U.S. House of Representatives

Committee on the Judiciary

F. James Sensenbrenner, Jr., Chairman

_______________________________________

www.house.gov/judiciary                                       

 

News Advisory

For immediate release                                                   Contact: Jeff Lungren/Terry Shawn

October 4, 2004                                                                                  202-225-2492

 

 

GAO Report Finds Virtually Non-Existent IRS Enforcement of Penalties for Employers Filing Wage Statements with False Social Security Numbers

 

265,000 Illegal Aliens Used Invalid Social

Security Numbers in Tax Year 2000

                                                                            

WASHINGTON, D.C. - The General Accountability Office (GAO) has released a report that finds the Internal Revenue Service (IRS) has conducted almost no enforcement for almost 20 years to fine employers of illegal workers.  Two laws enacted in the 1980s  require the IRS to penalize employers for failing to file complete and correct data, including valid Social Security numbers (SSNs) on the Employee's Withholding Allowance Certificate (IRS Form W-4).  However, today's report requested by House Judiciary Committee Chairman F. James Sensenbrenner, Jr. (R-Wis.) finds the IRS has no record of ever penalizing one employer for violation of this law.

 

"Congress trusted that the IRS would effectively enforce this law, yet this woeful lack of enforcement has provided no help in curtailing illegal workers by removing the job magnet for illegal aliens.  There is no excuse for the IRS's disregard for their responsibility to enforce the law that seeks to address a very real problem," commented Chairman Sensenbrenner.

 

The GAO found that...

 

                       Although 18 years have passed since Congress assigned that responsibility, the IRS still does not have a dedicated program for identifying and penalizing employers who file wage statements with inaccurate SSNs.  However, GAO found that identifying and penalizing employers can be done relatively easily within the context of an employment tax examination.

 

 

                       Despite having regulations for implementing the penalty provisions of the Tax Act of 1986 and the Omnibus Budget Reconciliation Act (OBRA) of 1989,  the regulations provide guidance for employers in how to avoid the penalties with little effort.  These regulations include the steps an employer must take to qualify for the "reasonable cause waiver" and thus, avoid a penalty.  To qualify for the waiver and avoid a fine, an employer only has to solicit an SSN from an employee whenever required by the current regulations.  If the employer does this, there will be no penalty.  The employer does not have to take any steps to try and verify the accuracy of the SSN.

 

 

                       No evidence that an employer has ever been assessed a penalty. None of 78 "egregious" employers reviewed as of May 2004 was assessed a penalty.  In the course of  IRS internal review in 2003-04 of  "egregious" employers filing bad SSNs,  IRS's Small Business/Self Employed Division (SBSE) concluded that for the 28 employers reviewed to date, many of their employees for whom inaccurate SSNs had been filed were aliens.  A recent internal IRS report concluded that in tax year 2000, 353,000 taxpayers were illegal aliens and of those, 265,000 had wage statements with invalid SSNs.

 

 

Background

 

There are two statutory provisions authorizing the IRS to penalize employers who file wage statements with inaccurate social security numbers (SSNs).

 

Prior to the Tax Act of 1986, IRS was authorized to penalize persons for failure to file information returns. IRS Forms W-2 (Wage and Tax Statements), hereafter referred to as wage statements, are one type of information return.  Penalties were to be waived if the failure was due to reasonable cause and not to willful neglect, referred to as the "reasonable cause waiver".

 

The Tax Act of 1986 authorized IRS to penalize persons for failure to file complete information returns and for failure to file correct information returns.  The penalty was $5 for each failure with a maximum penalty of $20,000 in any calendar year.  The act included the reasonable cause waiver and eliminated the $20,000 maximum penalty if the failures were due to intentional disregard.

 

The Omnibus Budget Reconciliation Act (OBRA) of 1989 consolidated the penalty for failure to file with the failure to file complete or accurate information.  The amount of the penalty for each offense ranges from $5-$50 and the maximum penalty in any calendar year ranges from $25,000-$250,0000 with the amounts depending on if and when the failures are corrected and the size of the business filing the information returns.  The act added the "de minimus provision" which eliminates penalties for a certain number of offenses if corrections are made within a specified time period. The act also included the reasonable cause waiver and eliminated the maximum penalty amount if the failures were due to intentional disregard.