Tax Administration: More Can Be Done to Ensure Federal Agencies  
File Accurate Information Returns (05-DEC-03, GAO-04-74).	 
                                                                 
The Internal Revenue Service (IRS) matches information returns	 
filed by third parties, including federal agencies, with	 
taxpayers' income tax returns to determine whether taxpayers have
filed a return and/or reported all of their income. A correct	 
taxpayer identification number (TIN) is necessary to enable IRS  
to match these returns. Prior GAO reviews have shown that federal
agency payment records often include invalid TINs, particularly  
for vendors. GAO was asked to study federal agencies' compliance 
with filing information returns for service payments made to	 
vendors, IRS's efforts to improve agencies' compliance, and	 
whether additional measures could improve their compliance.	 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-04-74						        
    ACCNO:   A08972						        
  TITLE:     Tax Administration: More Can Be Done to Ensure Federal   
Agencies File Accurate Information Returns			 
     DATE:   12/05/2003 
  SUBJECT:   Computer matching					 
	     Data integrity					 
	     Delinquent taxes					 
	     Federal agencies					 
	     Federal forms					 
	     Income taxes					 
	     Noncompliance					 
	     Reporting requirements				 
	     Tax administration 				 
	     Taxpayers						 
	     Taxpayer identification number			 
	     DOD Central Contractor Registration Data		 
	     Base						 
                                                                 
	     IRS Information Returns Master File		 
	     IRS Payer Master File				 

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GAO-04-74

United States General Accounting Office

GAO

                       Report to Congressional Requesters

December 2003

TAX ADMINISTRATION

 More Can Be Done to Ensure Federal Agencies File Accurate Information Returns

                                       a

GAO-04-74

Highlights of GAO-04-74, a report to congressional requesters

The Internal Revenue Service (IRS) matches information returns filed by
third parties, including federal agencies, with taxpayers' income tax
returns to determine whether taxpayers have filed a return and/or reported
all of their income. A correct taxpayer identification number (TIN) is
necessary to enable IRS to match these returns. Prior GAO reviews have
shown that federal agency payment records often include invalid TINs,
particularly for vendors. GAO was asked to study federal agencies'
compliance with filing information returns for service payments made to
vendors, IRS's efforts to improve agencies' compliance, and whether
additional measures could improve their compliance.

To improve federal agency compliance with annual information reporting
requirements for vendor payments, GAO is making recommendations to ensure
that (1) IRS identifies and follows up with federal agencies that fail to
file annual information returns for vendor service payments and (2) IRS
and the Office of Management and Budget (OMB) ensure that vendor TINs are
validated using IRS's online TINmatching program.

IRS and OMB agreed to implement our recommendations.

www.gao.gov/cgi-bin/getrpt?GAO-04-74.

To view the full product, including the scope and methodology, click on
the link above. For more information, contact Michael Brostek at (202)
512-9110 or [email protected].

December 2003

TAX ADMINISTRATION

More Can Be Done to Ensure Federal Agencies File Accurate Information Returns

Federal agencies do not always adhere to information return reporting
requirements. About $5 billion in payments to 152,000 payees made during
2000 and 2001 by agencies within three federal departments were not
reported to IRS. About 8,800 of these payees had received $421 million in
payments, yet had failed to file a tax return for these years. In
addition, about $20 billion in payments that were reported to IRS on
170,000 information returns for 2000 and 2001 included invalid vendor
TINs. This was due in part to the fact that few federal agencies use IRS's
TIN-matching program, as use of this program is optional.

IRS has acted to aid federal agencies in complying with annual information
return filing requirements. In August 2003, IRS notified federal agencies
about information returns filed for 2001 that included invalid vendor TINs
and the need for agencies to withhold a portion of future payments if the
vendors fail to provide a valid TIN. IRS is also in the process of making
the TIN-matching program available online.

IRS does not currently have a program to identify and follow up with
federal agencies that fail to file required annual information returns for
vendor payments. Improvements to IRS's Payer Master File, which contains
general information on all payers who file information returns, would be
necessary for such a program. In addition, although the Central Contractor
Registration is intended for use as a central source of valid vendor
information by all federal agencies, it contains some invalid TINs. Due to
statutory restrictions, all vendor TINs in this database cannot currently
be validated through the IRS TIN-matching program, but options exist to
address this problem.

Forms 1099 MISC Submitted to IRS by Federal Agencies for Vendor Payments,
Including Those with Invalid Vendor Taxpayer Identification Numbers That
IRS Was Unable to Correct -Tax Years 2000 and 2001 Combined

Note: GAO analysis of IRS data.

Contents

  Letter

Results in Brief
Background
Not All Federal Agencies File Required Information Returns or Take

Steps to Ensure That Information Provided Is Valid IRS Has Acted to
Improve Form 1099 MISC Reporting Compliance

IRS Has No Program to Identify Federal Agencies That Fail to File Forms
1099 MISC and the CCR Does Not Now Serve as a Central Source of Valid TINs

Conclusions
Recommendations for Executive Action
Agency Comments and Our Evaluation

1 3 5

7

12

13 16 17 17

Appendixes

Appendix I:

Appendix II:

Appendix III:

                                        Appendix IV: Appendix V: Appendix VI:

Objectives, Scope, and Methodology

Forms 1099 MISC Filed by 14 Federal Departments for Tax Years 2000 and
2001

Forms 1099 MISC Filed with IRS with Invalid TINs for Tax Years 2000 and
2001

Comments from the Internal Revenue Service

Comments from the Department of Defense

GAO Contacts and Staff Acknowledgments

GAO Contacts Acknowledgments 21

24

25

26

29

31 31 31

Tables   Table 1: Number and Dollar Value of Forms 1099 MISC Filed with 
                          IRS for Tax Years 2000 and 2001                  24 
             Table 2: Number and Percent of Forms 1099 MISC Filed with     
                      Invalid TINs for Tax Years 2000 and 2001             25 
Figure   Figure 1: Forms 1099 MISC Submitted to IRS by Federal Agencies 
                         for Vendor Payments, Including Those with Invalid 
                    Vendor TINs That IRS Was Unable to Correct - Tax Years 
                               2000 and 2001 Combined                       9 

This is a work of the U.S. government and is not subject to copyright
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separately.

A

United States General Accounting Office Washington, D.C. 20548

December 5, 2003

The Honorable Bill Thomas
Chairman, Committee on Ways and Means
House of Representatives

The Honorable Amo Houghton
Chairman, Subcommittee on Oversight
Committee on Ways and Means
House of Representatives

Federal agencies pay billions of dollars each year to vendors for
services,
such as compensation paid to individuals that are not employees and
medical and health care payments. At the same time, some vendors fail to
pay their taxes and have accrued billions of dollars in delinquent federal
taxes. The Internal Revenue Service's (IRS) ability to ensure vendors are
properly paying their taxes hinges on having complete and accurate reports
from federal agencies on their vendor payments.

The Internal Revenue Code requires any service recipient, including
federal
agencies, to report service payments to IRS if the services total $600 or
more during a calendar year. An IRS Form 1099 MISC (Miscellaneous
Income) information return is used to report service payments to IRS and
must include the vendor's name, address, and taxpayer identification
number (TIN).1

IRS matches information returns with income tax returns to determine
whether taxpayers have filed a return and/or reported all of their income.
For fiscal year 2002, IRS used information returns to detect about 1.5
million taxpayers that underreported their income by about $2.5 billion
and
also identified about 2 million taxpayers with tax liabilities of $2.4
billion
that failed to file tax returns. However, when the TIN on an information
return is invalid2 and IRS cannot ascertain the correct TIN, IRS is unable
to
match the information return data with tax return data and is thus unable

1 The TIN is a unique nine-digit number, usually a social security number
(SSN) for an individual, an employer identification number (EIN) assigned
by IRS for a partnership or corporation, and either an SSN or EIN if the
vendor is a sole proprietor.

2 In this report, an invalid TIN refers to a missing TIN, a TIN with more
or less than nine numeric characters, a TIN that includes an alpha
character, or a TIN/name combination that does not match or cannot be
found in IRS's records.

to detect either whether a taxpayer underreported income or failed to file
a tax return.

To help federal agencies identify whether vendor TINs are valid, in 1997
IRS initiated a TIN-matching program that agencies can use, prior to
filing their information returns, to determine whether vendors have
provided a correct TIN/name combination. If a vendor either fails to
provide a TIN or provides a TIN/name combination that does not match
information in IRS's records, and the vendor subsequently fails to provide
a correct TIN/name combination upon request, the federal agency is
required to initiate backup withholding3of future payments for services.

Despite these efforts, our reviews of IRS's Federal Payment Levy Program4
showed that federal agency payment records often contained invalid or
missing TINs and, therefore, could not be used to levy vendors' federal
payments to recover delinquent federal taxes.5 As a result, you asked us
to assess whether federal agencies in general have been submitting
complete and accurate annual information returns to IRS for service
payments to vendors. Specifically, our objectives were to determine (1)
the extent to which federal agencies file required Forms 1099 MISC, take
steps to ensure that information on the returns, particularly TINs, are
valid, and initiate backup withholding if vendors provide invalid TINs;
(2) recent actions IRS has taken to help improve federal agency Form 1099
MISC filing compliance; and (3) whether any additional measures could
further improve federal agency compliance with Form 1099 MISC filing
requirements.

3 Section 3406 of the Internal Revenue Code requires that payers withhold
and forward to IRS a predetermined percentage of certain payments if a
payee fails to provide the payer with a correct TIN; this is known as
backup withholding.

4 The Federal Payment Levy Program, authorized by the Taxpayer Relief Act
of 1997 and conducted jointly by IRS and the Department of the Treasury's
Financial Management Service, enables IRS to levy up to 15 percent of
certain federal payments to collect delinquent federal taxes, including
payments made to vendors.

5 U.S. General Accounting Office, Tax Administration: IRS' Levy of Federal
Payments Could Generate Millions of Dollars, GAO/GGD-00-65 (Washington,
D.C.: Apr. 7, 2000) and Tax Administration: Millions of Dollars Could Be
Collected If IRS Levied More Federal Payments, GAO-01-711 (Washington
D.C.: July 20, 2001).

To meet our objectives, we requested and obtained vendor payment
information for service payments made by the agencies and bureaus within
the 14 federal departments6 for calendar years 2000 and 2001 and compared
this information to vendor payment information included in IRS's Payer
Master File and Information Returns Master File for the same 2-year
period. We also surveyed the 14 federal departments on their policies and
practices for obtaining vendor TINs and filing required Forms 1099 MISC.
In addition, we discussed with IRS officials actions recently taken or
pending for assisting federal agencies in filing complete and accurate
Forms 1099 MISC for service payments to vendors. Finally, we discussed
with both IRS and Office of Management and Budget (OMB) officials
additional measures that could further improve federal agency compliance
with Form 1099 MISC filing requirements. Our work was done from June 2002
through September 2003 in accordance with generally accepted government
auditing standards. (App. I describes our overall objectives, scope, and
methodology.)

Results in Brief	Federal agencies are not always filing required Forms
1099 MISC or taking steps to ensure that information on the returns is
valid. For example, we found that about $5 billion in payments to about
152,000 payees made by agencies within three federal departments during
2000 and 2001 were not reported to IRS on Forms 1099 MISC, and about 8,800
of the payees failed to file an income tax return for these years. In
addition, about $20 billion in service payments on almost 170,000 Forms
1099 MISC-13 percent of the information returns filed by agencies within
the 14 federal departments for 2000 and 2001 combined-included invalid
TINs. IRS was unable to correct the TINs on about 116,000 of these returns
(68 percent) valued at almost $9 billion, thus rendering them unusable for
determining whether the vendors had reported this income. In response to
our survey, only two federal departments indicated that their agencies
were either using IRS's TIN-matching program to validate vendor TINs or
initiating backup withholding if vendors failed to provide valid TINs
departmentwide. While officials from some federal departments said they
were unaware of IRS's TIN-matching program, others thought the program was
currently unavailable. The main reason cited for not initiating backup
withholding was the lack of a process in place within their respective
financial

6 The Department of Homeland Security had not been established at the time
this review began.

management systems for accomplishing backup withholding of vendor payments
if vendors failed to provide valid TINs.

IRS has taken recent action and has other actions planned to assist
federal agencies in complying with Form 1099 MISC filing requirements. For
example, in August 2003 IRS sent a specific notice to federal agencies for
the first time, identifying Forms 1099 MISC filed by the agencies for 2001
that included invalid vendor TINs and reminding the agencies of their
responsibility to ensure that valid vendor TINs are provided and to
initiate backup withholding of subsequent payments for vendors who fail to
provide a valid TIN. Also, in late 2003 IRS plans to expand its
TIN-matching program to enable federal agencies to submit online up to
100,000 TIN/name combinations at one time and to receive a response from
IRS within 24 hours concerning whether these combinations match the
TIN/name combinations in IRS's records.

IRS does not identify agencies that fail to file Forms 1099 MISC and IRS
and OMB have not taken steps to realize the potential of the Central
Contractor Registration (CCR)-a Department of Defense (DOD) database of
vendors that have registered to do business with DOD-to better ensure that
agencies include accurate TINs on their Forms 1099 MISC for federal
vendors. IRS does not currently have a program to identify and follow up
with federal agencies that fail to file Forms 1099 MISC. Although such a
program would be beneficial, it would require that IRS's Payer Master
File, which IRS could use to identify federal agencies that do not file
Forms 1099 MISC, be complete, accurate, and up to date. We found that 96
out of 147 federal agencies for which we had requested information from
IRS were not specifically identified as federal payers in the Payer Master
File. Further, although IRS's online TIN-matching program has the
potential to assist federal agencies in reducing the number of Forms 1099
MISC submitted to IRS with invalid TINs, as of October 2003 OMB began
requiring all federal agencies to use the CCR as the single validated
source of information about vendors doing business with the federal
government. However, TINs recorded in the CCR are not validated via IRS's
TINmatching program, there are no current plans to require such
validation, and our work has raised concerns about the validity of TINs
contained in the CCR. Having DOD validate vendor TINs recorded in the CCR
through IRS's TIN-matching program would eliminate the need for each
individual federal agency to do so and would further OMB's goal of having
the CCR be a central source of valid vendor data. DOD cannot validate all
vendor TINs under current law, but could if vendors gave it permission to
do so or if the law was changed.

We are making recommendations to ensure that IRS identify and follow up
with federal agencies that fail to file annual information returns for
vendor service payments and that IRS and OMB ensure that vendor TINs are
validated using IRS's TIN-matching program. Both IRS and OMB generally
agreed with our recommendations. DOD also indicated that actions were
underway that should eventually enable vendor TINs in the CCR to be
validated via IRS's TIN-matching program.

Background	Section 6041A of the Internal Revenue Code requires any service
recipient, including federal agencies, to file an annual information
return with IRS for payments made to any person for services totaling $600
or more during a calendar year. Payments to corporations for certain
services provided must also be reported, such as attorneys' fees and
medical and health care payments. In addition, federal executive agencies
must report all payments for services provided by vendors, including
payments made to corporations. Specific information required on the annual
information return-an IRS Form 1099 MISC-includes the name, address, and
TIN of both the payer and payee, as well as the total amounts paid during
the year for the various types of services provided. The purpose of the
Form 1099 MISC filing requirement is to enable IRS to identify taxpayers
who fail to file an income tax return as well as those who fail to report
all of their income on their tax return for the related year.

IRS enters Form 1099 MISC information in both a Payer Master File (PMF)
and an Information Returns Master File (IRMF). The PMF is a database that
includes all entities that make payments subject to information return
reporting. The PMF includes general information on the total number and
dollar value of information returns, including Forms 1099 MISC, filed by
each payer for each year. The IRMF is a database that includes specific
information on the type and amount of payments made to each payee,
including whether the payee TIN was valid upon receipt of the information
return and if the TIN was invalid, whether it was subsequently corrected
by IRS. Both the PMF and IRMF include the payer's TIN.

Upon receipt of a Form 1099 MISC, basic information is entered into a
temporary IRS database. IRS compares the payee TIN/name combination with
TIN/name combinations in its records to determine if there is a match. If
there is a match, the information is entered in the IRMF without the need
for additional action. If there is not a match, IRS will try to validate
the TIN/name combination via a TIN "validation" process, which entails
matching the TIN and name control-the first four characters of an

individual's last name or the first four characters of a business name-on
the Form 1099 MISC with (1) a file which contains all social security
numbers ever issued and all name controls ever associated with them and
(2) a file that contains all employer identification numbers ever issued
and all name controls ever associated with them. If IRS is able to match
the TIN and name control through this process, the information is entered
in the IRMF with a code indicating that the TIN was corrected and is
valid. If IRS is unable to match the TIN and name control, the information
is entered in the IRMF with a code indicating that the TIN is invalid.

If the vendor TIN included on the Form 1099 MISC is initially valid or
subsequently corrected by IRS, and the vendor files a tax return for the
corresponding year, IRS can electronically match the TIN, name control,
and amount entered in the IRMF with the amount reported on the vendor's
tax return via the Document Matching Program.7 This enables IRS to
determine whether the vendor has reported all of the income on the tax
return. Alternatively, if there is no corresponding return with the same
TIN and name control as that entered in the IRMF, IRS can determine that
the vendor is a potential nonfiler. However, if the TIN entered in the
IRMF is invalid, IRS is unable to use the information to detect either
underreporting or nonfiling on the part of a vendor.

Since 1997, IRS has had a TIN-matching program that federal agencies can
use to verify the accuracy of TIN/name combinations furnished by federal
payees. This program was intended to reduce the number of notices of
incorrect TIN/name combinations issued for backup withholding by allowing
agencies the opportunity to identify TIN and name discrepancies and to
contact payees for corrected information before issuing an annual
information return, such as a Form 1099 MISC. Monthly, federal agencies
can submit a batch of TIN/name combinations to IRS for verification. IRS
then matches each record submitted and informs the agency whether the TIN
and name combination submitted matches its records.8

In order to encourage vendors to provide a valid TIN and to ensure that
taxes are paid when they do not, Internal Revenue Code Section 3406

7 The Document Matching Program matches information on selected tax issues
(usually income) reported on tax returns by individual taxpayers and
reported on information returns by third parties, such as employers,
banks, and other payers of income.

8 IRS cannot tell an agency what the correct TIN, name, or both TIN and
name should be if the records do not match, as to do so would violate tax
disclosure laws.

requires payers, including federal agencies, to initiate backup
withholding of a federal payment if a payee, including a vendor, fails to
provide a TIN or provides an invalid TIN, and upon notice fails to provide
a correct TIN. IRS considers a TIN to be missing if it is not provided,
has more or less than nine numbers, or has an alpha character in one of
the nine positions. IRS considers the TIN to be invalid if it is in the
proper format, but the TIN/name combination doesn't match or cannot be
found in IRS or Social Security Administration files. Payments subject to
backup withholding include various types of income reportable on a Form
1099 MISC, including compensation paid to individuals that are not
employees. The current rate for backup withholding is 30 percent of the
payment.

Not All Federal Agencies File Required Information Returns or Take Steps
to Ensure That Information Provided Is Valid

Federal agencies are not always adhering to Form 1099 MISC filing
requirements. For 2000 and 2001, about 152,000 information returns for
federal payments totaling about $5 billion were not filed with IRS, while
about 170,000 information returns, including $20 billion in federal
payments that were filed, included invalid TINs. Few agencies are taking
advantage of IRS's TIN-matching program to validate vendor TINs prior to
submitting information returns to IRS. Similarly, few agencies are
initiating backup withholding on payments made to vendors that have
provided invalid TINs.

With Some Exceptions, Federal Agencies File Forms 1099 MISC

While most federal agencies filed information returns for vendors, some
did not. For both 2000 and 2001, the 14 federal departments collectively
filed over 600,000 Forms 1099 MISC in which they reported over $100
billion in payments each year. (See app. II for the number and dollar
value of Forms 1099 MISC filed individually by the 14 federal
departments.)

Although the 14 federal departments collectively filed a substantial
number of Forms 1099 MISC over this 2-year period, we found some
significant exceptions, as the following examples illustrate.

o 	About $5 billion in payments to about 152,000 payees made collectively
by the Departments of Agriculture, Commerce, and Justice for 2000 and 2001
combined were not reported to IRS on Forms 1099 MISC. About 8,800 of these
payees who collectively received payments totaling about $421 million
dollars-an average of about 48,000 each-failed to file an income tax
return for these 2 years, according to IRS's records. If information
returns had been filed and IRS had this information, it

would have provided a basis for IRS to assess the appropriate taxes
against these payees.

o 	Almost $3.0 billion in payments made via purchase cards by DOD between
2000 and 2001 had not been reported to IRS due to incorrect or missing
vendor TINs. DOD officials indicated that obtaining vendor information
needed for Forms 1099 MISC from payment card companies has been a
long-standing problem. They estimated that they could have filed as many
as 40,000 additional Forms 1099 MISC for 2000 and 2001 if they had
received the necessary vendor information from payment card companies.

o 	According to the Department of Transportation, Forms 1099 MISC were not
filed for services if the vendor was a corporation that provided both
goods and services, as their vendor payment system cannot distinguish
between the two for the purpose of issuing Forms 1099 MISC. As a result,
only about $8 million of $92 million in service payments for tax years
2000 and 2001 were reported to IRS on Forms 1099 MISC.

o 	One Department of Housing and Urban Development agency that made
payments to vendors for services totaling over $73 million for 2000 and
2001, failed to file any Forms 1099 MISC for these 2 years. According to a
Department of Housing and Urban Development official, because the agency
is a wholly owned corporation within HUD and is therefore quasi-federal,
agency officials were not aware that they were required to file Forms 1099
MISC. They further indicated that the agency had subsequently issued Forms
1099 MISC to its vendors for payments made for 2002.

In response to our survey of departmental policies and practices for
filing Forms 1099 MISC, department officials cited various reasons for not
filing a Form 1099 MISC for vendor payments. Not having a valid vendor TIN
was the foremost reason cited. Other reasons included the inability to
distinguish between goods and services provided by a vendor,9 as cited
above, and problems obtaining necessary vendor information, namely TINs,
from payment card companies for vendors that are paid via government
purchase cards.

9 We did not review the capabilities of individual agency and department
vendor payment systems to distinguish between goods and services, as this
was beyond the scope of our review.

Forms 1099 MISC Often Include Missing or Incorrect TINs

Even when federal agencies do file Forms 1099 MISC, they often include an
invalid vendor TIN. As a result, IRS has to expend resources in an attempt
to identify a correct TIN via its TIN validation process and, in most
cases, IRS is unable to use the information returns to determine whether
vendors had either underreported their income or failed to file a tax
return. As shown in figure 1, the 14 federal departments filed almost
170,000 Forms 1099 MISC with invalid vendor TINs for tax years 2000 and
2001 combined. Almost $20 billion in vendor payments were included on
these information returns. Overall, for the 2 years combined, about 13
percent of all Forms 1099 MISC filed by the 14 federal departments
included an invalid TIN when they were submitted to IRS. (See app. III for
the number and percentage of Forms 1099 MISC filed individually by the 14
federal departments with invalid TINs.)

Figure 1: Forms 1099 MISC Submitted to IRS by Federal Agencies for Vendor
Payments, Including Those with Invalid Vendor TINs That IRS Was Unable to
Correct

- Tax Years 2000 and 2001 Combined

Corrected

Uncorrected

Source: IRS.

Note: GAO analysis of IRS data.

As also shown in figure 1, IRS was subsequently able to correct about 32
percent of the invalid vendor TINs through its TIN validation process.
However, IRS was unable to correct the invalid TINS included on about
116,000 of the Forms 1099 MISC filed by the 14 departments, which were
valued at almost $9 billion, an average of about $77,000 per return. As a
result, IRS would be unable to match this income with income reported on
income tax returns for the same period to determine whether these vendors
had either underreported the income or failed to file a tax return.

One reason cited by department officials for filing Forms 1099 MISC with
invalid TINs was the lack of a means for validating vendor TINs. This was
cited, in particular, by those departments whose agencies were not using
IRS's existing TIN-matching program.

In addition to negatively affecting IRS's ability to ensure that vendors
report all required income on their tax returns, invalid vendor TINs also
impede the Department of the Treasury's ability to offset federal tax
debts through the Federal Payment Levy Program, as well as its ability to
offset other debts through the Treasury Offset Program.10 Each program
requires a match of the payee's TIN and name control on both the payment
record submitted to the Financial Management Service (FMS) and the debt
information included in the FMS database, in order for the payment to be
offset against the debt.

Federal Agencies Do Not Consistently Use IRS's TIN-Matching Program

Although the TIN-matching program is available, most federal agencies do
not consistently use this program to ensure that the TINs included on
information returns are valid. From our survey of federal department
policies and practices for obtaining vendor TINs and filing required Forms
1099 MISC we found the following.

o 	Officials from only 2 of the 14 federal departments-Labor and Housing
and Urban Development-said their agencies were currently using IRS's
TIN-matching program departmentwide. Even so, we noted that according to
IRS's records, agencies within both departments had filed

10 The Debt Collection Improvement Act of 1996 requires federal agencies
to obtain a valid TIN from federal payees, including vendors, to
facilitate federal debt collection via the Treasury Offset Program. The
Treasury Offset Program involves a centralized database of delinquent
federal nontax debts that have been referred by federal agencies for
offset against federal payments processed by the Department of the
Treasury's Financial Management Service.

some Forms 1099 MISC for tax years 2000 and 2001 with invalid vendor TINs.

o 	Three other federal departments-Health and Human Services, Interior,
and Justice-indicated that IRS's TIN--matching program is used, but only
by some of the agencies or bureaus within the respective departments.

While officials from some federal departments said they were unaware of
the TIN-matching program, others thought the program was currently
unavailable. DOD officials stated that they rely on the CCR for validating
vendor TINs and thus do not use the IRS TIN-matching program. A Department
of the Interior official indicated that it is in the process of
implementing use of the CCR by its bureaus and agencies as of October 2003
at the direction of OMB.

In General, Federal Agencies Do Not Initiate BackupWithholding as Required

Although backup withholding is required if vendors fail to provide a valid
TIN to a federal payer, most federal agencies do not initiate backup
withholding. From our survey of federal department policies and practices
for obtaining vendor TINs and filing required Forms 1099 MISC we found the
following.

o 	Officials from only 2 of the 14 federal departments-Energy and
Transportation-said that their agencies initiate backup withholding
departmentwide.

o 	Three other federal departments-Health and Human Services, Interior,
and Justice-indicated that backup withholding is initiated only by some of
the agencies or bureaus within the respective departments.

The main reason cited by officials from several of the federal departments
for not initiating backup withholding was the lack of a process in place
within their respective financial management systems for accomplishing
backup withholding of vendor payments.11 Some department officials also
indicated that they had no way of knowing when a vendor's TIN is invalid
and therefore subject to backup withholding. An official with one of the
agencies within the Department of Health and Human Services indicated

11 As indicated earlier, we did not review the capabilities of individual
agency and department vendor payment systems, as this was beyond the scope
of our review.

that they deny payment to vendors who fail to provide a valid TIN in lieu
of backup withholding.

IRS Has Acted to Improve Form 1099 MISC Reporting Compliance

IRS has taken some recent actions and has other actions planned to assist
federal agencies in complying with Forms 1099 MISC filing requirements, as
the following examples illustrate.

o 	In August 2003, for the first time, IRS sent a specific notice (Notice
1313) to federal agencies identifying Forms 1099 MISC filed for 2001 in
which the vendor's TIN was invalid and reminding the agencies of their
responsibility to ensure that TINs are valid and to initiate backup
withholding for any vendors who subsequently fail to provide the agency
with a correct TIN upon notification by the agency. Sending these notices
annually may address agency concerns about not having a way to determine
that a vendor's TIN is invalid and that backup withholding should be
initiated.

o 	By the end of 2003, IRS plans to expand its TIN-matching program to
enable federal agencies to submit online up to 100,000 TIN/name
combinations at a time and to receive a response from IRS within 24 hours
concerning whether the TIN/name combinations submitted match the TIN/name
combinations in IRS's records. As an interim step, IRS plans to have an
interactive computer application available that will allow federal
agencies to submit up to 25 TIN/name combinations and receive feedback
within 5 seconds on whether these match the TIN/name combinations in IRS's
records. As with the existing TINmatching program, IRS will not be able to
provide an agency with the correct TIN or name if they do not match IRS's
records due to the disclosure laws. Instead, the agencies will continue to
be responsible for contacting a vendor for the correct TIN/name
combination. However, the online TIN-matching program should make it
easier for federal agencies to identify vendors that are to be contacted
to obtain a valid TIN and thus prevent the agencies from filing Forms 1099
MISC that include invalid TINs.

o 	In February 2003 IRS issued a proposed revenue procedure that would
enable payment card companies to act on behalf of cardholders/payers, such
as federal agencies, in soliciting, collecting, and validating vendor
information, including TINs. This procedure would enable payment card
companies to use IRS's TIN-matching program to validate the TIN/name
combinations provided by vendors for which a Form 1099

MISC is to be filed. Once adopted, this procedure may help to eliminate
some of the problems agencies have experienced in getting necessary vendor
information related to purchase card payments.

In addition, IRS has initiated meetings with various federal agencies,
including the Departments of Defense and Agriculture, to identify specific
problems associated with obtaining valid vendor TINs and filing accurate
Forms 1099 MISC, particularly problems related to purchase card payments.
In November 2003, IRS plans to present a federal agency seminar covering
various topics related to filing Forms 1099 MISC, including use of the
TIN-matching program, information reporting requirements, and the
previouslymentioned proposed revenue procedure.

IRS Has No Program to Identify Federal Agencies That Fail to File Forms
1099 MISC and the CCR Does Not Now Serve as a Central Source of Valid TINs

Although IRS can identify whether Forms 1099 MISC filed by federal
agencies include a valid TIN, IRS does not have a program to identify and
follow up with agencies that fail to file Forms 1099 MISC. In addition,
the CCR does not, as OMB intends, serve as a central source of valid TIN
data that federal agencies can use.

At Present, IRS Has No Program to Detect Federal Agencies That Do Not File
Forms 1099 MISC

IRS does not have a program to periodically identify and follow up with
federal agencies that fail to file Forms 1099 MISC for vendor payments.
IRS officials indicated that their emphasis has been on identifying Forms
1099 MISC filed with invalid TINs by nonfederal payers. This is because
Internal Revenue Code section 6721 authorizes IRS to assess a penalty of
$50 against a nonfederal payer for each information return filed with an
invalid TIN, up to a maximum penalty of $250,000 per calendar year. IRS
proposed just over $204 million in penalties against nonfederal payers for
information returns with invalid TINs for tax years 2000 and 2001
combined. IRS estimated that an additional $6.9 million in penalties could

have been proposed against federal agencies for filing information returns
with invalid TINs, if IRS had the authority to do so.12

A complete and accurate Payer Master File, which includes general payer
information, such as the payer name and TIN, as well as the total number
and dollar value of various types of Forms 1099 filed by each payer, would
enable IRS to identify federal agencies that fail to file Forms 1099 MISC.
IRS could then contact these agencies to ascertain why these returns were
not filed. IRS initially indicated to us that federal payers are
specifically coded as such in the Payer Master File to distinguish them
from nonfederal payers. However, we found that 96 of 147 federal agencies
and bureaus for which we needed information concerning Forms 1099 MISC
they filed with IRS for 2000 and 2001 were not coded as federal payers in
the Payer Master File. IRS officials agreed that there is a need to update
the Payer Master File to ensure that all federal payers are properly coded
as federal. Conducting a survey of all payers included in this file would
be a way for IRS to update this information, thus ensuring that all
federal payers are correctly coded as federal in the Payer Master File.

TINs in the CCR Are Not Validated

OMB has instructed federal agencies to begin using the CCR as of October
2003, as the single validated source of information about vendors doing
business with the federal government, but CCR vendor TINs are not
validated with IRS's TIN-matching program. The CCR, which is maintained by
DOD, includes information on over 234,000 vendors that have registered to
do business with DOD, including the vendors' TIN and name. The accuracy
and completeness of information listed in this database is the
responsibility of the individual vendors and must be updated annually.
According to CCR officials, vendor TINs are not validated via IRS's
TINmatching program. Instead, CCR does an edit check to ensure that a
vendor's TIN is in the correct format, namely that it contains nine
numbers.

12 IRS Policy Statement P-2-4 states "penalties and interest will not be
assessed against agencies or instrumentalities of the United States."

At the time of our review and resulting July 2001 report13 mentioned
earlier, we found that there were a substantial number of invalid vendor
TINs in the CCR. In addition, during our current review, we found that the
CCR included about 7,000 vendor employer identification numbers that were
not included in IRS's Business Master File.14

Due to the lack of validated TINs in the CCR, agencies' use of this
centralized database as a source of TINs for vendors in and of itself
would not ensure that the agencies include valid TINs on Forms 1099 MISC
submitted to IRS. As noted earlier, in line with OMB's expectations, DOD
relies on the CCR as a source of valid TINs and therefore does not use
IRS's TIN-matching program; Interior officials say they also plan to use
the CCR.

If the name and TIN of vendors recorded in the CCR were validated by DOD
initially and then periodically thereafter through IRS's TIN-matching
program, the CCR could become a central source of valid vendor TINs for
all agencies to use for their Forms 1099 MISC submitted to IRS. However,
because agencies are restricted to using the TIN-matching program only for
validating TINs for which an information return is required, DOD would not
be able to validate all vendor TINs included in the CCR because not all
vendors in the CCR actually receive DOD contracts to provide services.
This restriction could be addressed through a change to the disclosure
laws, thus authorizing DOD to use the TIN-matching program for all vendors
that have registered with the CCR. Alternatively, individual vendors could
be asked to agree to have their TIN and name matched to IRS data when they
apply to do business with the government. Section 6103 of the Internal
Revenue Code protects taxpayer information, including TINs, from
disclosure. However, taxpayers can waive this protection. This would
enable IRS to provide more information than can currently be provided
under the TIN-matching program, such as the correct TIN/name combination.

Given that the CCR is not currently a valid source of vendor TINs,
agencies cannot rely on the CCR as OMB intends. Therefore, each agency
would need to use IRS's online TIN-matching program as the only way to
independently verify vendor TINs necessary to include on their Forms 1099

13 GAO-01-711.

14 The Business Master File is an IRS database that contains tax return
filing histories for business entities.

MISC. However, at the present time agency use of the TIN-matching program
is optional.

Conclusions	Some federal agencies' failure to file required annual Forms
1099 MISC and other agencies' failure to file returns with valid vendor
TINs adversely affects IRS's efforts to detect unreported vendor income
and vendors that fail to file income tax returns. In addition, invalid
TINs in federal agency payment records negatively affect Department of the
Treasury efforts to offset federal tax debts through the Federal Payment
Levy Program and other federal debts through the Treasury Offset Program.

Although IRS has taken some positive actions to improve federal agency
compliance with Form 1099 MISC filing requirements, additional steps could
be taken. IRS could identify and follow up with federal agencies that fail
to file required Forms 1099 MISC if it had a complete and accurate Payer
Master File. In addition, the CCR could become, as OMB intends, a central
source for valid vendor information, including TINs. Currently, CCR TIN
data are not always accurate. Except for current statutory restrictions on
the use of IRS's TIN-matching program, the CCR's administrator, DOD, could
use IRS's new online TIN-matching program to routinely verify the TINs of
all vendors as they are added to the CCR and then periodically thereafter.
This would carry out OMB's desire for the CCR to be a central source of
valid vendor information and would thereby avoid each agency independently
verifying TINs for some of the same vendors. Asking vendors to permit DOD
to routinely verify their TINs when they register to do business with the
federal government would be one option to enable DOD to verify TINs in the
CCR against IRS's records. Alternatively, OMB and IRS could determine
whether an exception to section 6103 of the Internal Revenue Code should
be requested.

In the absence of the CCR as a valid source of TINs, agencies must
individually and voluntarily use IRS's TIN-matching program to validate
vendor TINs. Agencies have not consistently used the TIN-matching program
in large part because they say they were unaware of it. IRS's new online
TIN-matching program and publicity IRS plans as it launches the new system
later this year may make officials more aware of the program and increase
their use of it. However, until OMB is able to realize its intent of
having the CCR be a valid source of information for federal vendors,
additional assurance could be gained that agencies would use the matching
program if OMB required them to do so. Because IRS has made the system

available online, fulfilling such a requirement should now be easier than
in the past.

Recommendations for Executive Action

To ensure that federal agencies file Forms 1099 MISC for payments to
vendors for services provided, we recommend that the Commissioner of
Internal Revenue

o 	ensure the accuracy of identification information concerning federal
payers in IRS's Payer Master File and

o 	develop a program to periodically identify federal agencies that fail
to file Forms 1099 MISC and follow up to determine why the forms were not
filed.

To minimize duplicate agency effort in validating vendors' TINs and to
reinforce the anticipated role of the Central Contractor Registration as
the single validated source of vendors doing business with the federal
government, we also recommend that the Commissioner of Internal Revenue
and the Director of the Office of Management and Budget consider options
to routinely validate all vendor TINs in the CCR and to then require all
agencies to use vendor and TIN information from the CCR for their Forms
1099 MISC. If this proves to be infeasible, OMB should require each agency
to validate TINs for vendors who provide services through IRS's
TIN-matching program.

Agency Comments and Our Evaluation

We received written comments on a draft of this report from the
Commissioner of Internal Revenue (see app. IV) and the Under Secretary of
Defense (Comptroller) (see app. V).

The Commissioner agreed with our recommendations. However, he also
emphasized that agencies may not wish to spend the resources to
effectively use IRS's TIN-matching program and that IRS cannot compel
agencies to meet their Form 1099 MISC reporting responsibilities.

To ensure the accuracy of identification information concerning federal
payers included in IRS's Payer Master File, the Commissioner agreed to
perform periodic reviews of the database to ensure its accuracy. In
addition, as part of an education-compliance program geared to federal
agencies that IRS is in the process of developing, the Commissioner stated

that IRS plans to contact federal agencies to identify and verify that all
TINs used by each agency have been properly identified, thus compiling an
accurate list of all federal agency payer TINs.

To identify federal agencies that fail to file Forms 1099 MISC and the
reasons why the forms were not filed, the Commissioner agreed to compare
the above mentioned list of federal agency payer TINs to the Payer Master
File to identify agencies that did not file Forms 1099 MISC and to then
contact the agencies to determine if Forms 1099 MISC were required.

To minimize duplicate agency effort in validating vendors' TINs and to
reinforce the role of the CCR as the single validated source of vendors
doing business with the federal government, the Commissioner agreed that
IRS will work with DOD to ensure that vendor TINs on the CCR are accurate,
to include exploring the expanded use of the TIN-matching program to
validate all TINs included in the CCR.

In addition to commenting on the report recommendations, the Commissioner
pointed out that IRS Policy Statement P-2-4, which provides that federal
agencies are not subject to penalties and interest for failure to comply
with Form 1099 MISC filing requirements, is based on a 1978 GAO
Comptroller General Decision (B-161457). This decision states that agency
appropriations are not available for payment of interest and penalties.
The Commissioner noted that if an agency does not wish or is unable to
comply with its Form 1099 MISC reporting responsibilities, there is
nothing that IRS can do but rely on voluntary compliance on the part of
the agency.

Although we agree that IRS cannot compel agencies to meet their Form 1099
MISC reporting responsibilities, we believe implementing our
recommendations will better ensure that agencies do so. For instance, by
bringing to agencies' attention that they are not filing the required
information returns, IRS can help educate agencies about their reporting
responsibilities. Further, by improving the validity of TINs in the CCR,
IRS, working with OMB, can make it easier for agencies to comply.

The Commissioner also stated that a number of federal agencies indicated
that they have been unable to use IRS's TIN-matching program because their
financial reporting systems were incompatible with the TIN-matching
program and that the cost to make agency systems compatible would be
prohibitive. If IRS and DOD are able to arrange validation of TINs
included in the CCR via the TIN-matching program as we recommend, this
would

eliminate the need for individual agencies to use the TIN-matching
program. In the event that IRS and DOD are unable to work out such an
arrangement, IRS's online TIN-matching program, which can be accessed via
the Internet using a desk-top workstation, may be an effective alternative
to agencies making substantial changes to their financial accounting
systems.

The Under Secretary of Defense (Comptroller) did not directly say he
agreed with our recommendation, but indicated that efforts currently
underway to improve the accuracy of TINs in the CCR for both DOD and all
other federal agencies mirror our recommendation for IRS and OMB to
consider options to routinely validate all vendor TINs in the CCR and to
require all agencies to use vendor and TIN information from the CCR for
their Forms 1099. The Under Secretary pointed out that the mandated use of
the CCR throughout the federal government coupled with IRS's online
TIN-matching program should enable DOD to establish a basic level of
validation in the near term, perhaps as soon as the second quarter of
fiscal year 2004.

The Under Secretary also pointed out that the Defense Finance and
Accounting Service has been working with payment card companies, such as
VISA and Master Card, to improve the process for reporting payments made
via payment cards. As a result, DFAS expects a significant increase in the
number and dollars reported for the card programs on Forms 1099 for
calendar year 2003. We commend these efforts to address the longstanding
problem of obtaining necessary vendor information from payment card
companies. Coupled with IRS's proposal to enable payment card companies to
act on behalf of cardholder/payers in soliciting, collecting, and
validating vendor information, including TINs, these efforts should go a
long way in addressing this problem.

On November 26, 2003, we also received oral comments from representatives
of OMB's Offices of Federal Procurement Policy and Federal Financial
Management. OMB generally agreed with our recommendation. Accordingly, OMB
agreed to develop and issue a memorandum to federal agencies directing
them to validate TINs by using the TIN-matching program or the CCR. In
addition, OMB agreed to work with IRS and the CCR to ensure agencies are
provided the necessary information to use either of the methods
recommended. Although we believe that either using IRS's TIN-matching
program or validating TINs in the CCR can be effective means for ensuring
that agencies include valid TINs on their Forms 1099 MISC, using the CCR
as the primary source of

valid TINs would reinforce OMB's intention that the CCR become the
government's central source of contractor data and would minimize
duplicate effort among agencies in validating TINs. Therefore, we
encourage OMB to pursue use of the CCR as the primary option for agencies
to obtain valid TINs.

We are sending copies of this report to the Ranking Minority Member, House
Committee on Ways and Means; Ranking Minority Member, Subcommittee on
Oversight, House Committee on Ways and Means; and the Chairman and Ranking
Minority Member, Senate Committee on Finance. We will also send copies to
the Commissioner of Internal Revenue, the Director of the Office of
Management and Budget, the Secretary of Defense, and other interested
parties. Copies of this report will also be made available to others upon
request. The report will also be available at no charge on GAO's Web site
at http://www.gao.gov.

If you have any questions concerning this report, please contact me at
(202) 512-9110 or Ralph Block at (415) 904-2150. Key contributors to this
report are listed in appendix VI.

Michael Brostek Director, Tax Issues

Appendix I

                       Objectives, Scope, and Methodology

Our objectives were to determine (1) the extent to which federal agencies
file required Forms 1099 MISC, take steps to ensure that information on
the returns, particularly Taxpayer Identification Numbers (TIN), are
valid, and initiate backup withholding if vendors provide invalid TINs;
(2) recent actions the Internal Revenue Service (IRS) has taken to help
improve federal agency Form 1099 MISC (Miscellaneous Income) filing
compliance; and (3) whether any additional measures could further improve
federal agency compliance with Form 1099 MISC filing requirements.

Scope and Methodology

To determine whether federal agencies annually file required Forms 1099
MISC with IRS, we requested and obtained vendor service payment
information from the 14 federal departments for calendar year 2000 and
2001. We specifically asked for the vendor name, TIN, and total dollar
value of all payments made by the various agencies and bureaus within
these departments for services provided during calendar years 2000 and
2001. However, we were unable to verify whether they fully complied with
our request, such as only providing payments for services and not for
goods. We compared the information we obtained from the 14 federal
departments with vendor payment information included in IRS's Payer
Master File (PMF) and Information Returns Master File (IRMF) for the
same 2-year period. On the basis of our review of IRS's procedures for
processing information returns and our testing of database extracts
obtained from IRS's Payer Master File and Information Returns Master
File, we determined that the data were sufficiently reliable to enable us
to
determine whether Forms 1099 MISC had been filed by the agencies and
bureaus within the 14 federal departments and, if so, whether they
included
valid vendor TINs.

We obtained vendor payment information from the following federal
departments:1

Agriculture
Commerce
Defense
Education
Energy
Health and Human Services

1 The Department of Homeland Security had not been established at the time
this review began.

Appendix I
Objectives, Scope, and Methodology

Housing and Urban Development
Interior
Justice
Labor
State
Transportation
Treasury
Veterans Affairs

In an effort to gauge the potential result of not filing Forms 1099 MISC,
we
selected payment information provided to us by the agencies within 3 of
the 14 federal departments for 2000 and 2001 and identified the amounts
paid to individual payees that were not included on IRS's IRMF, thus
indicating that a Form 1099 MISC had not been filed. We then compared
the payee information to an IRS file of nonfilers to determine whether the
individual payees had filed federal income tax returns for the comparable
years.

To determine whether Forms 1099 MISC filed with IRS by federal agencies
include valid vendor TINs, we analyzed IRS's IRMF for calendar years 2000
and 2001. We identified the number and dollar value of Forms 1099 MISC
filed by the 14 federal departments that, according to the IRMF, contained
invalid TINs. Of these, we further identified the number and dollar value
associated with invalid TINs that IRS was able to correct via its TIN
validation program, as well as those that remained invalid because IRS was
unsuccessful in correcting them.

To determine whether federal agencies take steps to ensure that
information on the returns, particularly TINs, is valid, by using IRS's
TIN
matching program to validate vendor TINs or initiate backup withholding
on future payments to vendors that have submitted invalid TINs, we sent a
survey to the 14 federal departments about their policies and practices
for
obtaining vendor TINs and filing Forms 1099 MISC. We asked whether they
validate vendor TINs through IRS's TIN-matching program and if not, why
not. We also asked whether they initiate backup withholding if it is
determined that a vendor has provided an invalid TIN. We then
summarized the overall department responses.

To identify recent actions IRS has taken to help improve federal agency
Form 1099 MISC filing compliance, we discussed with IRS officials any
actions that were either recently implemented or pending. We also tracked

Appendix I
Objectives, Scope, and Methodology

the progress of IRS's pending on-line TIN-matching program, which is
expected to be available to federal agencies in the latter part of 2003.

To identify any additional measures that could further improve federal
agency compliance with Form 1099 MISC reporting requirements, we discussed
this issue with IRS and the Office of Management and Budget (OMB)
officials and analyzed both recent and pending actions that would affect
such compliance.

We did our work at IRS and OMB headquarters in Washington, D.C., from June
2002 through September 2003 in accordance with generally accepted
government auditing standards.

We obtained written comments on a draft of this report from the
Commissioner of Internal Revenue (see app. IV) and the Secretary of
Defense (see app. V). We also obtained oral comments from representatives
of the Office of Management and Budget.

Appendix II

Forms 1099 MISC Filed by 14 Federal Departments for Tax Years 2000 and
2001

This appendix provides details concerning the specific number and dollar
value of Forms 1099 MISC filed by each of the 14 federal departments for
tax years 2000 and 2001.

As table 1 shows, the Department of Defense filed the greatest number and
dollar value of Forms 1099 MISC each year, while the Department of
Transportation filed the least. With a few exceptions, most departments
filed more Forms 1099 MISC in 2001 than in 2000.

Table 1: Number and Dollar Value of Forms 1099 MISC Filed with IRS for Tax
Years 2000 and 2001

                         Dollars in millions (rounded)

                     Number filed Amount filed Number filed

Amount filed for 2001

                     Department for 2000 for 2000 for 2001

                Agriculture     32,617   $1,183.1        42,440      $1,579.0 
                   Commerce      7,369    1,370.6         7,601         962.2 
                    Defense    245,917   49,944.3     257,382        60,974.1 
                  Education      2,428     906.1          2,686       1,068.4 
                     Energy      3,587    6,066.4         3,381       7,250.0 
             Health & Human                                     
                   Services      8,464   41,735.4         8,859      40,312.8 
            Housing & Urban                                     
                Development     17,347    1,118.5        15,522       1,065.9 
                   Interior     23,394    1,292.5        26,197       1,549.3 
                    Justice     21,241    1,705.5        22,868       2,146.6 
                      Labor     66,285     965.4         66,245       1,126.5 
                      State      6,345    1,195.6         6,411       1,552.2 
             Transportation         93           7.7          4             a 
                   Treasury      5,846    1,537.1         7,481       1,767.7 
           Veterans Affairs    173,988    6,301.1     186,309         6,953.1 
                      Total    614,921  $115,329.3    653,386      $128,307.8 

Source: GAO analysis of IRS's Information Returns Master File.

aLess than $1 million rounded.

Appendix III

Forms 1099 MISC Filed with IRS with Invalid TINs for Tax Years 2000 and
2001

This appendix provides details concerning the specific number and
percentage of Forms 1099 MISC filed by each of the 14 federal departments
for tax years 2000 and 2001 that included invalid TINs when received by
IRS.

As table 2 shows, the Departments of Defense and Veterans Affairs filed
the greatest number of Forms 1099 MISC with invalid TINs each year, while
the Departments of Transportation and Education filed the least. The
Departments of Transportation and Agriculture filed the greatest
percentage of Forms 1099 MISC with invalid TINs each year, while the
Department of Health and Human Services filed the least.

Table 2: Number and Percent of Forms 1099 MISC Filed with Invalid TINs for
Tax Years 2000 and 2001

                                   Department

Number of invalid TINs 2000 Percent of invalid TINs 2000 Number of invalid
                                                                    TINs 2001

Percent of invalid TINs

                   Agriculture    6,820        20.9       9,518     
                      Commerce     510         6.9         788      
                       Defense    27,246       11.1       26,006    
                     Education     352         14.5        313      
                        Energy     469         13.1        531      
                Health & Human                                      
                      Services     503         5.9         493      
               Housing & Urban                                      
                   Development    3,397        19.6       2,916     
                      Interior    2,986        12.8       3,319     
                       Justice    3,949        18.6       4,005     
                         Labor    9,086        13.7       9,555     
                         State    1,021        16.1       1,053     
                Transportation      20         21.5         1            25.0 
                      Treasury     999         17.1       1,132          15.1 
              Veterans Affairs    25,781       14.8       26,609         14.3 
                        Totals    83,139       13.5       86,239         13.2 

         Source: GAO analysis of IRS's Information Returns Master file.

                                  Appendix IV

                   Comments from the Internal Revenue Service

Appendix IV
Comments from the Internal Revenue Service

Appendix IV
Comments from the Internal Revenue Service

                                   Appendix V

                    Comments from the Department of Defense

Appendix V
Comments from the Department of Defense

Appendix VI

                     GAO Contacts and Staff Acknowledgments

GAO Contacts	Michael Brostek, (202) 512-9119 Ralph T. Block, (415)
904-2150

Acknowledgments	In addition to those named above, Tom Bloom, Janet
Eackloff, Evan Gilman, Shirley Jones, Bob McKay, and James Ungvarsky made
key contributions to this report.

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