When presented with evidence of fraud committed by individuals seeking tax identification numbers, supervisors at the Internal Revenue Service told employees to ignore the problem.

The Treasury Inspector General for Tax Administration uncovered this finding and verified workers’ claims that their superiors weren’t taking potential fraud cases seriously.

The focus of the audit was the Individual Taxpayer Identification Numbers (ITIN) program, which was established in 1996 to provide individuals ineligible for Social Security numbers, in particular resident aliens, with ID numbers for tax purposes.

Nearly three million tax returns were filed in 2011 using ITINs, involving tax refunds totaling $6.8 billion, most of it as a result of applying the Additional Child Tax Credit.

IRS employees had previously filed complaints saying management was not concerned with questionable applications for ITINs and cared only about the volume of applications being processed. Furthermore, IRS managers discouraged tax examiners from identifying questionable ITIN applications and did away with proven ways to pinpoint fraudulent applications. In some cases, internal investigators have called attention to deficiencies in the system since 2002, but action has not been taken.

Republican Congressman Charles Boustany Jr. of Louisiana, chairman of the House Ways and Means Oversight Subcommittee, found the audit report “shocking.”

“It is clear that not only is the IRS not doing its job in detecting fraud, but agency management has taken steps to actively avoid dealing with fraudulent activities,” Boustany told Accounting Today. “When nearly $6 million in returns are being sent to one address, it is blatantly clear that the IRS is turning a blind eye to protecting taxpayer dollars. It’s one thing if the IRS tries to catch fraud and fails, but it’s quite another when management apparently takes steps to weaken program integrity. The IRS needs to immediately account for the findings in this report. The American taxpayer deserves answers.”

-Noel Brinkerhoff

To Learn More:

IRS Discouraged Employees from Identifying Fraudulent ITIN Applications (by Michael Cohn, Accounting Today)

Substantial Changes Are Needed to the Individual Taxpayer Identification Number Program to Detect Fraudulent Applications (Treasury Inspector General for Tax Administration)