Pressure to share ITIN information for non-tax purposes continues
Immigrants' Rights Update, Vol. 18, No. 2, April 2, 2004

Treasury Secretary John W. Snow recently affirmed that neither the Internal Revenue Service (IRS) nor the office of the Treasury Inspector General for Tax Administration (TIGTA) has a program or project to investigate unauthorized workers in an effort to have them deported.  In a Mar. 10, 2004, letter to members of the Congressional Hispanic Caucus (CHC), Snow emphasized that the core missions of the IRS and TIGTA focus on the tax system, and that TIGTA is investigating whether individual tax identification numbers (ITINs) were used for purposes other than compliance with federal tax law enforcement.

As previously reported here, TIGTA agents based in Louisville, Kentucky, targeted for investigation tax-filers whose ITINs appeared on W‑2 forms and subsequently filed federal criminal charges against them that were unrelated to the enforcement of tax laws.  These tax-filers also faced deportation charges as a result (see “Concerns Raised about Potential IRS Sharing of ITIN-related Information,” Immigrants’ Rights Update, Feb. 17, 2004, p. 6).

While immigrant advocates welcome Snow’s response to the CHC, serious questions remain.  The TIGTA investigation amounts to TIGTA investigating itself.  Moreover, testimony by Treasury Dept., Social Security Administration (SSA), and General Accounting Office (GAO) officials in a recent congressional hearing indicate that pressure for sharing of ITIN information for non-tax purposes continues. 

On Mar. 10, 2004, the Subcommittee on Oversight and the Subcommittee on Social Security of the House Ways and Means Committee held a joint hearing on “Social Security number and [ITIN] mismatches and misuse.”  The particular mismatch at issue occurs when a Social Security number that is invented or belongs to someone other than the wage-earner appears on the wage-earner’s W‑2 form, and an ITIN appears on that same wage-earner’s tax return.

In her testimony, National Taxpayer Advocate Nina E. Olson took a measured approach to the problem.  She recognized that there is a “strong tendency for [tax] compliance among ITIN holders,” and that almost 75 percent of the 3.1 million ITINs issued from 1998 to 2001 have appeared on a tax return.  In other words, ITINs are overwhelmingly used for tax purposes. 

She noted that legitimate and principled tax return preparers will advise the filer to use the ITIN on his or her return and attach to it a W‑2 with the SSN.  However, when the name associated with the SSN does not match the name on the W‑2, the earnings are posted to the SSA’s Earnings Suspense File (thereby denying the earner credit for this income under the Social Security system) until the earnings can at some point be reattributed to the appropriate person.  (This is the same process followed any time a Social Security number and the name associated with it do not match properly.)  At the same time, the IRS may attribute the ITIN-filer’s income to the person whose SSN was used and claim that this person underreported his or her income.  As a result, that person may have to prove that he or she did not in fact earn that income.

As a solution, Olson proposed that the IRS should continue to make improvements to the ITIN program and develop a system of electronically filing SSN/ITIN mismatch returns so that these taxpayers could be assisted at IRS Taxpayer Assistance Centers.  Moreover, she recommended that the IRS develop a system to “fence off” income reported under a stolen or fabricated number to protect the identity theft victim from IRS audits and claims.  These proposals would protect national security and not undermine the critical tax administration objectives of ensuring taxpayer compliance with tax laws, providing customer service to taxpayers, and eliminating undue burdens on taxpayers and employers trying to comply with tax laws.  The “delicate balance” between the U.S. tax, Social Security, and immigration systems would be preserved.

The tax advocate rejected proposals from the IRS, TIGTA, and others to change ITIN administration as well as to routinely share information among the IRS, the SSA, and federal immigration authorities.    First, she said, allowing ITINs to be used on W‑4 and W‑2 forms would not work because it would be an acknowledgement both for the employer and the employee that the worker is undocumented.  Second, amending the Internal Revenue Code to require employers to submit W‑4s to the IRS upon hiring new employees and amending the confidentiality provisions of sec. 6103 to permit the IRS to inform employers that there is a mismatch might result in more serious identity theft if employees assumed both the SSN and the name of the true holder.  Moreover, this extra burden on employers would not necessarily clear up mismatches.  Most significantly, this could force undocumented workers even further underground and out of compliance with the tax system.  Third, authorizing the IRS to disclose to the SSA and immigration authorities tax information pertaining to undocumented workers would increase the damage done to innocent victims of identity theft, undermine the IRS’s obligation to provide customer service to taxpayers, and discourage tax filing, Olson said.

Likewise, IRS commissioner Everson recognized in his testimony that sharing of confidential information with immigration authorities would have a chilling effect on efforts to bring ITIN filers into the tax system, and would as a result deprive the federal government of tax revenues.

In contrast with the measured testimony of the Treasury Dept. witnesses, the testimony of Patrick P. O’Carroll, assistant inspector general for investigations with the Social Security Administration’s Office of the Inspector General, conflated the problem of W‑2/ITIN mismatch with identity theft in general.  Providing little citation to evidence, he predicted “growing confusion between ITINs and SSNs” which “will exacerbate problems with wage reporting,” and that “the ease with which one obtains an ITIN may negate the robust screening processes used to deter fraudulent applications.”  He cited one case in which an ITIN was presented as though it were an SSN and fraudulently used to obtain credit, but did not acknowledge that better education regarding the difference between the two is in order.

O’Connell predicted that misuse of ITINs will undermine the SSA’s programs and its ability to provide reliable information to law enforcement authorities, facilitating an “underground network to undermine national security and perpetuate fraud against our economy and its citizens.”  But the issue at hand is not misuse of ITINs, and he made no connection between these dire predictions and the situation of an ITIN-filer trying to comply with tax laws who submits a W‑2 with someone else’s SSN.  He called for improved coordination in the areas of data sharing, data reliability, and use of shared data.  However, he did not explain how such coordination would occur, nor how it would affect the “delicate balance” between U.S. tax, Social Security, and immigration systems.

Testimony by Michael Brostek, GAO director of tax issues, likewise drew no conclusions about how the delicate balance described by the IRS tax advocate can be maintained.  Brostek described the ease with which an ITIN can be obtained using bogus documents, but his testimony did not establish that this is a problem when ITINs are used only for tax administration purposes.  The IRS has tightened application procedures by limiting the number and kind of documents that can be presented to prove identity, but IRS staff explained to the GAO that requiring ITIN applicants to apply in person would delay processing of returns, or prevent them from being filed, and that it would divert IRS resources. 

Significantly, the GAO testimony acknowledged that mismatches between an ITIN and SSN on the W-2 “represent a very small portion of the postings to the earnings suspense file.”  Likewise, the situation that triggered the TIGTA investigation in Kentucky appears to be a minor problem.  According to SSA Deputy Commissioner James B. Lockhart, only two tenths of 1 percent of the W-2s in the suspense file from 1996–2002 had an ITIN on the W-2 instead of an SSN.

The GAO testimony also put into perspective whether employers are at risk of IRS or Dept. of Homeland Security penalties when undocumented workers present them with ITINs or SSNs, concluding that these risks are minimized if employers simply do what is required of them. 

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