A report issued by the Treasury Inspector General for Tax Administration (TIGTA) indicates that the IRS receives millions of income and wage statements each year that contain mismatched names and identification numbers. According to TIGTA, "These mismatches consequently create opportunities for the income recipients to avoid the scrutiny of the IRS through underreporting income and not filing tax returns."
For tax years 2001 through 2004, TIGTA reports that the IRS received approximately 48 million miscellaneous income and wage statements on which the names and identification numbers did not match. The majority of that number represents income of independent contractors reported on 1099 forms.
TIGTA advised the IRS of this mismatching issue being a problem in 2001. Since that time, the number of mismatched forms has increased by 63 percent.
President Bush has recommended that legislation be enacted to put the burden of verifying the accuracy of identification numbers on business owners, and requiring businesses to withhold taxes on employees and independent contractors whose identification numbers cannot be verified with the IRS.
By expanding sample results to the population of mismatched income forms, TIGTA estimates that tax returns were not filed by more than 6,000 individuals in this group who earned approximately $630 million in income 2004 alone.
TIGTA recommends that the IRS forward information to the Treasury Department for use in assessing the need for legislation to help with stemming the tide of mismatched income forms. In addition, TIGTA recommends that the IRS implement measures aimed at recovery of taxes lost due to mismatched income forms.
You can read the complete TIGTA report.