The IRS knows of more than 130,000 children whose Social Security numbers are being used by illegal immigrants to obtain work, but it is refusing to tell their families, citing privacy rules, the agency’s inspector general said in a new audit released Monday.
Adults whose identities are pilfered for illegal work are alerted, but the IRS says it can’t make the same notifications for the children, according to the Treasury Inspector General for Tax Administration.
That leaves the families in a potential hole, with bogus work histories — and possibly even tax obligations — accredited to the children’s names, all in secret.
“The IRS’s unwillingness to take any action in an effort to notify parents or legal guardians is problematic because of the impact and damage that theft of a child’s identity can have on future credit and employment history,” the inspector general scolded.
“The IRS is in a unique position to identify this type of child identity theft and provide individuals with the information they need to minimize the impact,” the audit concluded. “However, without notification, parents and legal guardians cannot take the same proactive steps the IRS suggests when an adult’s [taxpayer identification number] is identified as being used to fraudulently obtain employment.”
IRS officials said they don’t have their systems set up to trigger notices for dependents, and besides, since they aren’t taxpayers themselves, and the identities are being used not for bogus refunds but for illegal immigrants taking jobs, it’s not the agency’s worry.
“Employment-related identity theft impacts labor and immigration laws, both of which are outside the scope of the IRS’s authority,” said Keith C. Corbin, IRS commissioner for the wage and investment division, in the agency’s official response to the audit.
He said the solution lies with employers, who he said could do a better job of weeding out bogus workers by using E-Verify, the government’s voluntary system for checking applicants’ work authorization.
The audit deals with employment fraud, which usually involves an illegal immigrant not entitled to work in the U.S. stealing someone else’s number to be able to gain a job. That’s separate from tax fraud, where a bogus return is filed under a stolen identity in order to steal money from the government.
The inspector general said it identified nearly 900,000 tax returns that showed a known identity fraud victim’s number had been reported on someone else’s tax returns.
About 500,000 of them were notified, leaving about 400,000 who weren’t. One-third of those, 133,864 returns, were dependents.
The IRS said rules prohibiting disclosure of personally identifiable information (PII) make it difficult to send an alert in a case involving a dependent. All the agency could do is alert the taxpayer parent or guardian that someone on their form has listed a Social Security number being used by someone else.
“The value of such notification would be minimal in consideration of the restraints against disclosing PII imposed by [the] Internal Revenue Code,” Mr. Corbin wrote.
He also said the way the IRS flags identity theft makes it tough to spot the child victims. Since they aren’t taxpayers themselves, there’s no place in the agency’s system to attach an identity theft marker, so no notice is automatically generated.
Besides, he said, the dependents’ information is often processed before the parent’s tax return, making it difficult to associate the dependent with parent or guardian.
The inspector general acknowledged the “notification challenges,” but said a 2019 federal law, the Taxpayer First Act, requires the IRS to make the notification.
If that isn’t possible given the current process, “the IRS should develop a different process,” the inspector general said.
Monday’s audit also found that the IRS doesn’t notify families or other heirs when a dead person’s number shows up on someone else’s tax form.
There were 1,766 such cases in 2019, the audit found.
IRS officials said when they have notified heirs in the past, they’ve responded with grief, frustration and anger, so they stopped issuing the notices.
Mr. Corbin said that might be worth the anger in cases of refund fraud, but not in cases of employment fraud.
The inspector general said concerns about emotional trauma to relatives of dead people is understandable, but said the law requires the notifications.
“Notification from the IRS could be the only way in which family members are alerted to this crime,” the audit said.