, under clause (II) of sec. 
205(c)(2)(B)(i) of the Social Security Act, obtain an SSN solely for 
the purpose of claiming government benefits (such as public 
assistance). The 1996 Act also gave the IRS the authority to 
automatically deny such claims during processing using ``mathematical 
error'' procedures. (Without mathematical error authority, the IRS can 
still deny ineligible claims through the examination process. However, 
more ineligible claims can be denied through the less labor-intensive 
mathematical error procedures.)
    At the time of enactment, it was thought that this provision would 
effectively restrict EITC eligibility to U.S. citizens, permanent 
residents (``green card'' holders), and other noncitizens who obtain an 
SSN because their visas authorize them to work in the United States. 
These individuals are entitled to obtain an SSN under clause (I) of 
sec.205(c)(2)(B)(i) of the Social Security Act.
    However, Sec. 32(m) inadvertently allows some undocumented workers 
to receive the EITC. Until recently, it was possible for some 
individuals to receive social security numbers for reasons other than 
to obtain Federal benefits--e.g., to obtain a driver's license in some 
states or, before the adoption of ITINs, to file a tax return. Further, 
while SSA records contain an indicator showing that an SSN holder is 
not authorized to work in the United States, the records do not 
distinguish between those who receive an SSN in order to obtain 
government benefits from those who obtain an SSN for other purposes. As 
a result, the IRS has never used its mathematical error authority to 
deny EITC claims of certain undocumented workers, for fear of denying 
the credit to individuals who are technically eligible (albeit 
undocumented workers).
    In the FY 2007 budget, the administration is proposing that sec. 
32(m) be rewritten to state that for purposes of the EITC, a valid SSN 
is one issued either to a citizen of the United States or pursuant to 
clause I of section 205(c)(2)(B)(i) of the Social Security Act. This 
modification would effectively deny EITC eligibility to individuals who 
were issued SSNs for any non-work reason--as was the intent of Congress 
in 1996. Further, this modification would allow the IRS to implement 
the existing math error authority to deny the EITC to undocumented 
workers, because individuals identified by SSA as unauthorized to work 
in the United States would generally be ineligible for the EITC.

    Question: The House recently passed the ``Border Protection, 
Antiterrorism, and Illegal Immigration Control Act of 2005,'' which 
would allow the Secretary of the Department of Homeland Security to 
access any information maintained by any department or agency of the 
government concerning any person seeking any benefit or privilege under 
immigration laws. Does the IRS believe that this provision would apply 
to taxpayer returns or taxpayer information?
    Answer: The Administration is working on a legal determination as 
to whether this provision would apply to taxpayer returns or taxpayer 
information. From a tax administration perspective, the IRS recommends 
that the legislative provision reference 26 USC  6103. In the 
Administration's legislative discussions, we have proposed language 
that specifically refers to  6103.

    [Questions submitted by Chairman Ramstad to the Honorable James B. 
Lockhart and his responses follow:]

    Question: Does SSA share the opinion of DHS that the non-work alien 
file is inaccurate and unusable for DHS agents seeking individuals who 
performed unauthorized to work? Has DHS informed SSA of the problems it 
has experienced with the non-work alien file?
    Answer: The information provided to the Department of Homeland 
Security (DHS) is based on wages the Social Security Administration 
(SSA) posts to the earnings records of the individuals assigned the 
particular Social Security numbers (SSN). The information in the report 
to DHS accurately reflects these posted earnings. The report also 
includes the most current data SSA has to provide to DHS. The data is 
in the format agreed to in a Memorandum of Understanding (MOU) between 
SSA and DHS. It is unclear why the information contained in the file 
would be unusable for DHS agents seeking individuals who performed 
unauthorized work.
    8 U.S.C.  1360(c)(2) required SSA to provide information 
concerning the earnings reported on SSNs issued to aliens not entitled 
to work under the Immigration and Nationality Act. This statute 
provides:
    ``If earnings are reported on or after January 1, 1997, to the 
Social Security Administration on a Social Security account number 
issued to an alien not authorized to work in the United States, the 
Commissioner of Social Security shall provide the Attorney General with 
information regarding the name and address of the alien, the name and 
address of the person reporting the earnings, and the amount of the 
earnings. The information shall be provided in an electronic form 
agreed upon by the Commissioner and the Attorney General.''
    SSA entered into a data-sharing MOU with the Immigration and 
Nationality Service (INS) in 1999 to implement the requirement 
regarding reporting earnings on aliens not authorized to work. SSA 
began sending this information to INS for Tax Year 1996 in 1998, and 
has continued sending the file on an annual basis. The MOU transitioned 
to DHS when the functions of INS migrated to DHS. SSA is currently 
reviewing this MOU to determine if it needs to be updated. In addition 
to providing the data as required by the MOU, at DHS' request, SSA 
provides the identical information to DHS in a file that could be used 
on a personal computer. This file format was first sent in 2004 for TY 
2002. SSA continues to send both files to DHS.

    [Questions submitted by Chairman Ramstad to the Honorable Stewart 
A. Baker and his responses follow:]

    Question: In your testimony, you said thet DHS sees a clear benefit 
to receiving from the Social Security Administration portions of the 
no-match data that is currently protected by taxpayer privacy laws. Yet 
you did not specify exactly what information DHS proposes that it 
receive. Can you provide us with specifics about what DHS thinks it 
should receive? For example, are you seeking information relating to 
all employers with mismatches, or just certain employers with egregious 
problems?
    Answer: DHS would emphasize the need for information relating to 
all employers with earnings that appear in the Social Security 
Administration's (SSA) Earnings Suspense File (ESF). The fact that a 
large percentage of employees and employers who receive SSA ``no 
match'' letters fail to correct or address these discrepancies 
indicates that there is widespread use of fraudulent Social Security 
numbers. The SSA Inspector General has also acknowledged that 
unauthorized employees or illegal immigrants account for a significant, 
growing portion of entries in the ESF.
    With access to the ESF data, DHS would be able to address targeted 
weaknesses in critical infrastructure and other national security 
related areas and industries, in addition to identifying and targeting 
enforcement efforts toward the obvious egregious employers. Access to 
this data should be broad enough for DHS to target known fraud schemes 
such as use of a Social Security Number by multiple employees or use of 
Social Security Numbers belonging to dead persons or persons too young 
to work report income contributions. Data access must be sufficiently 
broad to allow DHS to address and target new fraud schemes as they 
emerge. Access to the ESF data would enhance hundreds of existing 
worksite enforcement investigations by helping to refute an employer's 
``good faith'' defense.
    DHS is looking to establish a good, flexible data-sharing 
relationship with the SSA to address today's most apparent problems, 
but also to adjust and respond to future challenges related to illegal 
immigration. Once the widespread use of fraudulent Social Security 
Numbers is eliminated, criminal organizations and other immigration 
violators will look for other ways to circumvent the immigration and 
employment laws. DHS must be ready to respond to these new challenges 
with the appropriate tools.

    Question: In 1996, Congress required SSA to provide DHS with a data 
file called the Non-Work Alien file, which contains information on 
wages reported to Social Security numbers issued for non-work purposes. 
For years, the DHS did not use this information because of computer 
compatibility problems. You indicated at the hearing that DHS was not 
ready to say the file was unusuable. Can you explain what DHS is doing 
to analyze this information, and explain if and when this can be used 
for immigration enforcement purposes?
    Answer: From 1997 to 2004, SSA forwarded the NWAF to the INS and 
later to DHS as required by law and consistent with a Memorandum of 
Understanding. However, formatting issues made it difficult to use the 
NWAF. Beginning in February 2005, DHS/ICE and SSA worked together to 
convert that data into a more usable format.
    During FY 2006, DHS successfully accessed and analyzed NWAF data (a 
list of names and SSNs of individuals originally issued) for the first 
time and conducted DHS immigration record checks on a sampling of 
aliens' names and other information from the NWAF. Preliminary results 
of these checks indicate that only 34 percent of the individuals named 
in the file are actually authorized to work in the United States, an 
indication that this information could be valuable in conducting 
enforcement investigations. On April 4, 2006, ICE received the most 
recent NWAF data from SSA and has started to analyze this new dataset.
    [Submissions for the record follow:]
                                              Rockwall, Texas 75087
                                                  February 10, 2006
Social Security Committee
House Ways and Means
U.S. Congress
Washington, D.C.

Dear Committee Members;

    Thank you for this opportunity. I would like to express the need of 
the elimination of the GPO and WEP. These two clauses do not uphold the 
integrity and intent of the Social Security Fund. The punishment is 
given to undeserving people and in effect takes away something the 
common people have and need. Please remove the bill from the committee 
and bring the vote before the full house.
            Thank you,
                                                       Robert Davis

                                 

                                       Center for Economic Progress
                                     Consumer Federation of America
                                                    Consumers Union
                                       National Consumer Law Center
                                        National Council of La Raza
                                    National Employment Law Project
                                    National Immigration Law Center
                                                  February 15, 2006
The Honorable Jim Ramstad
Chairman, Subcommittee on Oversight
United States House of Representatives
Washington, D.C.

The Honorable Jim McCrery
Chairman, Subcommittee on Social Security
United States House of Representatives
Washington, D.C.

Dear Congressman Ramstad and Congressman McCrery:

    The undersigned groups, comprised of consumer advocates, civil 
rights organizations, free tax preparation programs, and immigrant 
rights advocates, collectively represent and serve thousands of low-
income taxpaying immigrant families. All of us strongly oppose any 
changes to Section 6103 of the Internal Revenue Code that would permit 
wholesale sharing of information between the Internal Revenue Service 
and Department of Homeland Security (DHS). We also attach to this 
written testimony a letter from October 2003, in which over 150 
organizations expressed similar opposition to information sharing by 
IRS to DHS about immigrant taxpayers.
    The February 13 edition of Tax Notes reported that one focus of the 
February 16, 2006 hearing will be potential data sharing between IRS, 
DHS and the Social Security Administration. We are adamantly opposed to 
any proposal that allows the IRS to routinely send tax information to 
DHS, including information about the Individual Tax Identification 
Number (ITINs), tax returns filed with ITINs, ITIN applications (IRS 
Form W-7), etc.
    One of the hallmarks of the current tax code is confidentiality of 
taxpayer information. The IRS Code presumes that taxpayer information, 
which can be highly sensitive, is private and confidential unless 
subject to a specific exception. This confidentiality both protects 
taxpayers and encourages compliance with tax laws.
    To remove the protective cloak of confidentiality for an entire 
class of taxpayers violates a fundamental principle of the tax code 
established in the wake of prior abuses. It sets a dangerous precedent, 
and will discourage immigrants from complying with tax laws. 
Undocumented immigrants already face significant disincentives and 
barriers to filing their tax returns. If they know that IRS information 
is routinely sent to DHS--or even that there is a possibility that the 
information will be shared--current filers will be less likely to file 
their taxes in subsequent years, and non-filers will be less likely to 
obtain ITINs and become filers.
    The National Taxpayer Advocate has noted similar concerns. 
According to the Tax Notes article cited above, the National Taxpayer 
Advocate expressed at a 2004 hearing before the Joint Subcommittees on 
this same matter that `` `fishing expeditions' by other government 
agencies that could result from expanding section 6103 would lead to 
more illegal immigrants going underground from the IRS.''
    Wholesale and undefined disclosure also will not assist in 
investigating terrorism or criminal activity, because it will 
discourage millions of taxpayers from filing returns. This will hurt, 
not help, national security as well as tax compliance. When immigrants 
file tax returns, federal law enforcement and intelligence authorities 
can access that information IF there is evidence of criminal or 
terrorist activity. However, if immigrants as a group are discouraged 
from participating in the tax system, there will be no documents and no 
paper trail to share.
    If you have any questions or comments on our submission, please 
feel free to contact Chi Chi Wu at 617-542-8010 or [email protected] Thank 
you for your consideration.
            Sincerely,
                                                         Chi Chi Wu
                                       National Consumer Law Center
                              (on behalf of its low-income clients)

                                                        Julie Kruse
                                   National Community Tax Coalition

                                                      David Marzhal
                                       Center for Economic Progress

                                           Catherine K. Ruckelshaus
                                    National Employment Law Project

                                                 Marielena Hincapie
                                    National Immigration Law Center

                                                     Beatriz Ibarra
                                        National Council of La Raza
                                 ______
                                 
    Dear Commissioner Everson, Assistant Secretary Olson and Assistant 
Secretary Abernathy:

    The undersigned stakeholders comprised of community and civil 
rights organizations, tax and financial services agencies, labor 
unions, and consumer and immigrant rights advocates, collectively 
represent and serve thousands of low-income taxpaying immigrant 
families. We are writing to express our concerns that the Internal 
Revenue Service (IRS) is contemplating significant changes to the 
Individual Taxpayer Identification Number (ITIN) program.
    We strongly support IRS efforts to protect the integrity of the 
ITIN. However, we oppose any measures by the Treasury Department or the 
IRS to limit the issuance of ITINs or to prohibit states, financial 
institutions, and other entities from using ITINs to provide hard 
working and taxpaying low-income immigrants with banking or other 
services. We also oppose any measure to make ITIN information available 
to the Department of Homeland Security (DHS), including the Bureau of 
Citizenship and Immigration Services (BCIS) and Bureau of Immigration 
and Customs Enforcement (ICE) beyond what is currently permitted in IRS 
Code Sec. 6103. These measures would be both ineffective in responding 
to national security concerns while being harmful to individual 
immigrant workers, their families, and their communities.
    In creating the ITIN in 1996, the IRS enabled millions of hard 
working immigrants to pay their taxes and file tax returns as required 
by law. If IRS limits the issuance of ITINs, as a recent Washington 
Times article suggests, immigrants ineligible for Social Security 
Numbers will be discouraged from obtaining ITINs and thus, from filing 
tax returns. Because the ITIN is accepted by many banks, limiting its 
use would force tens of thousands of immigrants back into the cash 
economy. The IRS and Treasury will be harming its own institutional 
interests, and rather than strengthening national security, it will be 
making our communities less secure.

Ensuring Tax Compliance
    ITINs are an essential tool for the IRS to encourage immigrant 
workers to file tax returns and assume the rights and responsibilities 
offered under the Internal Revenue Code to more than 120 million 
individual taxpayers. Without ITINs, hundreds of thousands of immigrant 
workers would never file income tax returns and not have an opportunity 
to build the documented economic track record that tax compliance 
facilitates. Prior year tax returns are often required of consumers 
seeking to secure credit or loans that serve as stepping stones to 
economic success such as purchasing a home or a business. Promoting the 
growth of an underclass of non-compliant taxpayers is not in the 
interests of the IRS or Treasury as it will place a greater burden on 
subsequent enforcement activities that require a redeployment of scarce 
IRS resources.

Sharing of Confidential ITIN Information
    The August 29 edition of Tax Notes reported statements by IRS 
Commissioner Everson saying he has made loosening the nondisclosure 
rules a top priority. The suggestion in this and other articles that 
the IRS may seek legislation to authorize routine sharing of ITIN 
information with immigration authorities is of grave concern.
    We are adamantly opposed to any proposal that allows the IRS to 
routinely send ITIN information to the Bureau of Immigration and 
Customs Enforcement (ICE). One of the hallmarks of the current tax code 
is confidentiality of taxpayer information. The IRS Code presumes that 
taxpayer information, which can be highly sensitive, is private and 
confidential unless subject to a specific exception. This 
confidentiality both protects taxpayers and encourages compliance with 
tax laws.
    To remove the protective cloak of confidentiality for an entire 
class of taxpayers violates a fundamental principle of the tax code 
established in the wake of prior abuses. It sets a dangerous precedent, 
and will discourage immigrants from complying with tax laws. 
Undocumented immigrants already face significant disincentives and 
barriers to filing their tax returns. If they know that IRS information 
is routinely sent to ICE--or even that there is a possibility that the 
information will be shared--current filers will be less likely to file 
their taxes in subsequent years, and non-filers will be less likely to 
obtain ITINs and become filers.
    Furthermore, the IRS does not need such a wholesale exception to 
taxpayer privacy in order to protect national security. Subsection 
(i)(7) of IRS Code section 6103 permits the IRS to disclose tax 
information (other than taxpayer return information) to federal law 
enforcement or intelligence agencies investigating a terrorist 
incident, threat, or activity. Subsection (i)(3)(A) permits IRS to 
disclose tax information (other than taxpayer return information) to 
alert other federal agencies of non-tax violations of federal criminal 
law. Thus, section 6103 already contains a number of specific 
exceptions that permit information-sharing in well-defined 
circumstances. Wholesale and undefined disclosure, on the other hand, 
will not assist in investigating terrorism or criminal activity, but 
will discourage millions of taxpayers from filing returns.
    Again, encouraging immigrants to obtain ITINs can only help, not 
hurt, national security. When immigrants obtain ITINs and file tax 
returns, federal law enforcement and intelligence authorities can 
access that information IF there is evidence of criminal or terrorist 
activity. However, if immigrants as a group are discouraged from 
seeking ITINs, there will be no documents and no paper trail to share.

Bank Accounts
    ITINs are essential to bringing the unbanked into the financial 
mainstream. Until the advent of ITIN, banks could not open interest-
bearing bank accounts for those without a Social Security Number, 
because of the requirement to report interest income to the IRS. With 
the ITIN, banks can open accounts for hardworking immigrants and still 
comply with tax laws. Thus, ITINs serve a tax purpose with respect to 
bank accounts.
    If the IRS restricts the issuance or use of ITINs, it may create 
confusion among banks or might cause banks to refuse to accept ITINs. 
This will set back successful efforts by banks, credit unions, and the 
Treasury Department to bring more immigrants into the financial 
mainstream. It will have an impact on the economic future of their 
children. Today's non-citizen is likely to be eligible for a Social 
Security Number tomorrow, and is likely to be the parent of citizen 
children. If that immigrant is not banked now, it is less likely she 
will be banked in the future and that her children will participate in 
the banking mainstream.
    In addition to allowing immigrants to build assets and avoid high 
cost financial services, such as check cashers, payday lenders, 
couriers, money transmitters, and the like, bank accounts are important 
for immigrants because of the need to remit money back to their 
countries of origin. Federal bank regulators prefer that international 
money transmissions be accomplished through banks and thrifts, because 
in comparison to other financial providers, these institutions are 
subject to federal regulation and oversight. Bank accounts also help 
deter robberies and assaults against law-abiding immigrants, who often 
become the target of criminals because they are known to carry large 
amounts of cash on payday.

Conclusion
    It is for these reasons that the undersigned stakeholders urge the 
Treasury Department and the IRS to desist from efforts to restrict the 
issuance and use of the ITIN or to share ITIN information with 
immigration agencies, and allow immigrant taxpayers to file their taxes 
and continue contributing to this country's economy and general safety.
    We will be contacting you shortly to request a meeting with the 
appropriate representatives from Treasury and the IRS and a small group 
representing the undersigned to follow up on these concerns.
            Respectfully submitted,
                                                      David Marzahl
                                                 Executive Director

                                                       Jean Ann Fox
                                     Consumer Federation of America

                                                  Salvador Gonzalez
                                       Center for Economic Progress

                                                      Janell Duncan
                                                    Consumers Union

                                                         Chi Chi Wu
                                       National Consumer Law Center
                            (on behalf of its low-income consumers)

                                                     Michele Waslin
                                                       Brenda Muniz
                                        National Council of La Raza

                                                      Rebecca Smith
                                    National Employment Law Project

                                                 Marielena Hincapie
                                                     Josh Bernstein
                                                     Joan Friedland
                                    National Immigration Law Center
                               __________
Organizations signing in support:

Alianza del Pueblo (Knoxville, TN)
American Federation of Labor-Congress of Industrial Organizations
  (Washington, DC)
American Friends Service Committee (Washington, DC)
American Immigration Lawyers Association (Washington, DC)
Amigos Center (Fort Myers, FL)
Asian American Legal Defense & Education Fund (New York, NY)
Asian Law Caucus (San Francisco, CA)
Asian Pacific American Legal Center (Los Angeles, CA)
Asociacion Tepeyac de New York (New York, NY)
Association of Community Organizations for Reform Now--ACORN
  (Washington, DC)
Baltimore CASH Campaign (Baltimore, MD)
Bilingual Services (China Grove, NC)
Boston EITC Campaign (Boston, MA)
Boulder County Safehouse (Boulder, CO)
Brighton Park Neighborhood Council (Chicago, IL)
Broward Immigration Coalition (Coral Springs, FL)
Cabrillo Economic Development Corporation (Saticoy, CA)
Campaign for Working Families (Philadelphia, PA)
Caribbean Immigrant Services, Inc. (Jamaica, NY)
Carlos Rosario International Career Center and Public Charter School
  (Washington, DC)
CASA of Maryland, Inc. (Silver Spring, MD)
Catholic Center (Huntingburg, IN)
Catholic Diocese of Richmond (Richmond, VA)
Center for Community Self-Help (Durham, NC)
Center for Hispanic Policy & Advocacy (Providence, RI)
Center For New Community, Iowa Project (Des Moines, IA)
Center for Training and Careers, Worknet (San Jose, CA)
Central American Resource Center (Los Angeles, CA)
Centro de Accion Latino (Greensboro, NC)
Centro Legal de la Raza (Oakland, CA)
Children's Defense Fund (Washington, DC)
Children's Defense Fund Minnesota (St. Paul, MN)
Children's Services Council of Broward County (Plantation, FL)
Community Comprehensive Social Services (Hallandale, FL)
Community Tax Aid, Inc. (Washington, DC)
Conexion Americas (Nashville, TN)
Corazon, Inc. (Cary, NC)
Council Migration Services (Philadelphia , PA)
Day Spring (Georgetown, IN)
DC Employment Justice Center (Washington, DC)
El Centro, Inc. (Kansas City, KS)
El Pueblo (Raleigh, NC)
Equal Justice Center (Austin, TX)
FaithAction International House (Greensboro, NC)
Family Economic Success Services (a project of the Piton Foundation)
  (Denver, CO)
Farmworker Association of Florida (Apopka, FL)
Farmworker Legal Services of New York (New Paltz, NY)
Fellsmere Community Enrichment Program (Fellsmere, FL)
First Christian Church (Shelbyville, KY)
Florida Immigrant Advocacy Center (Miami, FL)
Garibay Tax Services (Santa Ana, CA)
Grassroots Collaborative (Chicago, IL)
Greater Boston Legal Services (on behalf of its low-income clients) 
(Boston, MA)
Greater Upstate Law Project, Inc. (Albany, NY)
Grupo de Apoyo e Integracion Hispanoamericana (Allentown, PA)
Guadalupe Center (Huntingburg, IN)
Harry H. Dow Memorial Legal Assistance Fund (Boston, MA)
Hebrew Immigrant AID Society (Philadelphia, PA)
Hispanic Committee of Virginia (Falls Church, VA)
Hispanic Community Development Center (Dudley,NC)
Hispanic Ministry--Diocese of Joliet (Kankakee, IL)
Hispanic Organizations Leadership Alliance (Takoma Park, MD)
Housing Development Corp. of Northwest Oregon (Hillsboro, OR)
Housing Resource Center of Jane Addams Hull House (Chicago, IL)
Hotel Employees & Restaurant Employees International Union (Los 
Angeles, CA)
Illinois Coalition for Immigrant and Refugee Rights (Chicago IL)
Immigrant Legal Advocacy Project (Portland, ME)
Immigrant Legal Resource Center (San Francisco, CA)
Immigrant Rights Network of Iowa and Nebraska (Des Moines, IA)
Immigration Advocacy Services (Astoria, NY)
Instituto del Progreso Latino (Chicago, IL)
Interfaith Leadership Project (Cicero, IL)
Iowa Coalition Against Domestic Violence (Des Moines, IA)
Irish Immigration Center (Boston, MA)
Jewish Community Action (St. Paul, MN)
Jobs and Affordable Housing Coalition (Minneapolis, MN)
JUNTOS (Philadelphia, PA)
Just Harvest (Pittsburgh, PA)
Korean American Resource and Cultural Center (Chicago, IL)
Korean Resource Center (Los Angeles, CA)
La Raza Community Resource Center (San Francisco, CA)
Labor Council for Latin American Advancement
Latino Community Credit Union (Durham, NC)
Latino Community Development Center (Durham, NC)
Latinos United for Change and Advancement (Madison, WI)
Lawyers' Committee for Civil Rights (San Francisco, CA)
Legal Aid Society (National) (New York, NY)
Legal Aid Society of Minneapolis (Minneapolis, MN)
Lehigh Valley Immigrant Workers' Rights Coalition (Allentown, PA)
LexLinc Community Development Federal Credit Union (Lexington, KY)
Little Village Community Development Corporation (Chicago, IL)
Los Companeros (Durango, CO)
LULAC Council 4609 (Richmond, VA)
Massachusetts Immigrant & Refugee Advocacy Coalition (Boston, MA)
Metropolitan Alliance of Congregations (Chicago, IL)
Migrant Legal Action Program (Washington, DC)
Milwaukee Council for the Spanish Speaking (Milwaukee, WI)
Minnesota Coalition for Undocumented Students (West St. Paul, MN)
Mitchell Bank (Milwaukee, WI)
Mountainlands Community Housing (Park City, Utah)
National Asian Pacific American Legal Consortium (Washington, DC)
National Association of Korean Americans, New York Chapter (New York, 
NY)
National Center on Poverty Law (Chicago, IL)
National Immigration Forum (Washington, DC)
National Interfaith Committee for Worker Justice (Chicago, IL)
National Korean American Service & Education Consortium (Los Angeles, 
CA)
National People's Action (Chicago, IL)
Nationalities Service Center (Philadelphia, PA)
Nebraska Appleseed Center for Law in the Public Interest (Lincoln, NE)
Network for Immigrant Justice (Eugene, OR)
New Jersey Immigration Policy Network (Newark, NJ)
New York Immigration Coalition (New York, NY)
North Carolina Justice and Community Development Center (Raleigh, NC)
North Carolina Justice Center (Raleigh, NC)
Northern California Coalition for Immigrant Rights (San Francisco, CA)
Office of Hispanic Ministry (Waterloo, IA)
Pennsylvania Family Economic Self-Sufficiency Project (Swarthmore, PA)
Pennsylvania Immigration and Citizenship Coalition (Philadelphia, PA)
Pennsylvania Immigration Resource Center (York, PA)
Pennsylvania Institutional Law Project (Philadelphia, PA)
Philadelphia Citizens for Children and Youth (Philadelphia, PA)
Philadelphia Council American Federation of Labor-Council of Industrial
  Organizations (Philadelphia, PA)
Philadelphia Unemployment Project (Philadelphia, PA)
Philadelphia Volunteers for the Indigent Program (Philadelphia, PA)
Pinnacle Resources, LLC (Bakersfield, CA)
Public Justice Center (Baltimore, MD)
Refugee and Immigration Services, Catholic Diocese of Richmond 
(Richmond, VA)
Rhode Island Coalition for Immigrants and Refugees (Providence, RI)
Rural Opportunities Inc. (Rochester, NY)
Service Employees International Union, Health Care Workers Local 250
  (Oakland, CA)
Services, Immigrant Rights & Education Network (San Jose, CA)
Somos Un Pueblo Unido (Santa Fe, NM)
Southeast Asian Mutual Assistance Associations Coalition (Philadelphia, 
PA)
Tennessee Immigrant and Refugee Rights Coalition (Memphis, TN)
UCLA Labor Center (Pasadena, CA)
UNITE (Washington, DC)
United Network for Immigrants and Refugee Rights (Chicago, IL)
United Way of King County (Seattle, WA)
United Way of Southeastern Pennsylvania (Philadelphia, PA)
USAction (Washington, DC)
Virginia Justice Center (Falls Church, VA)
Volunteer Accounting Service Team of Michigan (Detroit, MI)
Washington Lawyers' Committee for Civil Rights and Urban Affairs
  (Washington, DC)
Watts/Century Latino Organization (Los Angeles, CA)
West Virginia School of Osteopathic Medicine (Lewisburg, WV)
Westside Community Action Network Center Inc. (Kansas City, MO)
Workers' Rights Law Center of New York (New Paltz, NY)
Young Korean American Service and Education Center (Flushing, NY)
Youth Empowerment Activists (Woodside, NY)