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Tax identity theft solutions get complicated when Social Security, undocumented immigrant tax ID numbers meet

The Internal Revenue Service's main job is collecting taxes. The agency has long made it clear that it doesn't care where the money comes from. It just wants its share.

Individual Taxpayer Identification Number ITIN form W-7The IRS doesn't care about the source of your income (ill-gotten gains are still taxable) or your immigration status. The federal tax man just wants his share of your money.

That's why the legend of Treasury investigators bringing down Al Capone, one of America's most infamous criminals, persists after all these years.

But as Scarface's situation so clearly demonstrates, the IRS wasn't concerned about all the people he allegedly killed or ordered taken out. Neither was it bothered by the allegedly illegal liquor sales from which Capone profited during Prohibition.

The IRS simply wanted to collect the tax due on his income, whether legally or illegally, earned.

Now that's not to say that IRS agents weren't appalled by the crimes in which investigators suspected Capone played a major role. They just couldn't, by virtue of their tax jurisdiction limits, do anything about those usually violent incidents.

So the IRS put together a case against Capone based only on his tax law violations.

ITINs, SSNs and tax identity theft: The U.S. tax collection agency is facing a similar dilemma today when it comes to Social Security numbers (SSNs) used by individuals to get jobs. This is a common problem encountered by labor and immigration investigators who look into the hiring of undocumented workers.

To get a job, a person must have a Social Security number. That number is then used by the employer to remit the worker's withheld income and payroll (aka FICA's Social Security and Medicare) taxes. A person who is in the United States illegally cannot get a Social Security number.

But it's no secret that undocumented workers find ways to get these critical nine-digit personal identification numbers so that they can work.

Sometimes the tax ID numbers are stolen. Other times, the Social Security numbers are borrowed from family members who aren't working or paying taxes.

Regardless of the source, when it comes time for the workers using improperly obtained Social Security numbers to file taxes -- and many do -- the ID number is an issue.

Ignoring conflicting ID numbers: In these cases, the IRS tells taxpayers and/or their return preparers to obtain an individual taxpayer identification number, or ITIN, for the workers and use the ITIN to file their annual tax returns.

As for that Social Security number that's on the W-2 (if they got one) or the 1099-MISC forms, the IRS says just ignore it.

The IRS would rather have the return filed this way than for the return to not be filed at all.

Wait, you say? Isn't that illegal?

Yes, using someone else's Social Security number is against the law.

But that's not a law that the IRS is charged with enforcing. It just wants the taxes due on the money anyone and everyone makes, regardless of whether the income is legally or illegally obtained or whether the worker him- or herself is legally in the country.

As one Texas tax preparer once told me, she tells her undocumented immigrant clients who have trepidations about filing returns that "we're dealing with IRS not ICE" (Immigration and Customs Enforcement).

Senate questions commissioner: This practice, detailed in a recent story by NBC affiliate WTHR in Indianapolis about the IRS' willful ignoring of ITIN-SSN mismatches, has upset many folks, both within and outside the agency. The television station's report says the IRS is trying to keep this activity secret, but it's a well-known practice among tax preparers who deal with undocumented filers.

In addition to the issue of undocumented workers' involvement, there's the added concern about the problems faced by taxpayers whose tax ID numbers are stolen and then ignored when ITINs are used to file returns. In these cases of mismatched ITINs and Social Security numbers, shouldn't the IRS do something to alert the real owners of the ID number?

That was a question asked by Sen. Dan Coats (R-Indiana) of IRS Commissioner John Koskinen when he appeared before an Oct. 27 Senate Finance Committee hearing that was scheduled before the TV station's report aired.

"Can we fix this?" Coats asked the commissioner, particularly in those cases where such mismatched Social Security numbers are stolen and complicated the filing of law-abiding taxpayers who are identity theft victims.

"It's an important and complicated issue, as you can imagine," replied Koskinen, who also emphasized that the IRS' primary focus is to collect taxes and to ensure that all workers file a tax return.

"A significant number of those Social Security numbers [used by undocumented immigrants] are borrowed or used from relatives or someone else, but we don't where they've come from or why," Koskinen told Coats and the other Finance Committee members. "And our view is if we start pursuing employers and undocumented aliens, then nobody's going to pay their taxes."

Koskinen told the senators his agency is willing to work with Congress on possible solutions for both getting returns from all workers and dealing with the tax ID theft aspect.

That, at least for now, seemed to satisfy Coats. He said he is optimistic the Finance Committee and IRS can help develop a plan to prevent employment-related identity theft and to protect those who've already become victims. The tax agency and select members of the tax-writing Senate committee are reportedly going to meet in the next few weeks.

The Treasury Inspector General for Tax Administration also is expected to being looped in.

And don't be surprised if lawmakers introduce some pieces of legislation dealing with this issue soon.

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