IRS employees are choosing good performance ratings over identifying potentially fraudulent tax identification number applications, according to an audit by the Treasury Inspector General for Tax Administration.
The report was a response to at tip from an IRS employee that managers hadn't corrected problems with the system intended to identifying fraudulent applications, a year after TIGTA found the process so deficient that the agency couldn't determine whether it was assigning identification numbers to applicants running fraud schemes.
IRS management had also created an environment that discouraged tax examiners from identifying questionable applications, according to TIGTA's 2012 audit.
Tax examiners were expected to review seven applications per hour, too quickly for a diligent inspector to detect possible fraud, the IG said. Individual tax identification numbers are used for tax filing purposes for foreigners, and gaining an ITIN based on false information could allow someone to commit tax refund fraud.
Employees are also penalized for misidentifying applications, even for erring on the side of caution and flagging applications that turn out to be valid.
On paper, managers had fixed the system. But in practice, the agency's productivity goals and penalties still discourage employees from flagging applications as questionable.
The majority of surveyed employees told the IG the penalty system kept them from identifying questionable applications
"The survey responses combined with interviews we held with tax examiners in October 2012 found that some tax examiners believe it is better for them to not identify questionable documents and simply assign the ITINs to the applicants," the report said.
Go here for the full report.