(CNSNews.com) - An audit report published this month by the inspector general for the Social Security Administration says that the Internal Revenue Service's reluctance to penalize employers who consistently file W-2s on which the Social Security Number and name do not match has "hindered" the SSA’s efforts to stop “unauthorized noncitizens” from using Social Security Numbers that are fake or belong to someone else.
The audit report looked at “inaccurate wage reporting”—or the filing of W-2 forms on which the name and the Social Security Number do not match. The SSA has long said these no-match W-2s are frequently filed on behalf of illegal aliens. According to the IG audit report released earlier this month, a senior IRS official admitted to the IG that the service knows this is the case.
“Furthermore,” said the report, “a senior employment tax official at the IRS acknowledged that unauthorized noncitizens accounted for a high percentage of inaccurate wage reporting.”
The audit looked at the U.S. employers who in tax years 2007-2009 (the latest for which all data was available) had the worst records for filing W-2s on which the names and Social Security Numbers did not match
The IG determined the 100 employers who filed the the largest raw numbers of no-match W-2s in those three years and the 100 employers (with at least 100 employees a piece) who filed the most as a percentage of their payrolls.
The audit discovered that the employer with the very worst record for filing no-match W-2s had filed 117,792 over the three years—an average of 39,246 no-match W-2s per year.
The employer with the highest percentage of no-match W-2s had filed them at a 98-percent rate.
The 100 employers who filed the most no-match W-2s and the 100 employers who the highest percentage of no-match W-2s together filed 2,477,546 no-match W-2s over three years. The auditors determined that 20 percent of the Social Security Numbers used on these W-2s were not real Social Security Numbers. In fact, 42,164 of the W-2s had Social Security Numbers that were all zeros. 358 were filed with 666 as the first three digits.
But, the audit determined, no-match W-2s were more likely to be filed using a real Social Security Number that belonged to someone other than the person on whose behalf the W-2 was filed. “SSA had assigned the remaining 2 million (80 percent) SSNs to someone else,” said the report. “About 380,000 of these belonged to young children, and about 258,000 belonged to deceased individuals.”
When the SSA is unable to identify the actual person on whose behalf a no-match W-2 was filed, the credit for the Social Security taxes paid on that W-2 is put into what SSA calls the “Earnings Suspense File” (ESF). In 2007, according to the report, SSA credited 11.0 million W-2s to the ESF, reflecting $90.7 billion in wages paid to people using an inaccuragte, fake or misused Social Security Number. In 2008, 9.5 million W-2s went into the ESF, reflecting $87.5 billion in wages. And, in 2009, 7.8 million W-2s went into the ESF, reflecting $73.4 billion in wages.
The report said that one reason the ESF is growing at such a rapid pace is because of the “intentional misuse” of Social Security Numbers by “unauthorized noncitizens.”
The Treasury Inspector General for Tax Administration has pointed out that the intentional misuse of a Social Security Number is a felony. “The Social Security Act provides that whoever, with the intent to deceive, falsely represents a number to be his or her SSN when, in fact, that number was not assigned to that person, shall be guilty of a felony and subject to a fine,” said TIGTA.
The IG’s audit report said SSA staff believed employers had an incentive to file bad W-2s because they were not worried about the IRS doing anything about it.
“In previous reports, SSA acknowledged unauthorized noncitizens’ intentional misuse of SSNs has been a major contributor to the ESF’s growth,” said the report. “SSA staff told us employers hired unauthorized workers because nothing prevented them from doing so. That is, employers know SSA had no legal authority to levy fines and penalties, and they were not concerned about potential IRS sanctions.”
Some employers admitted to the IG they hired "unauthorized noncitizens" who misused Social Security Numbers.
“Several of the employers and industry associations we contacted acknowledged that unauthorized noncitizens contributed to SSN misuse,” said the report. “For example, one employer told us his and many restaurants would close if they did not hire unauthorized noncitizens. A temporary labor service employer acknowledged that some of his former employees were unauthorized noncitizens who used invalid, unassigned, and deceased individuals’ SSNs. Furthermore, the president of a large growers’ association stated that farm labor contractors employed a large number of unauthorized noncitizens.”
“In addition, one large restaurant employer we contacted acknowledged that unauthorized noncitizens accounted for about half of its wage items that went into the ESF,” said the report.
One section of the report focused on "obstacles" that "continued hindering SSA's ability to combat SSN misuse." These included that employers resisted using the federal government's cost-free systems for verifyng SSNs, that the IRS was reluctant to fine employers for regularly filing no-match W-2s, and the section of the Internal Revenue Code that protects the confidentiality of tax returns, which is understood to prevent the SSA from giving information to the Department of Homeland Security about no-match W-2s.
"Our 2005 report discussed several obstacles that hindered SSA’s ability to reduce SSN misuse," said the report. "Although SSA continued working with the IRS and DHS and educating employers about the importance of accurate wage reporting, obstacles remained. Employers’ resistance to routinely using SSNVS or E-Verify hindered SSA’s ability to combat SSN misuse. In addition, the IRS was reluctant to impose existing fines or penalties against employers who consistently submitted erroneous or inaccurate wage reports. Furthermore, the Agency informed us that privacy and disclosure issues limited SSA’s ability to share information with DHS regarding employers who filed large numbers or percentages of wage statements with inaccurate SSNs"
The IG said that although the IRS had the legal authority to penalize employers who filed large numbers of inaccurate W-2s, the IRS could not tell the IG how many employers it had actually penalized. At the same time, a number of SSA Employer Service Liaison Officers (ESLOs)--who deal with employers through regional SSA offices--told the IG they "were not aware" of the IRS penalizing any employers who had habitually filed inaccurate W-2s.
"Although the IRS periodically conducts compliance audits, which may identify wage reporting issues, it could not provide data on the number of employers it had penalized because of inaccurate wage reporting," said the report.
“In addition,” said the report, “several ESLOs told us they were not aware of any fines/penalties the IRS had levied against employers who consistently submit erroneous name and/or SSN information.”
“SSA senior staff did not believe employers had an incentive to submit accurate annual wage reports because the IRS rarely enforced existing penalties,” said the report. “SSA staff believed applying penalties would deter SSN misuse. Furthermore, SSA senior staff believed the Agency could provide the IRS with sufficient evidence to show an employer knew or should have known its employees’ SSNs were incorrect. For example, a reasonable person should recognize that hundreds of workers could not have the same or consecutively numbered SSNs.”