Source: https://www.scribd.com/document/1925588/Social-Security-A-03-05-25038
Timestamp: 2018-06-23 01:14:20
Document Index: 650893758

Matched Legal Cases: ['§ 205', '§ 405', '§ 6103', '§ 205', '§ 405', '§ 205', '§ 405', '§ 6103']

Social Security: A-03-05-25038 | Social Security Number | Internal Revenue Service
June 27, 2006 The Commissioner Inspector General
Earnings are reported to the Social Security Administration (SSA) in two forms—wages from employers or SEI from the Internal Revenue Service (IRS). Wages are reported on a Wage and Tax Statement (Form W-2). SEI is reported by individuals on their U.S. Individual Income Tax Return (Form 1040) and an attached Schedule SE (SelfEmployment Tax). Approximately 5 percent of all earnings reported to SSA relate to SEI. Section 1401 of the Internal Revenue Code requires the IRS to impose the SelfEmployment Contributions Act (SECA) tax on self-employment income. The SECA tax is equivalent to the Federal Insurance Contributions Act (FICA) tax paid by both employers and employees. Like FICA, SECA includes contributions for both the Social Security and Medicare programs. SSA is required to maintain an accurate record of earnings information received from IRS and administer benefit programs based on this information.1 The IRS electronically transmits the SEI and related adjustments to SSA on a weekly basis. Once received, the data is matched with SSA’s Numident File—the repository for all issued Social Security numbers (SSN)—to verify each individual’s name and SSN and post the earnings to the individual’s Master Earnings File (MEF)2 record. Income
Social Security Act § 205(c)(2)(A), 42 U.S.C. § 405(c)(2)(A) (2005). The MEF contains all earnings data reported by self-employed individuals and employers. These data are used to calculate the Social Security benefits due an individual with an earnings record.
Page 2 - The Commissioner items with an invalid name and/or SSN combination, as well as other questionable items, are not posted to an individual’s MEF but instead recorded in the ESF.3 INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS The Individual Taxpayer Identification Number (ITIN) is a 9-digit Federal tax processing number issued by the IRS. While an ITIN may look similar to a SSN, the first digit in an ITIN is the number 9 and the fourth digit is the number 7 or 8. SSA does not issue SSNs in the “900” series. The IRS issues ITINs to foreign nationals and other individuals who have Federal tax reporting or filing requirements, but who do not have, and are not eligible to obtain, an SSN from SSA. An ITIN is not valid identification outside the tax system. The IRS has issued more than 7 million ITINs since 1996, the year the Agency began issuing these numbers.
Our review of the SEI ESF for Tax Years (TY) 1951 through 2002 determined that approximately $11 billion in earnings and 2.1 million earnings items have accumulated over this period. Reported earnings are posted to the SEI ESF for a number of reasons, including (1) name/SSN mismatch, (2) death of an earner, (3) young child’s earnings, and (4) disclaimed earnings. Furthermore, in recent years many of these suspended earnings are reported with SSNs having characteristics similar to IRS’ ITINs. We verified a sample of these SSNs with ITIN characteristics against IRS data. Based on results from this verification, we estimate that the SEI ESF for TYs 1951 through 2002 contains about 241,600 earnings items reported with SSNs that are in fact valid ITINs issued by the IRS to the individual tax filers. In addition, the majority of these earners had work histories that would qualify them for work credit within SSA’s systems if they obtained a valid SSN and met other SSA requirements for coverage. It is possible that some of these individuals possess a valid SSN and failed to notify SSA that they worked under an ITIN. If this is the case, these individuals (1) will lack work credits related to their earnings and/or (2) may receive incorrect SSA benefit amounts. Improved correspondence with the earner and greater access to the IRS’ ITIN data could assist SSA in resolving some of these suspended earnings items. SIZE AND COMPOSITION OF THE ESF As of October 2004, the SEI ESF had accumulated about $11 billion in earnings and approximately 2.1 million earnings items for TYs 1951 through 2002 that could not be posted to individuals’ earnings records. On average, less than 1 percent of reported SEI was posted to the SEI ESF annually. Approximately 814,000 earnings items in this file, or about 39 percent of the file, represent accumulation over TYs 1991 through 2002 (see Table 1).
Our report focuses on SEI reported by individuals and not wages. SSA maintains a separate ESF file for suspended wages (see Appendix C).
Page 3 - The Commissioner Table 1: SEI ESF Income and Items (TYs 1951-2002)
Tax Years 1951 – 1960 1961 – 1970 1971 – 1980 1981 – 1990 1991 – 2000 2001 – 2002 Total Total Suspended Income $440,007,042 623,653,742 1,502,011,999 2,483,128,083 4,089,601,673 1,849,404,364 $10,987,806,903 Total Suspended Income Items 234,035 243,854 358,610 421,651 588,606 225,706 2,072,462
Contents of the Earnings Suspense File Reported earnings are posted to the SEI ESF for a number of reasons, including (1) name/SSN mismatch, (2) death of an earner, (3) young child’s earnings, and (4) disclaimed earnings. We reviewed the SEI ESF items in the TY 1951-2002 file and determined that approximately 97 percent of the items in the ESF relates to invalid name/SSN combinations. The remaining 3 percent relate to valid name/SSN combinations but the earnings were in question. In Figure 1, we provide a breakout of the contents of the income items in the ESF for TYs 1951 through 2002.
Figure 1: Contents of the Self-Employment Income Earnings Suspense File (TYs 1951-2002)
SSN all Zeros 22%
Special Indicator 3% SSN/Name Mismatch 52%
SSN in "900" Series 23%
The name/SSN mismatches represent about 97 percent of the file and relate to (1) items with SSNs consisting of all zeros (22 percent);4 (2) items reported with SSNs in the “900” series (23 percent);5 and (3) other name/SSN mismatches (52 percent). Valid names/SSNs represent 3 percent of the file and relate to items with special
The IRS reported the item with an SSN consisting of all zeros. SSA does not issue SSNs in the “900” series.
Page 4 - The Commissioner indicators: Earnings after Death, Self-Employment Earnings Discrepancies, and Young Children’s Earnings Record.6 Tax Year 2002 Trends We also reviewed the TY 2002 SEI ESF to understand more recent trends. When we compare the TY 2002 ESF trends with the overall trends in the TYs 1951–2002 ESF, we found the “900” series SSNs represent a much larger portion of the problem— 72 percent of the suspended items (see Figure 2). This discrepancy may relate to individuals using IRS-issued ITINs rather than SSNs to report earnings. We found that 98 percent of the “900” series SSNs in our TY 2002 SEI ESF file were consistent with the IRS’ ITIN numbering criteria, which represents 71 percent of all the SSNs in the TY 2002 SEI ESF.7 Moreover, we found that about 91 percent of the “900” series numbers that resemble ITINs were posted to the SEI ESF after 1995. The IRS began issuing ITINs in July 1996.
Figure 2: Contents of the Self-Employment Income Earnings Suspense File (TY 2002)
SSN/Name Mismatch 20%
SSN All Zeros 3% Special Indicator 5%
SSN in "900" Series 72%
INDIVIDUAL TAXPAYER IDENTIFICATION NUMBERS Our analysis has determined that the approximately 77 percent of all reported SSNs with ITIN characteristics represent IRS-issued ITINs. We reviewed the earnings trends related to these reported SSNs with ITIN characteristics and found work histories ranged from 1 to 10 years. Furthermore, the vast majority of these earnings would qualify for a minimum of one quarter of coverage if the individual was issued a valid SSN. It is possible that some of these individuals possess a valid SSN and failed to
See Appendix E for more information on the special indicators. The ITIN number always begins with a “9” and has a “7” or an “8” as the fourth digit (example: 9XX-7X-XXXX).
Page 5 - The Commissioner notify SSA that they worked under an ITIN. If this is the case, these individuals (1) will lack work credits related to their earnings and/or (2) may receive incorrect SSA benefit amounts. Improved correspondence with the earner and greater access to ITIN data could assist SSA in resolving some of these suspended earnings items. Unresolved Earnings Items We verified 275 reported SSNs with ITIN characteristics against the IRS’ list of issued ITINs.8 The 275 sample items were pulled from a population of 311,874 SEI ESF items for TYs 1951 through 2002 that were reported with SSNs that met the IRS’ numbering criteria for an ITIN. We found that 213 of the 275 reported SSNs (about 77 percent) were in fact valid9 ITINs issued by the IRS. Based on these results, we estimate that the SEI ESF contains about 241,600 items that are reported under ITINs (see Appendix D).10 This represents approximately 12 percent of all suspended items in the SEI ESF from TYs 1951 to 2002. Our verification demonstrates that the issuance of ITINs has led to an increase in the size of the SEI ESF. In December 2003, the IRS instituted tighter controls over the issuance of ITINs. According to the Commissioner of IRS,11 an applicant is now required to file the Application for an IRS Individual Taxpayer Identification Number (Form W-7)12 with a completed tax return for which the ITIN is necessary. The Commissioner noted that associating the issuance of the ITIN with the filing of a tax return ensures that the number is properly used for tax administration. Furthermore, the IRS has decreased the number of acceptable types of documents used to establish identity and foreign status when an individual applies for an ITIN. Finally, in response to the confusion between ITIN cards and Social Security cards, the IRS no longer issues an ITIN card but rather sends a letter to taxpayers providing them with their number.13 Noncitizens may be using the ITIN to report SEI on their tax forms because the IRS allows them to do so. In our review of IRS tax guidance14 we found that the IRS instructs noncitizens to use either an SSN or an ITIN when paying self-employment taxes. While the publication also warns the reader that the ITIN does not entitle the
These potential ITINs were verified at the aggregate level without identifying any specific taxpayers by the Treasury Inspector General for Tax Administration (TIGTA). 9 We provided TIGTA the name and reported SSN for the 275 sample items that met the IRS’ numbering criteria for an ITIN. TIGTA determined the ITIN to be valid based on the match of the name and “reported SSN” to the IRS’ ITIN records. 10 We were not able to specifically determine which SSNs were ITINs since Section 6103 of the Internal Revenue Code (26 U.S.C. § 6103) limits the amount of taxpayer information that can be disclosed. 11 Individual Taxpayer Identification Numbers and Social Security Number Matching, Prepared Testimony of Mark E. Everson, Commissioner of Internal Revenue, before the House Ways and Means Subcommittee on Oversight and Subcommittee on Social Security, March 10, 2004. 12 See Appendix F for a copy of the Form W-7. 13 These IRS changes may impact the number of ITINs going into the SEI ESF in the future. However, we could not make that determination in our audit since we reviewed the suspended earnings through TY 2002. 14 See IRS Publication 334, Tax Guide for Small Business (2005) and “How to Pay Self-Employment Tax” on the IRS website at www.irs.gov/businesses/small/ (February 2006).
Page 6 - The Commissioner number holder to Social Security benefits, the instructions do not clearly explain that any earnings reported under an ITIN cannot be credited to the individual’s earnings record with the SSA—that is, the earnings will be suspended when reported to SSA— until the individual obtains a valid SSN and can prove ownership of the earnings. As a result, while one Federal agency, the IRS, is instructing the taxpayer to use the ITIN, another Federal agency, SSA, will eventually send this same taxpayer a notice15 informing the individual that his earnings cannot be properly posted. This difference in policy is likely to cause confusion among taxpayers. Earnings Trends Among Potential ITINs We reviewed the earnings trends related to these 275 reported SSNs with ITIN characteristics and found that approximately 61 percent of the SSNs and about 91 percent of the associated earnings related to a work history of 2 or more years (see Table 2). Work histories under these potential ITINs ranged from 1 to 10 years. For example, one individual with a potential ITIN reported about $176,300 of SEI over a 6-year period from 1997 to 2002, or an average of $29,400 annually. Table 2: Earnings Trends Among 275 Potential ITINs
Number of Years with Earnings 01 1 2 3 4 5 6 7 10 Totals Potential ITINs 2 104 57 49 24 19 13 6 1 275 Percent of 275 Potential ITINs 1% 38 % 21 % 18 % 9% 7% 5% 2% 0% 100 %3 Earnings Associated with Potential ITINs $0 $556,600 $835,443 $1,314,111 $559,026 $946,823 $758,482 $634,245 $297,347 $5,902,077 Average Annual Earnings Per Potential ITIN2 $0 $5,352 $7,328 $8,940 $5,823 $9,967 $9,724 $15,101 $29,735 $21,462 (avg.)
Note 1: In some cases the reported earnings were later reversed. Therefore, we are not showing any earnings history. Note 2: Average annual earnings were based on total earnings divided by both (1) the number of individuals with earnings and (2) the number of years with reported earnings. Note 3: Numbers do not add due to rounding.
We discuss this issue later in the report.
Page 7 - The Commissioner We also determined that 262 of the 275 potential ITINs (95 percent)16 were associated with owners who would qualify for a minimum of one quarter of coverage.17 Using these results, we believe that the SEI ESF potentially contains earnings credits related to approximately 230,100 individuals who have worked and may still be working under a valid ITIN.18 If these individuals also posses a valid SSN and fail to notify SSA that they worked under an ITIN, then the Agency cannot properly post these earnings19 and the individuals: • • will not obtain work credits for their earnings, which may impact future benefits; and may not be receiving the right benefit amount since missing earnings may increase or decrease those benefits.20
As shown in Figure 3, our review of the approximately 311,900 potential ITINs in the SEI ESF indicates that these numbers have been an increasing portion of the suspended items from the mid-1990s forward.
Thirteen of the potential ITINs did not qualify for a quarter of coverage because earnings related to two of the potential ITINs were later reversed and earnings related to the other eleven cases did not have sufficient earnings to qualify for one quarter of coverage. 17 SSA provides Old-Age, Survivors and Disability Insurance (OASDI) benefits to individuals based on their lifetime earnings reported under a valid SSN. These earnings determine whether an individual has enough quarters of coverage, or work credits, for insured status. Social Security work credits are based on an individual's total annual wages or self-employment income. An individual can earn up to four credits each year. The amount needed for a credit changes from year to year. In 2002, for example, an individual earned one credit for each $870 of wages or self-employment income. When an individual earned $3,480, he or she had earned four credits for the year. 18 While we estimate that 297,100 of the 311,874 potential ITINs had at least one quarter of coverage, approximately 230,100 valid ITINs have at least one quarter of coverage (see Appendix D). 19 We did find instances where it appears that individuals who worked under ITINs later obtained valid SSNs and requested that SSA post their suspended earnings to their earnings record (see Appendix G). 20 Under OASDI, the missing earnings could potentially increase the size of the benefit payment since earnings are used to calculate work credits. Under the Supplemental Security Income program, the missing earnings could potentially decrease the size of the payment since benefit amounts are reduced for earnings.
Figure 3: Growth of SEI ESF Earnings Items
(TYs 1990-2002)
92 96 90 91 94 95 98 99 00 01 20 93 97 19 19 19 19 19 19 19 19 19 19 20 20 02
Number of Items (In Thousands)
Potential ITINs
All Other Suspended Items
Improved Correspondence SSA communicates with earners when their SEI is posted to the ESF. For example, the Agency sends Decentralized Correspondence (DECOR) to each earner explaining how their earnings cannot be resolved until a valid name and/or SSN is provided (see Appendix E where we discuss the DECOR process). However, this notice does not specifically mention that ITINs can be confused with SSNs (see Appendix H for a copy of a DECOR notice), even though our audit shows that the majority of TY 2002 suspended SEI may, in fact, relate to ITINs.21 Additional language in the SEI DECOR notice could make it clear to earners that the ITIN is not to be used for employment and reported earnings cannot be used towards future benefits unless they are reported under a valid SSN. Greater Data Sharing Learning more about the owner of the ITIN could assist SSA in developing more efficient matching routines on reported earnings data and ensure the timely posting of earnings to an individual’s account.22 For example, if SSA received the individual’s information from the IRS Form W-723 the Agency could use this data to determine if an
We have already noted that 71 percent of all TY 2002 suspended items were reported under a potential ITIN, and we have further confirmed that approximately 77 percent of these potential ITINs are in fact ITINs. 22 This information could assist with both the SEI ESF and the wages ESF (see Appendix C). Our review of the TY 2002 suspended items in the wages ESF found approximately 103,000 potential ITINs. 23 The IRS Form W-7 requires the applicant to provide his or her full name, mailing address, date of birth, country of birth, and country of citizenship. See Appendix F for a copy of the Form W-7.
Page 9 - The Commissioner SSN was also issued to someone with that same name, date of birth, and place of birth.24 Furthermore, we believe the sharing of such ITIN information between SSA and IRS is consistent with each Agency’s mission since it will clarify efforts needed to ensure tax laws are applied with "integrity and fairness to all" (per the Internal Revenue Service’s mission statement)25 and that tax filers' Social Security benefits are based on accurate information (per the Social Security Act).26 We also believe such sharing is consistent with the agreement between SSA and the IRS, which calls for both agencies to "devise ways each agency can help the other with name and SSN matching problems."27
While SSA appears to be able to identify the owners for the vast majority of reported SEI, suspended earnings cannot be resolved when individuals use ITINs to report their earnings. Our audit shows that the use of ITINs to report earnings has grown in recent years and SSA cannot determine if the ITIN owner also possesses a valid SSN. This situation could increase the risk of individuals (1) not obtaining work credits for their earnings and/or (2) not receiving the correct benefit amount. We recommend SSA consider additional steps, which could potentially identify the owners of suspended earnings, including: 1. Work with the IRS to resolve the inconsistent instructions provided to noncitizens relative to the appropriate tax identification number to be used for reporting SECA and Medicare taxes. 2. Update the language in the SEI DECOR notice to make it clear to individuals that earnings reported under an ITIN cannot be used for future SSA benefits until the individual obtains a valid SSN. 3. Discuss with the IRS the possibility of obtaining ITIN data in accordance with the SSA/IRS agreement. The ITIN information could be reviewed to determine whether the addition of this new information to SSA’s records results in (i) a reduction in the size of the SEI ESF and/or (ii) adjustments to SSA benefits.
SSA could also request that applicants for a Social Security card inform the Agency if they have been issued an ITIN. The current Application for a Social Security Card (Form SS-5) only asks if the applicant had ever been issued another SSN. SSA could then use this ITIN information as another indicator in its system to identify earnings that can be posted to an individual’s record. 25 IRS Annual Performance Plan FY 2004, p. 4 (February 2003). 26 Social Security Act § 205(c)(2)(A), 42 U.S.C. § 405(c)(2)(A) (2005). 27 Agreement Between SSA and The IRS, p. 15 (August 1998).
We appreciate the Agency’s response to our recommendations as well as the assistance of SSA staff throughout this review. We disagree, however, with SSA’s point that SSA would not benefit from obtaining ITIN data from the IRS. We believe that having additional information (i.e., date of birth, place of birth, etc.) related to individuals who report earnings under ITINs could be useful to SSA in identifying the potential owners of these earnings by comparing this information to the Numident and later determining adjustments to earnings records and/or benefit payments. Further, we believe it is possible that an individual can have a valid SSN but consistently report earnings to the IRS under an ITIN, and, therefore, not receive a Social Security Statement since the IRS would not have an address for the issued SSN.28 Finally, we also believe that SSA could use the additional ITIN information provided by the IRS to monitor the role of ITINs on the SEI ESF over time.
SSA obtains the addresses for the Social Security Statements from the IRS.
APPENDIX A – Acronyms APPENDIX B – Scope and Methodology APPENDIX C – Two Earnings Suspense Files APPENDIX D – Sample Methodology APPENDIX E – Self-Employment Income Earnings Suspense File Reinstatements APPENDIX F – Application for IRS Individual Taxpayer Identification Number APPENDIX G – Reinstated Earnings Items with Potential Individual Taxpayer Identification Numbers APPENDIX H – Decentralized Correspondence for Self-Employed Individuals APPENDIX I – Prior Office of the Inspector General Reports APPENDIX J – Agency Comments and OIG Response APPENDIX K – OIG Contacts and Staff Acknowledgments
DECOR DoB EAD ESF FICA IRS ITIN MEF OASDI OIG SECA SEI SSA SSN TIGTA TY YCER Forms Form 1040 Form W-2 Form W-7 Individual Income Tax Return Wage and Tax Statement Application for IRS Individual Taxpayer Identification Number Decentralized Correspondence Date of Birth Earnings After Death Earnings Suspense File Federal Insurance Contributions Act Internal Revenue Service Individual Taxpayer Identification Number Master Earnings File Old-Age, Survivors and Disability Insurance Office of the Inspector General Self-Employment Contributions Act Self-Employment Income Social Security Administration Social Security Number Treasury Inspector General for Tax Administration Tax Year Young Children’s Earnings Record
To accomplish our objective, we: • • • • • Reviewed polices and procedures regarding self-employment income (SEI) and the Earnings Suspense File (ESF). Reviewed prior audit reports on the ESF and the accuracy of earnings posted. Reviewed earlier management reports, reviews, and/or testimony completed on the Individual Taxpayer Identification Number (ITIN). Met with Social Security Administration (SSA) staff to gain an understanding of SSA’s SEI ESF records maintenance process. Obtained from SSA the ESF for SEI suspended earnings and earnings items as of October 2004. We analyzed this file to determine patterns in the file. We also extracted, summarized, and tested earnings reported under a potential ITIN. Obtained from SSA the SEI Reinstatements File for reinstated earnings items as of October 2004. We analyzed this information to determine the number of items reinstated from the SEI ESF to the Master Earnings File and the reason for the reinstatements. Met with staff from the Treasury Inspector General for Tax Administration (TIGTA) to gain an understanding of the Internal Revenue Services’ (IRS) processes for verification of tax filers’ name and reported SSN, and to gain an understanding of IRS’ ITIN policy. Provided the Office of Audit at TIGTA with the name and reported SSN for 275 randomly selected SEI ESF earnings items from the population of items reported with SSNs that met the IRS’ numbering criteria for an ITIN. These 275 SSNs were reported to SSA between TYs 1951 and 2002. TIGTA verified whether the name and associated identification number on each record matched a name and associated ITIN within their system (see Appendix D for our projection results).
The entity responsible for the maintenance of the ESF is the Office of Earnings, Enumeration and Administrative Systems under the Deputy Commissioner for Systems. Our work was conducted at the Philadelphia Audit Division, Philadelphia, Pennsylvania between January 2005 and January 2006. We conducted our audit in accordance with generally accepted government auditing standards.
Two Earnings Suspense Files
Title II of the Social Security Act requires that the Social Security Administration (SSA) maintain the reported earnings records of individuals.1 SSA uses these reported earnings to determine whether an individual is entitled to receive retirement, survivors, disability and health insurance benefits and to calculate benefits. SSA validates the names and Social Security numbers (SSN) on reported earnings against information in its records. Earnings containing names and/or SSNs that do not match SSA’s records cannot be posted to an individual’s earnings record in SSA's Master Earnings File (MEF).2 Instead, these earnings are placed in SSA’s Earnings Suspense File (ESF)—a repository for unmatched wages. SSA maintains two ESFs—one for wages reported by employers and one for earnings from self-employed individuals reported by the Internal Revenue Service. As of October 2004, the wages ESF had accumulated about $463 billion in wages and approximately 246 million wage items for Tax Years (TY) 1937 through 2002 that could not be posted to individuals’ earnings records. In October 2004, the self-employment income (SEI) ESF had accumulated about $11 billion in earnings and approximately 2.1 million earnings items for TYs 1951 through 2002 that could not be posted to individuals’ earnings records. During TY 2002, about $57 billion in earnings were posted to both ESFs: • • 98 percent of the earnings, or $56.1 billion, related to suspended wages; and 2 percent of the earnings, or $881 million, related to suspended SEI.
Social Security Act § 205(c)(2)(A), 42 U.S.C. § 405(c)(2)(A) (2005). The MEF contains all earnings data reported by employers and self-employed individuals. The data is used to calculate the Social Security benefits due an individual with an earnings record.
We verified 275 reported Social Security numbers (SSN) with Individual Taxpayer Identification Number (ITIN)1 characteristics within the self-employment income (SEI) Earnings Suspense File (ESF) for tax years (TY) 1951 through 20022 against the Internal Revenue Service’s (IRS) list of issued ITINs.3 We found that 213 of the 275 reported SSNs (77 percent), reported to SSA between TYs 1951 and 2002, were in fact valid ITINs issued by the IRS. Based on these results, we project that the SEI ESF contains about 241,600 items that are reported under ITINs.4 We also determined that individuals associated with 262 of the 275 potential ITINs (95 percent)5 could potentially qualify for a minimum of one quarter of coverage6 if the individual obtained a valid SSN and met other SSA requirements for coverage. Using these results, we believe that the SEI ESF potentially contains earnings credits related to about 230,100 individuals who have worked and may be currently working under ITINs.
Population size Sample size Attribute Projection 1 Sample cases – number of suspended earnings reported under an ITIN Projection – number of suspended earnings reported under an ITIN in our population Projection lower limit Projection upper limit 311,874 275 213 241,561 227,411 254,313
The ITIN is a 9-digit Federal tax processing number issued by the Internal Revenue Service. The 275 sample items were pulled from a population of 311,874 SEI ESF items for TYs 1951 through 2002 that were reported with SSNs that met the IRS’ numbering criteria for an ITIN. 3 These potential ITINs were verified by the Treasury Inspector General for Tax Administration. 4 We were not able to specifically determine which SSNs were ITINs since Section 6103 of the Internal Revenue Code (26 U.S.C. § 6103) limits the amount of taxpayer information that can be disclosed. 5 Thirteen of the potential ITINs did not qualify for a quarter of coverage because earnings related to 2 of the potential ITINs were later reversed and earnings related to the other 11 cases did not have sufficient earnings to qualify for one quarter of coverage. 6 Social Security work credits are based on an individual's total annual wages or self-employment income. An individual can earn up to four credits each year. The amount needed for a credit changes from year to year. In 2002, for example, an individual earned one credit for each $870 of wages or self-employment income. When an individual earns $3,480, he or she has earned four credits for the year.
Attribute Projection 2 Sample cases – number of suspended earnings reported under a potential ITIN with at least one quarter of coverage Projection – number of suspended earnings reported under a potential ITIN with at least one quarter of coverage in our population Projection lower limit Projection upper limit Estimate – number of suspended earnings reported under a valid IRS ITIN with at least one quarter of coverage in our population [297,131 x (213/275)]
262 297,131
288,765 303,082 230,141
As of October 2004, the self-employment income (SEI) Reinstatement File contained approximately 5.4 million earnings items for Tax Years (TY) 1951 to 2002. For TY 2002, we found that the Social Security Administration (SSA) reinstated 34,961 earnings items from the Earnings Suspense File (ESF) to individuals’ Master Earnings File (MEF).1 SSA uses a variety of matching routines and other processes to correct and post many of the earnings items with name and/or Social Security number (SSN) mismatches or other problems, both before and after items are posted to the ESF. As shown in the table, these 34,961 earnings items were reinstated using more than 7 routines and processes. We found that the matching routine called “Prior Reinstatements” resolved the majority of the earnings items – 10,758 items representing about 31 percent of the total reinstated earnings items for TY 2002. SSA SEI Reinstatements for Tax Year 2002 Reinstatement Process Income Items Percentage Prior Reinstatements 10,758 31.0% Decentralized Correspondence 8,753 25.0% Online Item Correction 2,917 8.3% SWEEP 748 2.1% Young Children’s Earnings Record 166 .5% Earnings After Death 33 .1% Other 11,586 33.1% Total Reinstated SEI Items 34,961 100%
SSA has taken steps over the past years to reduce the size and growth of the ESF. Below we discuss some of the various matching routines and correspondences that SSA uses to reduce the size and growth of the ESF. Matching Routines • SWEEP: SWEEP is an electronic operation that periodically uses SSA’s latest system enhancements and validation rules, including the more than 20 routine edits used on incoming earnings, to remove items from the ESF and reinstate them to the earners’ MEF records.
The MEF contains all earnings data reported by self-employed individuals and employers. These data are used to calculate the Social Security benefits due an individual with an earnings record. E-1
Item Correction: This process allows SSA staff to correct the earnings record of an individual through a system called Earnings Modernization 2.8 (EM 2.8). The EM 2.8 system is a computerized process for adjusting an individual’s earnings record thereby helping SSA establish and maintain an accurate and complete MEF. This system allows SSA employees to add, change, move, or delete an individual’s earnings overnight via on-line interactive screens. This is a paperless system—with proofs and rationale recorded electronically after an initial inspection by an SSA employee(s). Future Edits: The Office of Quality Performance plans to modify matching routines developed for the wages ESF so they are applicable to the SEI ESF. However, since the SEI ESF contains a significant number of items reported under suspected ITINs, the new routines’ effectiveness will be reduced.
Correspondence to Self-Employed Individuals SSA mails out thousands of letters to self-employed individuals each year to resolve earnings discrepancies. The three main letters sent are (1) Decentralized Correspondence (DECOR), (2) Earnings After Death (EAD), and (3) Young Children’s Earnings Record (YCER). • DECOR: When SEI earnings reach the ESF, SSA’s system generates notices to self-employed individuals. The main purpose of DECOR notices is to query the individual to resolve SSN and/or name discrepancies. SSA reviews the returned DECOR notices, validates the information provided, and if appropriate, removes the earnings from the ESF for posting to the individual’s MEF record (see Appendix H for a copy of the notice).2 EAD: SSA also has processes in place to detect unusual earnings reports—such as instances where earnings relate to someone recorded as deceased on SSA's records. Under the EAD process, when a date of death is present on the Numident, all earning items reported for TYs after the year of death are placed in the ESF. The earnings are also transmitted to an EAD investigate file so that notices can be printed and mailed to earners. Responses are returned to SSA for processing. Field office staff may interview an individual to verify his or her information. YCER: Another unusual earnings pattern monitored by SSA relates to young earners. Under the YCER process, SSA checks the Date of Birth (DoB) for the SSN on each earnings report. If a DoB indicates that the numberholder of the SSN is a child under the age of 7, the earnings will be recorded in the ESF. A YCER investigate file is generated to determine whether the earnings belong to the reported SSN.
SSA Office of the Inspector General, Effectiveness of the Social Security Administration's Decentralized Correspondence Process (A-03-01-11034), July 2002.
Reinstated Earnings Items with Potential Individual Taxpayer Identification Numbers
We reviewed the self-employment income (SEI) Earnings Suspense File (ESF) Reinstates File1 to determine whether individuals with potential Individual Taxpayer Identification Numbers (ITIN)2 later obtained a valid Social Security number (SSN) and had their earnings reinstated. We reviewed 100 cases where earnings reported under a potential ITIN3 were later reinstated and found the following characteristics:4 • • • • 95 individuals were born outside the United States; 79 individuals worked prior to receiving an SSN from the Social Security Administration (SSA);5 95 of the earnings items were reinstated using manual processes since the ESF issues could not be resolved through SSA’s matching routines;6 and 76 of the earnings items were reinstated as a result of Decentralized Correspondence (DECOR), indicating that the notices are a useful part of the overall reinstatement process (see Appendix H for a copy of the DECOR notice).
We also found that very few of the potential ITINs were later reinstated to an earner’s record. For example, of the earnings reported in Tax Year 2002 under a potential ITIN, approximately 1,400 were later reinstated to an earner’s records and about 80,500 earnings items remained unresolved in the SEI ESF. The SEI ESF may contain additional earnings among individuals who may already have an SSN.
The Reinstates File contains the most recent reinstated earnings items with details on the name and SSN reported to SSA as well as the corrected name and SSN. 2 The ITIN is a 9-digit Federal tax processing number issued by the IRS. 3 We extracted reported SSNs from the SEI ESF Reinstates File for Tax Years (TY) 1951-2002 where the SSN began with a “9” and had a “7” or an “8” in the fourth digit (example: 9XX-7X-XXXX). 4 We reviewed these characteristics since they could be consistent with individuals using ITINs to report their earnings since (1) ITINs are assigned to noncitizens and (2) ITINs could have been used until the individuals were notified through SSA correspondence that their earnings could not be posted (hence, they requested an SSN). 5 We discussed this issue in an August 2005 audit—Reported Earnings Prior to the Issuance of a Social Security Number (A-03-04-14037). 6 Manual processes relate to individuals contacting SSA and requesting that their information be updated. If the problem was a simple transposition error, SSA’s matching routines would be able to correct the problem without manual intervention.
Decentralized Correspondence for SelfEmployed Individuals
Common Identification Number A-03-00-10004 Report Title Performance Measure Review: Reliability of the Data Used to Measure the Accuracy of Earnings Posted Effectiveness of the Social Security Administration's Decentralized Correspondence Process Effectiveness of the Social Security Administration's Earnings after Death Process Status of the Social Security Administration's Earnings Suspense File Performance Indicator Audit: Earnings Suspense File Reported Earnings Prior to the Issuance of a Social Security Number Date Issued May 2001
A-03-01-11034 A-03-01-11035 A-03-03-23038 A-15-04-14069 A-03-04-14037
July 2002 August 2002 November 2002 August 2004 August 2005
June 6, 2006 Patrick P. O'Carroll, Jr. Inspector General Larry W. Dye /s/ Chief of Staff
Office of the Inspector General (OIG) Draft Report, "The Self-Employment Income Earnings Suspense File" (A-03-05-25038)—INFORMATION We appreciate OIG’s efforts in conducting this review. Our comments on the draft report’s recommendations are attached. Please let me know if you have any questions. Staff inquiries may be directed to Ms. Candace Skurnik, Director, Audit Management and Liaison Staff, at extension 54636. Attachment: SSA Response
COMMENTS ON THE OFFICE OF THE INSPECTOR GENERAL’S (OIG) DRAFT REPORT, “THE SELF-EMPLOYMENT INCOME EARNINGS SUSPENSE FILE (ESF)”(A-03-05-25038) Thank you for the opportunity to review and provide comments on this draft report. Recommendation 1 Work with the Internal Revenue Service (IRS) to resolve the inconsistent instructions provided to non-citizens relative to the appropriate tax identification number to be used for reporting SelfEmployment Contributions Act (SECA) and Medicare taxes. Comment We agree. The Social Security Administration (SSA) and the IRS have an established process for the periodic review of forms and publications that affect both our agencies. In subsequent review cycles, SSA will emphasize the issue of the Individual Taxpayer Identification Number (ITIN) and Social Security number (SSN) use in instructions provided for purposes of reporting SECA and Medicare taxes. Recommendation 2 Update the language in the self-employment income decentralized correspondence (DECOR) notice to make it clear to individuals that earnings reported under an ITIN cannot be used for future SSA benefits unless they are reported under the earners’ valid SSN. Comment To be consistent with the current Social Security Act, we recommend the clause following “…future SSA benefits…” in this recommendation be rewritten to state “…until the individual obtains a valid SSN.” Given the pending immigration reform legislation, we will defer any decision to change the language in the DECOR letter for self-employed individuals. Recommendation 3 Discuss with the IRS the possibility of obtaining ITIN data in accordance with the SSA/IRS agreement. The ITIN information could be reviewed to determine whether the addition of this new information to SSA’s records results in a) a reduction in the size of the self-employment income Earnings Suspense File (ESF) and/or b) adjustments to SSA benefits.
Comment We disagree. We believe that SSA would not benefit from such an endeavor. ITINs are available from the IRS only for individuals who are not eligible for an SSN. If an individual does not have an SSN, such ITIN information would be rendered useless because it would be impossible to remove the individual’s self-employment income (or wages) from the ESF since, without an SSN, there would be no valid record to which the earnings could be credited. Alternatively, individuals previously assigned an ITIN who subsequently become eligible for and obtain an SSN will learn from their annual Social Security Statement that earnings are not posted to their records and the potential effects on benefits of failing to properly report or to correct earnings. In addition, the Social Security Statement currently provides instructions on how to resolve such earnings discrepancies [In addition to the comments above, SSA provided technical comments which have been addressed, where appropriate, in this report.]
OIG Contacts Walter Bayer, Director, Philadelphia Audit Division, (215) 597-4080 Cylinda McCloud-Keal, Audit Manager, (215) 597-0572 Acknowledgments In addition to those named above: Brenda Williams, Auditor-in-Charge Richard Devers, IT Specialist Annette DeRito, Writer/Editor For additional copies of this report, please visit our web site at www.socialsecurity.gov/oig or contact the Office of the Inspector General’s Public Affairs Specialist at (410) 965-3218. Refer to Common Identification Number A-03-05-25038
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