Treasury Inspector General for Tax Administration 2021-40-057 (Improvements Are Needed to Identify Potentially Fraudulent Individual International Tax Returns During Processing)

Summary

Treasury Inspector General for Tax Administration Final Audit Report Number 2021-40-057, issued September 22, 2021, on Internal Revenue Service processes to identify and prevent potentially fraudulent individual international tax returns. The report states that the IRS does not have sufficient processes in place to identify potentially fraudulent individual international tax returns at the time these returns are filed. TIGTA's review of Tax Year 2018 tax returns identified 8,332 international tax returns with potentially erroneous or fraudulent refunds totaling nearly $20.6 million. It reports erroneous Earned Income Tax Credits, Additional Child Tax Credits and American Opportunity Tax Credits totaling more than $83.7 million on incorrectly filed returns. TIGTA made 15 recommendations, and the IRS agreed with 12 of the 15 recommendations.

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TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Improvements Are Needed to Identify
Potentially Fraudulent Individual International
Tax Returns During Processing

September 22, 2021

Report Number: 2021-40-057

This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined
to be restricted from public release has been redacted from this document. 1

TIGTACommunications@tigta.treas.gov | www.treasury.gov/tigta
HIGHLIGHTS: Improvements Are Needed to Identify Potentially
Fraudulent Individual International Tax Returns During Processing
Final Audit Report issued on September 22, 2021 Report Number 2021-40-057

Why TIGTA Did This Audit What TIGTA Found
This audit was initiated to evaluate The IRS does not have sufficient processes in place to identify
IRS processes to identify and potentially fraudulent individual international tax returns at the time
prevent potentially fraudulent these returns are filed. TIGTA’s review of Tax Year 2018 tax returns
individual international tax returns. identified 8,332 international tax returns with potentially erroneous
or fraudulent refunds totaling nearly $20.6 million that were not
Nonresident aliens (hereafter
identified by the IRS.
referred to as nonresidents) are
generally required to file a tax These returns include ***********2************ discrepancies,
return to report their U.S. source potentially erroneous Additional Child Tax Credit claims, potentially
income and pay any tax due. In fraudulent refunds ***********2************ and potential prisoner
contrast, residents of a U.S. fraud. The reporting of ******************2******************** is an
territory generally report their U.S. IRS confirmed fraud scheme. The IRS has also confirmed that tax
source income on their territory tax returns that are **********************2************************* are
return (i.e., do not have a U.S. tax often returns that were filed by fraudsters who have stolen a
return filing requirement), unless legitimate taxpayer’s identity.
these individuals have
In addition, the IRS currently has no processes and procedures in
self-employment income of $400
place to ensure the legitimacy of *******2******** at the time returns
or more, or are eligible to claim
are filed. **************************2***************************** are
certain tax credits.
taxed at a reduced rate or are exempt from U.S. taxes on certain
Impact on Taxpayers U.S. source income. TIGTA identified 130,448 international tax
Individual taxpayers filed returns with a ***********2************ for which the IRS ***2***
873,009 international tax returns ***********************************2************************************.
for Tax Year 2018. These individuals reduced or eliminated the Federal income tax paid
on nearly $2 billion in income.
Nonresidents generally file using
Form 1040NR, U.S. Nonresident The IRS also has not implemented processes to verify that
Alien Income Tax Return, or Form international taxpayers ************2************* at the time the
1040NR-EZ, U.S. Income Tax return is filed. TIGTA identified 50,297 **************2***************
Return for Certain Nonresident *********2**********, that were incorrectly filed by residents of a
Aliens With No Dependents. U.S. territory and nonresidents. As a result of incorrectly filing **2**
Residents of a U.S. territory who ****2****, these individuals received erroneous Earned Income Tax
have self-employment income or Credits, Additional Child Tax Credits, and American Opportunity Tax
who are eligible for a tax credit file Credits totaling more than $83.7 million.
Form 1040-SS, U.S. What TIGTA Recommended
Self-Employment Tax Return
TIGTA made 15 recommendations. TIGTA recommended that the IRS
(Including the Additional Child Tax
improve the identification and prevention of potentially fraudulent
Credit for Bona Fide Residents of
Puerto Rico), or Form 1040 PR, individual international tax returns, require individuals who report a
Planilla para la Declaración de la ************2********** to provide documentation **********2*********
Contribución Federal sobre el ***************2***************, and develop processes to address
Trabajo por Cuenta Propia claims for which the documentation is not provided. TIGTA also
(Incluyendo el Crédito Tributario recommended that the IRS develop processes to systemically identify
Adicional por Hijos para and address international taxpayers who are potentially filing **2**
Residentes Bona Fide de Puerto *********2********* to receive refundable tax credits.
Rico), which is the Spanish version The IRS agreed with 12 of the 15 recommendations. The IRS did not
of Form 1040-SS. agree to require ****2**** documents for ******2****** or to work
with the Department of Education to obtain and perfect eligible
educational institution Employer Identification Number data.
U.S. DEPARTMENT OF THE TREASURY
WASHINGTON, D.C. 20220

TREASURY INSPECTOR GENERAL
FOR TAX ADMINISTRATION

September 22, 2021

MEMORANDUM FOR: COMMISSIONER OF INTERNAL REVENUE

FROM: Michael E. McKenney
Deputy Inspector General for Audit

SUBJECT: Final Audit Report – Improvements Are Needed to Identify Potentially
Fraudulent Individual International Tax Returns During Processing
(Audit # 202040001)

This report presents the results of our review to evaluate Internal Revenue Service processes to
identify and prevent potentially fraudulent individual international tax returns. This review was
part of our Fiscal Year 2020 Annual Audit Plan and addresses the major management and
performance challenge of Compliance and Enforcement.
Management’s complete response to the draft report is included as Appendix VI.
Copies of this report are also being sent to the Internal Revenue Service managers affected by
the report recommendations. If you have any questions, please contact me or Russell P. Martin,
Assistant Inspector General for Audit (Returns Processing and Account Services).
Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

Table of Contents
Background.....................................................................................................................................Page 1

Results of Review........................................................................................................................Page 4
Processes Have Not Been Implemented to Identify
Potentially Fraudulent Refund Claims Resulting From
************2************ Discrepancies .......................................................................Page 6
Recommendation 1:...................................................................Page 8

Recommendations 2 through 4:..............................................Page 9

Programming Modifications Are Needed to Identify
Additional Potentially Fraudulent Filings for Refunds of
************2************ ....................................................................................................Page 9
Recommendation 5:...................................................................Page 10

Modifications Are Needed to Identify Additional
Potentially Erroneous Additional Child Tax Credit Claims ....................................Page 10
Recommendation 6:...................................................................Page 11

Recommendations 7 and 8: .....................................................Page 12

Processes and Procedures Are Needed to Identify
International Tax Returns Filed Using a Prisoner’s Social
Security Number...................................................................................................................Page 12
Recommendation 9:...................................................................Page 13

Processes and Procedures to Ensure the Legitimacy of
Billions of Dollars in ************2************ Are
Inconsistent With ************2************ ................................................................Page 13
Recommendation 10: ................................................................Page 14

Recommendation 11: ................................................................Page 15

Processes Do Not Identify and Address *******2*******
***2*** Resulting in Erroneous Refundable Credit Claims ....................................Page 15
Recommendations 12:...............................................................Page 19

Recommendations 13 through 15: .........................................Page 20
Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

Appendices
Appendix I – Detailed Objective, Scope, and Methodology ................................Page 21
Appendix II – Outcome Measures .................................................................................Page 23
Appendix III – Tax Year 2018 Form W-2 and Form 499R-2/W-2PR ..................Page 28
Appendix IV – U.S. Territories Filing Requirements.................................................Page 29
Appendix V – Alien Classifications .................................................................................Page 32
Appendix VI – Management’s Response to the Draft Report .............................Page 35
Appendix VII – Abbreviations ..........................................................................................Page 46
Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

Background
Each year, thousands of nonresident aliens 1 (hereafter referred to as nonresidents) are gainfully
employed in the United States. These international taxpayers are generally required to file a tax
return to report their U.S. source income and pay any tax due. U.S. source income may be
reported to the nonresident on a Form W-2, Wage and Tax Statement, Form 1099 series,2 or
Form 1042-S, Foreign Person’s U.S. Source Income Subject to Withholding. U.S. source income
includes wages, commissions, interest, dividends, pensions, gambling winnings, etc. This income
is subject to income tax withholding requirements. These individuals generally file using
Form 1040NR, U.S. Nonresident Alien Income Tax Return, or Form 1040NR-EZ, U.S. Income Tax
Return for Certain Nonresident Aliens With No Dependents.3
Unlike nonresidents, bona fide residents 4 of the Commonwealth of the Northern Mariana Islands
(CNMI), Guam, and the U.S. Virgin Islands (USVI) generally report their U.S. source income on
their territory tax return. U.S. citizens and resident aliens who are bona fide residents of
American Samoa and Puerto Rico are required to file a U.S. income tax return if they have
income from U.S. sources, foreign sources, or income sourced in any other U.S. territory.
Territory residents who do not have a U.S. income tax filing requirement but who do have a
self-employment tax filing requirement file Form 1040-SS, U.S. Self-Employment Tax Return
(Including the Additional Child Tax Credit for Bona Fide Residents of Puerto Rico), or
Form 1040-PR, Planilla para la Declaración de la Contribución Federal sobre el Trabajo por
Cuenta Propia (Incluyendo el Crédito Tributario Adicional por Hijos para Residentes Bona Fide
de Puerto Rico), which is the Spanish version of Form 1040-SS.
Form 1040-SS is filed by taxpayers residing in American Samoa, the CNMI, Guam, and the USVI.
Residents of Puerto Rico can file either Form 1040-PR or Form 1040-SS. The Forms 1040-SS and
1040-PR are filed to pay self-employment taxes, household employment taxes, and additional
Medicare tax. Figure 1 provides the types of individual income tax returns used by international
filers, filing requirements, and filing exclusions/limitations associated with the specific income
tax return types for Tax Year 2018.
Figure 1: Tax Year 2018 International Tax Return Filing Requirements and Limitations 5

Income Tax Form Type Filing Requirements Filing Exclusions/Limitations

Form 1040NR • Nonresident engaged in a trade or None.
business in the United States or
received income from U.S. sources that
is reportable on Form 1040NR,
Schedule NEC, Tax on Income Not

1
A nonresident alien is an individual who is not a U.S. citizen or U.S. national and is not a lawful permanent U.S.
resident (e.g., has a green card).
2
Various types of U.S. information returns.
3
Form 1040NR-EZ could only be filed through Tax Year 2019. This form is now obsolete.
4
An individual is considered bona fide resident of a U.S. territory if they meet the physical presence test, do not have
a tax home outside the territory, and do not have a closer connection to the U.S. or a foreign country than to the
territory.
5
The IRS considers Form 1040NR, Form 1040NR-EZ, Form 1040-PR, and Form 1040-SS as international tax returns.
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Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

Income Tax Form Type Filing Requirements Filing Exclusions/Limitations
Effectively Connected With a U.S. Trade
or Business, and not all U.S. tax was
withheld or owe any other tax.
• Received a Health Savings Account or
Medical Savings Account distribution.
• Had net self-employment income of
$400 or more and are a resident of a
country with whom the United States
has a Social Security agreement.

• Received advanced payments of the
Premium Tax Credit or Health Coverage
Tax Credit (HCTC).
• Representative for a deceased person,
estate, or trust.

Form 1040NR-EZ Nonresidents whose only U.S. source • Cannot claim any dependents or be
income is from wages, salaries, tips, claimed as a dependent on another
refunds of State and local income taxes, person’s U.S. tax return.
scholarship or fellowship grants, and
• Only exclusion allowed is for
nontaxable interest or dividends and the
scholarship and fellowship grants.
total of this income is less than $100,000.
• Cannot claim tax credits.
• Only taxes owed are income tax or
unreported Social Security and
Medicare tax.
• Cannot claim a credit for excess
Social Security tax and tier 1 Railroad
Retirement tax withheld.

• Only deductions allowed are student
loan interest and itemized deduction
for State and local taxes (or standard
deduction for India students or
business apprentices).

Form 1040-SS and U.S. citizens and bona fide residents of Only bona fide residents of Puerto Rico
Form 1040-PR American Samoa, the CNMI, Guam, Puerto may be able to claim the Additional
Rico, and the USVI who are not required Child Tax Credit (ACTC) if all of the
to file a U.S. income tax return but who following apply:
have self-employment income or are
• Social Security and Medicare taxes
eligible to claim certain credits. Residents
were withheld from wages or
of Puerto Rico may file Form 1040-PR in
self-employment taxes were paid.
place of Form 1040-SS.
• Cannot be claimed as a dependent
on someone else's U.S. income tax
return.
• Must have three or more qualifying
children.
Source: Treasury Inspector General for Tax Administration’s (TIGTA) review of IRS.gov and Tax Year 2018
forms and publications.

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Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

Figure 2 provides the number of Tax Year 2018 international tax returns filed as of
December 12, 2019, by type of tax return.
Figure 2: Tax Year 2018 Individual International Income Tax Returns Received

Form 1040NR/EZ Form 1040-PR Form 1040-SS Total
Electronic 261,558 8,018 30,347 299,923
Paid Preparer 256,325 4,055 23,933 284,313
Self-Prepared 5,233 3,963 6,414 15,610
Paper 456,000 92,376 24,710 573,086
Paid Preparer 164,592 34,269 14,077 212,938
Self-Prepared 291,408 58,107 10,633 360,148
Total Returns Filed 717,558 100,394 55,057 873,009
Source: TIGTA’s analysis of the Individual Return Transaction File (IRTF) 6 as of December 12, 2019.

International taxpayers’ eligibility for refundable tax credits
Individuals who meet the qualifications to file Form 1040NR can claim refundable tax credits
including the Excess Social Security Tax Credit, the ACTC, the HCTC, and Premium Tax Credit.
Residents of Puerto Rico who file Forms 1040-PR or 1040-SS can claim refundable credits
including the ACTC (filer must report three or more qualifying children), the Excess Social
Security Tax Credit, and the HCTC. Figure 3 shows the amount of refundable credits claimed for
Tax Year 2018 by individual international tax return type.
Figure 3: Refundable Credits Claimed on Tax Year 2018 International Returns

Form Types Credit Claimed Number of Returns Amount Claimed

1040NR, 1040-PR, and 1040-SS 7 ACTC 40,767 $104,165,164
Excess Social
1040NR, 1040-PR, and 1040-SS 1,102 $2,634,543
Security Tax Credit
1040NR, 1040-PR, and 1040-SS HCTC 18 $41,431
Premium Tax
1040NR 392 $147,844
Credit
Source: TIGTA’s analysis of the IRTF as of December 12, 2019.

Identification of potentially fraudulent tax returns
The Internal Revenue Service (IRS) uses two programs in an effort to identify potentially
fraudulent tax return filings:
Return Review Program (RRP) – An application that uses a series of filters to identify
suspicious returns for additional ***************************2*******************************
************2************ for Processing Year 2020. In addition, the IRS *******2********
************2************ that are identified *******2******** for potential review, including
returns identified as part of the RRP **************2***************.

6
A database maintained by the IRS that contains information on the individual tax returns it receives.
7
Only residents of Puerto Rico can file Form 1040-PR and Form 1040-SS to claim the ACTC.
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Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

Dependent Database – A rules-based selection application that is designed to identify
potential identity theft filings as well as potentially ineligible refundable credit claims
(e.g., Earned Income Tax Credit (EITC), the ACTC, American Opportunity Tax Credit (AOTC)).
The IRS generally excludes *******2******* and returns with a *******2******* from
selection for identity theft review.8 For Processing Year 2020, the IRS has one Dependent
Database rule specific for international tax returns. This rule is specific to ********2*********
*******2******** ACTC claims filed by Puerto Rican residents and identifies returns that claim
the ACTC with *****************2*******************. Returns identified by this filter are sent
to the IRS’s Automated Questionable Credit9 program for treatment. During Processing
Year 2019, the IRS identified for review 275 **************2**************** as having a
questionable refundable credit claim. Of these, *1* were selected for review and the *1*
**************************************1**************************************.

Results of Review
Our review found that the IRS does not have sufficient processes in place to identify potentially
fraudulent individual international tax returns at the time these returns are filed. Our review of
Tax Year 2018 tax returns identified 8,332 international tax returns with potentially erroneous or
fraudulent refunds totaling nearly $20.6 million that were not identified by the IRS. These
returns include ******************2******************, potentially erroneous ACTC claims,
potentially fraudulent refunds of *************2*************, and potential prisoner fraud. The
8,332 returns we identified include:
• 8,099 returns with potentially fraudulent refunds totaling more than $20 million in which
the *************2************* reported on the return was not *************2*************
*******************2*******************. These returns were not identified because the IRS
does not verify income and withholding on individual international returns as it does for
domestic returns. The reporting of *******************2******************* is an IRS
confirmed fraud scheme.
• 133 returns with potentially fraudulent refunds of ***************2*************** totaling
$239,717 that taxpayers *****************2*****************. The majority of these returns
were not identified because IRS fraud processes do not identify international tax returns
in which the taxpayer’s refund is below a specified dollar limit. IRS processes also do not
identify questionable refunds for review when *********************2**********************
*********************************************2***********************************************
*********2*******. The IRS has confirmed that tax returns that are ***********2************
*********2*************** are often returns that were filed by fraudsters who have stolen a
legitimate taxpayer’s identity and would not know that the taxpayer *********2***********
***********************2*******************.

8
The IRS usually excludes ******2****** and any returns with ******2******. However, this exclusion rule can be
bypassed, and there are instances of these returns being selected.
9
A prerefund treatment process to address questionable refundable credit claims that do not meet the IRS’s
examination tolerance.
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Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

• *1* returns with potentially erroneous ACTC totaling $170,901 for which the taxpayer did
not obtain their Taxpayer Identification Number (TIN) 10 before the due date of the tax
return, or the taxpayer did not *****************2********************** ACTC, or meet the
qualifying child requirements.
• *********************************************1***********************************************
*********************************************1***********************************************
*********************************************1************************. Although we
identified ***********1***********, there is a risk that prisoners could migrate to
international tax return fraud as the IRS improves its detection of other confirmed
prisoner tax fraud schemes.
Our review also identified 180,745 taxpayers who potentially avoided paying the proper amount
of U.S. Federal income tax or filed the incorrect tax form allowing them to receive refundable tax
credits to which they are not entitled. The IRS currently has no processes and procedures in
place to ensure the legitimacy of ********2******** or verify that international taxpayers ****2****
********2******** at the time tax returns are filed. These returns include:
• 130,448 Forms 1040NR and 1040NR-EZ with a tax ************2************* for which the
IRS has no indication that the taxpayer ***********************2***************************
*********************************************2*************************************, residents
(not necessarily citizens) of foreign countries are taxed at a reduced rate or are exempt
from U.S. taxes on certain items of income they receive from sources within the United
States. These taxpayers reduced or eliminated the Federal income tax paid on nearly
$2 billion in income.
• 50,297 **************************2************************, that were incorrectly filed by
residents of a U.S. territory and nonresidents. The type of tax return an individual should
file is dependent on the individual’s residency status. Nonresidents who have U.S. source
income are generally required to file a Form 1040NR. U.S. citizens and resident aliens
who are bona fide residents of American Samoa and Puerto Rico are required to file a
U.S. income tax return if they have income from U.S. sources, foreign sources, or income
sourced in any other U.S. territory. Residents of a U.S. territory, who have U.S. source
income such as wages, generally do not have a U.S. income tax filing requirement.
Rather, these individuals generally report the income on their territory tax return. As a
result of incorrectly filing *****2*****, these individuals received erroneous EITC, ACTC,
and AOTC totaling more than $83.7 million.
As we have continually reported, new fraud patterns are constantly evolving. As such, the IRS
needs to adjust its existing filters and continue to expand its detection processes. For example,
we found that fraudsters began exploiting weaknesses in other business returns, as the IRS
improved its detection of tax fraud on business returns.11 We believe international tax returns
also present a significant risk of fraud to the IRS. The questionable international tax returns we

10
A nine-digit number assigned to taxpayers for identification purposes. Depending upon the nature of the taxpayer,
it can be an Employer Identification Number, a Social Security Number, or an Individual Taxpayer Identification
Number.
11
TIGTA, Report No. 2021-40-004, Refinement and Expansion of Filters to Include Additional Business Returns Will
Continue to Improve Business Identity Theft Detection Efforts (Oct. 2020).
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Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

identified indicate that fraudsters may already be testing IRS processes to identify new ways to
obtain fraudulent tax refunds.

Processes Have Not Been Implemented to Identify Potentially Fraudulent
Refund Claims Resulting From *************2***************
Our review of 364,628 Tax Year 2018 Forms 1040NR/NR-EZ that reported *******2******* and
39,824 Tax Year 2018 Forms 1040-PR and 1040-SS that reported *****2***** for purposes of
claiming the ACTC identified 8,099 returns with *******************2******************** that were
not identified by the IRS before refunds were paid. As such, these taxpayers received
questionable refunds totaling more than $20 million. The reporting of ***********2**************
*****2***** is an IRS confirmed fraud scheme. However, the IRS does not verify ********2********
*****2***** on individual international returns at the time the return is filed as it does for
domestic returns. According to the IRS, it has ************2************* from its prerefund
income verification process since Processing Year **2** and **************2*************** since
Processing Year **2**. Management noted that these filings were **************2***************
**************************************************2*************************************************
*******2*******.
These 8,099 returns include:
• 6,731 Forms 1040NR 12 with questionable refunds totaling more than $17.7 million in
which the IRS had **********************************2*************************************
reported on the tax return.
• 1,368 Forms 1040-PR and 1040-SS filed by residents of Puerto Rico with potentially
erroneous ACTC totaling more than $2.3 million in which the **************2*************
*********************************************2***********************************************
*********************************************2************ used to claim the ACTC. For
Puerto Rico residents, *********************2********************************* qualifies for
the ACTC.

Processes are needed to ensure that the ********2********* reported on
international returns are supported by ******2****** before refunds are paid
Our analysis of 364,628 Tax Year 2018 Forms 1040NR that reported *******2******* identified
31,993 returns (9 percent) with no **************2****************. Of the 31,993 returns without
a *****2****, 6,731 returns (21 percent) received refunds totaling more than $17.7 million. These
6,731 returns reported ****2**** on their return of more than $218.3 million and *******2*******
*******2******* of more than $32.6 million.
We alerted the IRS of our concerns on September 23, 2020, and recommended that the IRS
expand RRP *******2******* processes to select individual international returns for prerefund
review when the ****************2****************** on the tax return are **********2**********
**************2****************. IRS management agreed that there is potential for fraud with
international refund returns with ****************2******************. IRS management stated

12
Includes Forms 1040NR-EZ.
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Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

that they will study this population during Processing Year 2021 and make appropriate changes
to the RRP program for Processing Year 2022.

Processes are needed to ensure that ******2****** by residents of Puerto Rico to
qualify for the ACTC is supported
Our analysis of 39,824 Tax Year 2018 Forms 1040-PR and 1040-SS that reported ******2****** for
purposes of claiming the ACTC identified 1,368 tax returns (3 percent) filed by residents of
Puerto Rico that *********************************2*************************************************
**************2**************** from sources within Puerto Rico but there was no
**************************************************2************************************************.
These individuals potentially received more than $2.3 million in erroneous ACTC. The IRS has no
processes in place to ensure that international taxpayers have **************2****************
**********2******* before the ACTC claim is allowed and refunds are paid.
For residents of Puerto Rico, ********************2********************************** qualifies for
the ACTC. The ACTC is also limited for those with income greater than $200,000 or $400,000 for
married filing joint filers. Additionally, the ACTC is limited to the amount of *********2***********
**************************************************2**************************************************
**************************2************************ are reported to taxpayers **********2***********
**************************2************************. To qualify for the ACTC, bona fide residents of
Puerto Rico **************************************2*************************************************
Form 1040-PR or Form 1040-SS. Figure 4 shows how bona fide residents of Puerto Rico ***2***
**************************************************2************** when claiming the ACTC.
Figure 4: Reporting for Bona Fide Residents of Puerto Rico Claiming ACTC

Source: IRS.gov.
According to IRS management, a decision was made ************************2********************
********2********. Specifically, management noted that **********************2********************
**************************************************2**************, is not formatted like ******2******
*****2*****. IRS management stated that because of the formatting differences, RRP filters were
not comparing *********************************2*************************************************.
The *********************************************2*************************. As such, IRS
management stated that it could not change the format to **********2**********. Figure 5
provides a comparison of the format of ********************2********************* along with
where the formatting is different.

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Improvements Are Needed to Identify Potentially Fraudulent
Individual International Tax Returns During Processing

Figure 5: Comparison of *******2*******
*******************2*******************

Field ***2*** ******2******

************2************ Line 1 Line 7
************2************ Line 2 Line 13
************2************ Line 3 Line 17
************2************ Line 4 Line 18
************2************ Line 5 Line 19
************2************ Line 6 Line 20
Source: TIGTA’s analysis of ****************************2***************************
********************2****************.
We questioned why IRS management did not make adjustments to the programming to **2**
**********2*********** data for systemic verification processes. IRS management stated that they
do not control the loading of ************2************* and instead changed the selection
criteria, which they do have control over. We agree that IRS management has no controls over
the loading or layout of **********2***********. However, they can create additional filters
specifically for **********2***********, as opposed to *********************2***********************
***2***.
We alerted the IRS of our concerns on January 22, 2021, and recommended that the IRS develop
processes to systemically identify and address ************************2**************************
*********************2********************** reported on Forms 1040-PR or 1040-SS ******2******
*********************2************* before refunds are paid. IRS management stated that the IRS
does not have math error authority to adjust ACTC claims as a result of ***********2*************
******2******. As such, the claims we identified can be addressed only using statutory deficiency
procedures (i.e., an examination). We understand that the IRS must use statutory deficiency
procedures to address the ACTC claims we identified ************2*************. However, there
is nothing that prevents the IRS from establishing processes to identify ACTC claims on
Forms 1040-PR and 1040-SS for additional review in its Automated Questionable Credit
program when **********2********** reported on the tax ******************2********************
******2******, similar to how the IRS identifies and examines certain ACTC claims filed on a Form
1040.

The Commissioner, Wage and Investment Division, should:

Recommendation 1: Develop prerefund processes to identify and address Form 1040NR
refund claims in which the *************2************* reported on the return is not supported by
*************2*************.
Management’s Response: The IRS agreed with this recommendation and plans to
study this population during 2021. IRS management plans to make changes to the RRP
Non-Identity Theft filters/rules as appropriate for potential Non-Identity Theft selections
in 2022.

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Recommendation 2: Review the 6,731 Forms 1040NR refunds we identified in which the
**************2************** on the tax return was not supported by *************2*************
******2******* and take actions to recover erroneous refunds.
Management’s Response: The IRS agreed with this recommendation and plans to
review the 6,731 Forms 1040NR identified by the TIGTA. IRS management plans to take
appropriate actions on a sample of these returns based on resource availability.

Recommendation 3: Develop at-filing processes to identify and address ACTC claims on
Forms 1040-PR and 1040-SS in which ******2******* reported on the tax return is ******2*******
*************2*************.
Management’s Response: The IRS agreed with this recommendation and plans
to study this population during 2021. IRS management plans to update the RRP
Non-Identity Theft filters/rules, as appropriate, for potential selections in 2022.

Recommendation 4: Review the 1,368 Forms 1040-PR and 1040-SS we identified in which the
******2******* reported on the tax return for the purposes of claiming the ACTC is not supported
*************2************* and take actions to recover erroneous credits.
Management’s Response: The IRS agreed with this recommendation and plans to
review the 1,368 Forms 1040-PR and 1040-SS identified by the TIGTA. IRS management
plans to take appropriate actions on a sample of these returns based on resource
availability.

Programming Modifications Are Needed to Identify Additional Potentially
Fraudulent Filings for Refunds of ********2*********
Our analysis of 873,009 Tax Year 2018 international tax returns identified 2,686 returns in which
the taxpayer *****************************************2********************************************
******2******. One of the confirmed characteristics of individual tax-related identity theft is the
filing of a tax return with a refund claim **************************2******************************
******************************2******************************. We determined that 133 (5 percent)
of these returns with *********2********* totaling $239,717 were not identified by IRS error
resolution processes or fraud filters for additional review.
The IRS has implemented two processes to identify tax returns, including international returns, in
which the taxpayer claims a refund and **************************2******************************
*************2************. IRS error resolution processing identifies tax returns in which the
refund claim is less than or equal to **2**. In addition, IRS fraud filters identify tax returns in
which the ********************************2****************************** are more than ***2***.
These returns were not identified by the IRS because programming did not *********2*********
*******************2*******************, returns below the IRS’s dollar tolerance for selection, and
returns with ****2**** on their tax account ***************2***************.
We shared the results of our analysis with the IRS on December 10, 2020. We recommended
that the IRS adjust its fraud filters or error resolution processes to identify international tax
returns when ****************************2**************************** and prevent them from

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being refunded prior to review, even if there is ***********2***********. ***2*** management
agreed with our findings and modified its filters for Processing Year 2021.

Recommendation 5: The Commissioner, Wage and Investment Division, should review the
133 international returns we identified for which the IRS issued a potentially fraudulent refund of
***********2************ and take actions to recover the fraudulent refunds and ensure that the
fraudulently refunded ***********2************ are properly credited to the true taxpayer’s tax
liability.
Management’s Response: The IRS agreed with this recommendation, but disagreed
with the related outcome measure. On January 4, 2021, IRS management reviewed the
133 international returns identified by TIGTA and determined none of the payments were
lost, so there are no refunds to recover.
Office of Audit Comment: Given IRS management’s determination that no
payments were lost, we cannot yet quantify the potential outcome the IRS will
realize because of modifying its fraud detection filters. We will continue to
monitor the IRS’s fraud detection processes and will quantify the outcome
associated with our recommendation at that time.

Modifications Are Needed to Identify Additional Potentially Erroneous
Additional Child Tax Credit Claims
Our analysis of 80,280 Tax Year 2018 Forms 1040NR and 1040-PR/SS claiming the ACTC
identified 99 returns that received potentially erroneous ACTC totaling $170,901, which was not
identified by the IRS prior to claims being paid. Specifically:
• 48 Form 1040NR tax returns that received the ACTC totaling $61,855 for which ***2***
***2*** on the tax return ********2******** does not qualify for the ACTC. International
taxpayers must be a U.S. national 13 or a **********************2***************************
in order to claim the ACTC. 14 Our review of existing processes and procedures for
verifying ACTC claims found that the IRS *****************2*************** the ACTC is
paid only to international taxpayers who **********************2***************************
***2***.
We alerted the IRS of our concerns on January 22, 2021, and recommended that the IRS
develop systemic prerefund processes to identify for additional review international
returns claiming the ACTC when ******2****** on the tax return ************2************
************2*************. IRS management stated that the IRS does not have the
authority to systemically adjust an ACTC claim based on *********2**********. As we
detailed previously in our report, the IRS does have its Automated Questionable Credit
program in which it can address questionable credit claims.

13
A U.S. national is an individual who, although not a U.S. citizen, owes his or her allegiance to the United States. U.S.
nationals include American Samoans and Northern Mariana Islanders who chose to become U.S. nationals instead of
U.S. citizens.
14
*********************************************************2**************************************************************
************************************************************2**********************.
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• **2** Form 1040-PR and 1040-SS returns that received the ACTC totaling $101,133 filed
by residents of Puerto Rico in which the taxpayer did not report ************2*************
***2***. To be eligible to claim the ACTC, bona fide residents of Puerto Rico must ***2***
*****************2***************.
We shared the results of our analysis with the IRS on January 22, 2021. IRS management
stated that fraud filters were implemented to identify Forms 1040-PR and 1040-SS that
are filed by residents of Puerto Rico and claim the ACTC with *************2**************
***2***. These filters identify returns when the refund claimed is above a certain dollar
limit. Of the 44 Forms 1040-PR and 1040-SS we identified, 31 claimed a refund below
the dollar limit. In addition, management stated that the remaining 13 Forms 1040-PR
and 1040-SS were worked by the Error Resolution function. However, employees made
errors when verifying the returns at processing.
According to IRS management, the American Rescue Plan Act of 2021,15 enacted
subsequent to our review on March 11, 2021, amended the requirement for Puerto Rican
residents to *******************2****************** to qualify for the ACTC beginning in
Tax Year 2021.
• **1** Form 1040NR tax returns with erroneous ACTC totaling $6,464 that was paid to
taxpayers in which the taxpayer’s TIN or the spouse’s TIN was issued after the due date
of the return. Section 205 of the Protecting Americans from Tax Hikes Act16 requires
taxpayers and their spouse to have a valid TIN that was issued on or before the due date
of the tax return to be eligible to claim the ACTC.
We alerted the IRS of our concerns on January 22, 2021. IRS management stated that
the ACTC claims we identified are the result of errors made by Error Resolution
employees when verifying the returns at processing.
• *********************************************1***********************************************
************************1**********************. Individuals, other than those residing in
Puerto Rico, are required to have ***2***qualifying child to be eligible for the ACTC.
We shared the results of our analysis with the IRS on January 22, 2021. IRS management
stated that ********************************1***********************************************
*******************************1*******************************.

The Commissioner, Wage and Investment Division, should:

Recommendation 6: Develop prerefund processes to systemically identify and address
potentially erroneous ACTC claimed on international refund tax returns in which ***2*** on the
return **********************2***************************.

15
Pub. L. No. 117-2.
16
Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat. 2242 (2015).
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Management’s Response: The IRS agreed with this recommendation and plans to
study the feasibility of sampling this work. IRS management plans to take appropriate
actions based on the result of the study and available resources.

Recommendation 7: Ensure that Error Resolution tax examiners are aware of the proper
procedures for resolving ACTC claims on international tax returns in which the taxpayer’s TIN or
spouse’s TIN was not issued prior to the due date of the tax return and in which the taxpayer
does not meet the qualifying child requirements.
Management’s Response: The IRS agreed with this recommendation and plans to
provide training for returning and new tax examiners in the Error Resolution function to
emphasize this aspect of processing the ACTC.

Recommendation 8: Review the 99 questionable returns that received the ACTC that TIGTA
identified and take actions to recover any erroneous ACTC received.
Management’s Response: The IRS agreed with this recommendation, but disagreed
with the related outcome measure (see Appendix II for more detailed information on the
reported outcome measure). IRS management acknowledges erroneous processing in
seven returns and plans to take steps to have the improperly allowed ACTC corrected.
Management is also currently reviewing the remaining returns in question to determine
whether the ACTC was properly allowed and plans to take steps, when possible within
the constraints of the assessment statute of limitations date, to have any improperly
allowed ACTC corrected.

Processes and Procedures Are Needed to Identify International Tax Returns
Filed Using a Prisoner’s Social Security Number
Our analysis of 873,009 Tax Year 2018 international income tax ****************1*****************
**************************************************1*************************************************
**************************************************1*************************************************
**************************************************1*************************************************
**************************************************1********.
While the potential refund fraud by prisoners on international returns remains low at this time,
we believe there is potential for fraudsters to exploit vulnerabilities in the filters. As such, we
alerted the IRS of our concern **************1 and 2***********************************************
***********************************************1 and 2***********************************************
***********************************************1 and 2***********************************************
***********************************************1 and 2***********************************************
***********************************************1 and 2***********************************************
***********************************************1 and 2****.
When we questioned IRS management about this further, management stated the selection
criteria identifies all prisoner returns, including international returns. However, management
acknowledged **********************************1*******************************************. IRS
management updated the criteria for the 2021 Filing Season to ensure that all international
returns filed by prisoners who are incarcerated for the entire tax year will be identified
**********************************2**********************************.
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Recommendation 9: The Commissioner, Wage and Investment Division, should review the *1*
**************************************************1**************************************************
**************************************************1**********************.
Management’s Response: The IRS agreed with this recommendation, but disagreed
with the related outcome measure. **1 and 2**********************************************
****************************************1 and 2**********************************************
****************************************1 and 2**********************************************
****************************************1 and 2**********************************************
******************1 and 2*******************.
Office of Audit Comment: ****1**************************************************
**********************************1******, we cannot yet quantify the potential
outcome the IRS will realize because of modifying its fraud detection filters. We
will continue to monitor the IRS’s fraud detection processes and will reevaluate
the potential outcome of our recommendation in the future.

Processes and Procedures to Ensure the Legitimacy of Billions of Dollars in
***********2************* Are Inconsistent With ******2******
***2***
Our review identified 130,448 Forms 1040NR and 1040NR-EZ Tax Year 2018 returns claiming
nearly $2 billion in income *************2************. The United States has ********2*********
***********************2**********************, residents (not necessarily citizens) of foreign
countries are taxed at a reduced rate, or are exempt from U.S. income tax on certain types of
income they receive from sources within the United States. These reduced rates and exemptions
vary among countries and with specific items of income.
However, the IRS has not developed any processes to ensure that these individuals *****2*****
******************2***************** before Federal income tax exclusions are allowed, increasing
the risk that taxpayers **********2********* to intentionally avoid paying U.S. income tax. Foreign
individuals who *************2************ report the *********2********** on Form 1040NR,
****************2**************. Figure 6 shows how taxpayers report *************2************.
Figure 6: ***************2*****************
***************************************************************************************
***************************************************************************************
***************************************************************************************
***************************************************************************************
***************************************** 2 *******************************************
***************************************************************************************
***************************************************************************************
***************************************************************************************
***************************************************************************************
***************************************************************************************
Source: IRS.gov, Forms and Publications.
As Figure 6 shows, an individual claiming *********2********** provides ************2************
****************************2*******************************, the amount of exempt income for the

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tax year, etc. However, the individual is not required to provide ****************2*****************
*******2******* before the IRS allows the income exclusion. Once a return ***********2***********
*******2******* is received by the IRS, the IRS will ensure that *******2******* is attached and
necessary fields are completed (i.e., ******************************2********************************
****************************2****************************, and the amount of exempt income
during the tax year). If the *******2******* is not attached or does not contain the necessary
information, the IRS will correspond with the taxpayer requesting the missing information. If the
taxpayer reports ***************2*****************, an amount that exceeds the limitation ****2***
*******2*******, or does not respond to the IRS with requested missing information, the IRS will
adjust the tax return disallowing the income exclusion.

The IRS is inconsistent with ******2****** as it relates to required documentation
*********2******** to qualify for an income exclusion
Many ********2******** require U.S. residents to provide *************2************* in order to
claim *****************2****************** foreign countries. The IRS provides this *******2*******
******2****** for U.S. residents via **********************************2******************************
*********************************************2************************************************ is a
computer-generated letter printed on stationary bearing the U.S. Department of Treasury
letterhead certifying that the individuals or entities listed *******************2*********************
********************************2********************************.
We alerted the IRS of our concerns on September 23, 2020, recommending that the IRS update
its processes to require taxpayers reporting **************2************* to provide supporting
documentation, ****************2*****************, with their tax return. We also recommended
the IRS develop processes to use this information to verify that the taxpayer is eligible *****2****
*******2******* before the exclusion is allowed. IRS management explained that they
understood TIGTA’s concerns but they do not have the statutory authority under Internal
Revenue Code (IRC) § 6213(g)(2) to disallow a claim if the taxpayer did not provide the
requested documentation. Additionally, the IRS stated that the process requested by TIGTA
would delay the processing of these returns and require additional resources for front-end
screening.
The IRC does not limit the IRS’s ability to suspend the processing of tax returns and correspond
for this documentation when it is not provided. Further, 36 percent of all Forms 1040NR are
filed electronically, and the documentation could be required before accepting the tax return for
processing. The IRS could then use its limited and more costly enforcement options to address
the potentially fraudulent claims (i.e., those that did not provide supporting documentation at
filing).

The Commissioner, Wage and Investment Division, should:

Recommendation 10: Require international taxpayers reporting ************2************ to
provide supporting documentation with their tax return, *******************2*******************
****2**** that the taxpayer *********************2*******************.
Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that the documents are not necessary for satisfying the Beard test
for a valid return, and the IRS does not have the statutory authority to require those

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documents for inspection outside of deficiency procedures (an audit of the return), which
is not a viable treatment for use during return processing. Further, ***2***does not
conclusively establish ***2***.
Office of Audit Comment: The process we recommended is consistent with
existing IRS processes. For example, the IRS requires taxpayers to submit
additional information when claiming a Foreign Tax Credit and suspends
processing when the documentation is not provided. 17 At a minimum, the IRS, in
conjunction with the Department of Treasury’s Office of Tax Policy, should ensure
that policies for certifying *********2********* of individuals *********2*********
***2*** are consistent with ************2************.

Recommendation 11: Develop processes to suspend the processing of *********2********* for
which the supporting documentation is not provided and correspond with the taxpayer for the
missing documentation.
Management’s Response: The IRS disagreed with this recommendation. IRS
management stated that the documents are not necessary for satisfying the Beard test
for a valid return, and the IRS does not have the statutory authority to require those
documents for inspection outside of deficiency procedures (an audit of the return), which
is not a viable treatment for use during return processing. Further, correspondence
would not be an effective action as it would delay return processing and increase costs.
Office of Audit Comment: See our Office of Audit Comment for
Recommendation 10.

Processes Do Not Identify and Address ********2******** Resulting in
Erroneous Refundable Credit Claims
As detailed in the Background section, an individual who is not a U.S. citizen is referred to as an
alien for U.S. income tax purposes. Aliens can be classified as either a resident, nonresident, or
dual-status alien. 18 Nonresidents are to file a Form 1040NR, 1040NR-EZ, 1040-PR or 1040-SS.
Unlike a nonresident, residents of a U.S. territory generally report their U.S. source income on
their territory tax return (i.e., do not have a U.S. tax return filing requirement) unless they have
self-employment income of $400 or more, or are eligible to claim certain tax credits. However,
U.S. citizens and resident aliens who are bona fide residents of American Samoa and Puerto Rico
are required to file a U.S. income tax return if they have income from U.S. sources, foreign
sources, or income sourced in any other U.S. territory. Residents of a U.S. territory report their
self-employment income or claim allowable tax credits on Forms 1040-PR or 1040-SS. We
found that the IRS has no processes to identify nonresidents who *************2****************
and receive tax benefits to which they are not entitled. Our review of Tax Year 2018 *****2*****
tax returns identified 50,297 returns filed by individuals with characteristics that suggest the
filers are likely a nonresident filing an incorrect tax form. These individuals received more than
$83.7 million in refundable tax credits to which they may not have been entitled. These include:

17
The IRS requires taxpayers to attach Form 1116, Foreign Tax Credit, to their tax return. However, the IRC does not
require such reporting.
18
See Appendix V.
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• 36,373 ********2******** filed by individuals whose Social Security Number status and
third-party income documents indicate that they are potentially a nonresident. These
individuals received more than $33.1 million in potentially erroneous refundable AOTC.
• 13,924 returns filed by taxpayers who had received wage income from a company in a
U.S. territory that erroneously filed a *****2***** to receive more than $50.6 million in
refundable tax credits to which they may not have been entitled. 19
The lack of adequate processes to identify nonresidents who **************2************** tax
return became even more apparent with regard to the issuance of the Economic Impact
Payments. In May 2021, we reported that our analysis of payments issued as of July 16, 2020,
identified 324,864 payments totaling nearly $444 million that were potentially issued to
nonresidents who filed a *****2*****. 20 Of the 324,864 payments, 30,175 of these payments
totaling more than $37 million were calculated by the IRS using a *****2***** that listed a foreign
address.

Nonresidents are potentially receiving erroneous AOTC because they are *****2*****
*********2*********
The AOTC is a tax credit of up to $2,500 of the cost of tuition and related expenses paid during
the tax year. Forty percent of the AOTC is refundable. To be eligible to receive the AOTC, a
taxpayer must be a U.S. citizen or resident alien for the entire tax year, among other things.
Nonresidents, who are required to file Form 1040NR, Form 1040NR-EZ, Form 1040-PR, or
Form 1040-SS are not eligible to claim the AOTC.
Our review of Tax Year 2018 *****2***** returns that received the AOTC identified
180,420 returns in which the information in the Social Security Administration database indicates
the taxpayer is a legal alien authorized to work in the United States. However, further review
found that 36,373 (20 percent) of these returns were filed by individuals who had no Federal
Insurance Contributions Act tax withheld from their wages in Tax Year 2018, which indicates they
are likely not considered a resident alien.21 These individuals received more than $33.1 million in
potentially erroneous refundable AOTC.
Under IRC § 3121(b)(19), individuals who hold certain non-immigrant visa statuses 22 are not
subject to the Federal Insurance Contributions Act tax. Individuals who hold these same
non-immigrant visa statuses are instructed to exclude their time in the United States for the
purpose of their visa when determining if they are a resident or nonresident for U.S. tax
purposes.

Nonresidents are also claiming the AOTC for ineligible institutions
In addition to being a U.S. citizen or resident alien, students must also attend an eligible
institution to be eligible to receive the AOTC. Eligible institutions are institutions that are
authorized to receive Title IV funding (i.e., Federal student aid) from the U.S. Department of
Education. Our review of the 36,373 identified ******2****** tax returns with the AOTC that were

19
We identified returns with credits exceeding $250.
20
TIGTA, Report No. 2021-46-034, Implementation of Economic Impact Payments (May 2021).
21
There are exceptions in which a valid foreign person would be considered a resident and not subject to the tax.
However, we are unable to identify individuals with these exceptions with the available tax return data.
22
Individuals in an F-1, J-1, M-1, Q-1, or Q-2 non-immigrant visa status.
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potentially filed by nonresidents found that 6,967 (19 percent) returns reported an ineligible
institution Employer Identification Number (EIN) on Form 8863, Education Credits (American
Opportunity and Lifetime Learning Credits). Many of the institution EINs were obviously not for
a post-secondary educational institution (e.g., banks, corporations, preschools). These
6,967 returns received refundable AOTC of more than $6.4 million. Our review of Forms 1098-T,
Tuition Statement, associated with these 6,967 returns found that 1,715 returns had a
Form 1098-T.
We previously reported that billions of dollars in potentially erroneous education credits
continued to be claimed for ineligible students and institutions.23 Specifically, we found that
more than 1.6 million taxpayers received education credits totaling approximately $2.5 billion for
which Department of Education data showed the educational institution listed on the Form 8863
was not an eligible institution. We recommended that the IRS work with the Department of
Education to use its data to verify eligibility of educational institutions reported on returns
claiming education credits. The IRS disagreed with our recommendation and stated that it could
not use third-party data to correct a tax return during processing under its existing statutory
authority.
On January 5, 2021, we alerted the IRS of our concerns that nonresidents may ********2********
************2*********** to receive the AOTC to which they are not entitled, including using an
ineligible educational institution. IRS management again did not agree to develop processes to
use Department of Education data to verify AOTC claims stating that they cannot use third-party
information to correct a tax return during processing. In addition, IRS management indicated
that they had evaluated the Department of Education data and determined the data are
incomplete for IRS purposes. For example, management stated that the data do not contain
specific EINs for an institution’s satellite and sister campuses. Management also stated that they
believe their current post-processing procedures to match a student claimed for the AOTC to a
Form 1098-T filed by the educational institution are sufficient to identify AOTC claims for
ineligible institutions.
However, we disagree that these processes are sufficient to identify potentially erroneous AOTC
claims before the AOTC is paid. While the Department of Education data are not perfect for the
IRS’s needs, the data remain the only data source that the IRS can use to definitively verify that
the EINs are in fact for eligible institutions. While eligible institutions are generally required to
file a Form 1098-T, there are exceptions to this requirement. As discussed previously, we found
that many of the institutions provided on Form 8863 are obviously not an eligible institution. In
addition, Forms 1098-T are not required to be filed with the IRS until February 28 (March 31 if
filing electronically) after many individual tax returns are filed.
We are not suggesting that the IRS bypass its authority and adjust tax returns without following
deficiency procedures. As previously mentioned, the IRS can use its Automated Questionable
Credit program to address questionable returns claiming refundable credits. In addition, we
continue to believe that the IRS can and should do more to verify AOTC claims before refunds
are paid. For example, the IRS can use Department of Education data to exclude AOTC claims
from examination selection when the data show that the institution provided on Form 8863 is an
eligible institution. The IRS may also be able to use its existing EIN data to identify AOTC claims

23
TIGTA, Report No. 2015-40-027, Billions of Dollars in Potentially Erroneous Education Credits Continue to Be
Claimed for Ineligible Students and Institutions (Mar. 2015).
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in which the EIN on the Form 8863 is obviously not an eligible institution. Finally, the IRS may
be able to use this same EIN data to perfect Department of Education data by associating the
EIN of a parent institution with the EINs issued by the IRS to the parent institutions related
entities.

Bona fide residents of U.S. territories are potentially receiving erroneous refundable tax
credits because they **************2************
U.S. territories have their own separate and independent tax systems. An individual first must
determine whether they are a U.S. resident or nonresident, as previously discussed, and whether
they are a bona fide resident of the U.S. territory before determining which tax return(s) to file
and the taxability of their income.24 An individual is generally considered a bona fide resident of
a U.S. territory if they:
• Are physically present in the territory for 183 days during the tax year.
• Do not have a tax home outside the territory during the tax year.
• Do not have a closer connection to the United States or a foreign country.
Bona fide residents of American Samoa, the CNMI, Guam, and the USVI are generally not
eligible to receive refundable tax credits on a U.S. income tax return, regardless of whether the
income was earned in the United States or the applicable territory. Similarly, bona fide residents
of American Samoa and Puerto Rico are also generally not eligible for the EITC on a U.S. income
tax return, regardless of where the income was earned. However, bona fide residents of Puerto
Rico may be eligible for the ACTC if they have a U.S. income tax filing or self-employment tax
filing requirement. These individuals may claim the ACTC only if they have three or more
qualifying dependents and they must claim the ACTC on Form 1040-PR or Form 1040-SS.
It is difficult for the IRS to determine whether an individual is a bona fide resident of a U.S.
territory without conducting an examination. However, we believe there are opportunities for
the IRS to use available wage data to identify bona fide territory residents who may be
****************2***************. For example, if individuals primarily earned income in a U.S.
territory, it is a strong indicator that they likely spent more than one-half of the year in the
territory and qualify as a bona fide resident of the territory. Our analysis of 71,382 Tax
Year 2018 *****2***** returns that had at least one Form W-2 from a U.S. territory identified
13,924 returns that were filed by taxpayers who received all or the majority of their wages from a
company located in a U.S. territory. These individuals received more than $50.6 million in
potentially erroneous refundable tax credits. Figure 7 shows the U.S. territories that these tax
returns received wages from and which refundable credits these returns received.

24
See Appendix IV for the filing requirements for each U.S. territory based on an individual’s alien classification and
bona fide resident status.
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Figure 7: Summary of U.S. Territories and Refundable Credits Received

U.S. TERRITORY RETURNS AOTC ACTC EITC TOTALS
Puerto
10,526 $1,929,455 $13,407,670 $19,354,323 $34,691,448
Rico
USVI 2,141 $200,968 $2,977,162 $6,296,141 $9,474,271
American
797 $16,484 $1,433,063 $3,141,185 $4,590,732
Samoa
Guam 409 $35,324 $509,094 $1,106,726 $1,651,144

CNMI 51 $7,000 $52,958 $133,299 $193,257

TOTALS 13,924 $2,189,231 $18,379,947 $30,031,674 $50,600,852

Source: TIGTA’s analysis of the IRTF and the Information Returns Master File (IRMF).25
On January 5, 2021, we alerted the IRS of our concerns and recommended that the IRS develop
processes to identify and address these potentially erroneous returns before refunds are paid.
IRS management stated that the IRS does not have the authority to adjust tax credit claims
during processing that result from ****************2***************. However, IRS management
informed us that the IRS has a post-processing compliance initiative that is intended to address
this noncompliance. IRS management stated that it closed 2,877 cases in Fiscal Years 2016
through 2018 as part of this compliance initiative, with a change rate of 92 percent. IRS
management stated that they will review the cases TIGTA identified and explore the possibility
of refining the compliance initiative criteria. However, IRS management noted that they are
concerned that changes to the criteria could affect the initiative's change rate by increasing the
percentage of cases resulting in no changes. In addition, IRS management informed us that
many of the returns we identified would not meet its criteria for the compliance initiative, as the
returns fell below the IRS’s dollar tolerance for selecting returns for review.
We plan to conduct a separate review to evaluate the IRS’s efforts to identify international
taxpayers who **************2**************, either intentionally or unintentionally. 26

The Commissioner, Wage and Investment Division, should:

Recommendation 12: Review the 36,373 returns TIGTA identified that potentially received
erroneous AOTC and take actions to recover any erroneous AOTC received.
Management’s Response: The IRS agreed with this recommendation, but disagreed
with the related outcome measure (see Appendix II for more detailed information on the
reported outcome measure). IRS management plans to review the 36,373 returns

25
An IRS database that contains third-party information return documents for taxpayers.
26
TIGTA, Audit No. 202140004, Processes to Ensure That Aliens File the Correct Tax Form Based on Their Residency
Status.
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identified by TIGTA and take appropriate actions on a sample of these returns based on
available resources.

Recommendation 13: Coordinate with the Department of Education to obtain and perfect
eligible educational institution EIN data and then develop at-filing processes to use these data
to systemically identify and exclude tax returns claiming the AOTC from potential review, when
the EIN reported on the Form 8863 is confirmed as an eligible education institution.
Management’s Response: The IRS disagreed with this recommendation. In response
to a previous TIGTA recommendation, the IRS coordinated with the Department of
Education and tested its Postsecondary Education Participants System (PEPS) database.
IRS management stated that the analysis demonstrated that the PEPS does not contain
the EINs of all educational institutions that are reported on Form 1098-T and may not be
a reliable source for the IRS to use in determining if a school is an eligible institution. In
addition, IRS management stated that current IRS deficiency procedures cover any
recommended stand-alone treatment to identify ineligible educational institutions
claimed for the AOTC and is sufficient to identify inventory for additional review. Further,
the IRS does not have the statutory authority to address the use of ineligible institutions
when claiming education credits during return processing. IRS management indicated
that without this authority, it would not be a good use of limited IRS resources to revisit
discussions with the Department of Education about the use of its PEPS database.
Office of Audit Comment: As stated in our report, the due date for filing
Forms 1098-T with the IRS is after many individual tax returns are filed, and there
are exceptions to the filing requirement. As such, relying on the Form 1098-T
alone to identify eligible institutions may also not be complete. In addition, we
recommended that the IRS use PEPS data to exclude returns from further review
when the institution EIN is confirmed by PEPS data. Claims in which the
institution EIN does not match PEPS data would continue to be evaluated using
the IRS’s current procedures.

Recommendation 14: Review the 13,924 returns TIGTA identified that potentially received
erroneous refundable credits and take actions to recover any erroneous refundable credits
received.
Management’s Response: The IRS agreed with this recommendation and plans to
review the 13,924 returns identified by TIGTA. IRS management plans to take
appropriate actions on a sample of these returns based on available resources.

Recommendation 15: Develop processes to systemically identify and address potentially
erroneous tax returns filed by international taxpayers filing the incorrect tax forms to receive
refundable credits, including returns filed by nonresidents claiming the AOTC, for which they are
not eligible to receive.
Management’s Response: The IRS agreed with this recommendation, but partially
disagreed the related outcome measure (see Appendix II for more detailed information
on the reported outcome measure). IRS management plans to study the feasibility of
sampling this work and take appropriate actions based on the result of the study and
available resources.

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Appendix I
Detailed Objective, Scope, and Methodology
Our overall objective was to evaluate IRS processes to identify and prevent potentially
fraudulent individual international tax returns. To accomplish our objective, we:
• Reviewed the IRS’s policies and procedures for processing individual international tax
returns and identifying potentially fraudulent returns, including review of the Internal
Revenue Manual, code and edit rules, error resolution codes, and business rules.
• Identified the number of Tax Year 2018 international returns filed, including those filed
on Form 1040NR, Form 1040-PR, and Form 1040-SS.
• Evaluated Forms 1040NR filed in Tax Year 2018 and compared them to IRMF data to
determine if there were *****************2***************** on international returns not
being identified by the IRS.
• Determined whether the IRS had effective processes in place to identify international
returns that had refunds issued based upon potentially fraudulent *******2*******
******2****** claims.
• Determined whether the IRS had effective processes in place to identify international
returns claiming potentially fraudulent ACTC claims.
• Determined whether the IRS had effective processes in place to identify potentially
fraudulent international returns filed by prisoners.
• Determined whether the IRS had effective policies and procedures to verify amounts of
income excluded on international returns ****************2***************.
• Determined whether the IRS had effective processes in place to identify international
taxpayers filing **********2********** to receive refundable credits for which they may not
be entitled.

Performance of This Review
This review was performed with information obtained from the IRS’s Wage and Investment
Division’s Return Integrity and Compliance Service and Submission Processing offices located in
Atlanta, Georgia; Kansas City, Missouri; and Austin, Texas, during the period January 2020
through February 2021. We conducted this performance audit in accordance with generally
accepted government auditing standards. Those standards require that we plan and perform
the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our
findings and conclusions based on our audit objective. We believe that the evidence obtained
provides a reasonable basis for our findings and conclusions based on our audit objective.
Major contributors to the report were Russell P. Martin, Assistant Inspector General for Audit
(Returns Processing and Account Services); Deann L. Baiza, Director; Jeffrey D. Cullum, Audit
Manager; Linda M. Valentine, Lead Auditor; Jordan D. Bunte, Auditor; and Tracy L. Winfield,
Auditor.

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Validity and Reliability of Data From Computer-Based Systems
We performed tests to assess the reliability of data from the IRS’s IRTF, the IRMF, the Individual
Master File (IMF),1 the National Account Profile, 2 and the Modernized Tax Return Database3 that
were available on TIGTA’s Data Center Warehouse. 4 We evaluated the data by performing
electronic testing of required data elements and reviewing existing information about the data.
In addition, we selected data from each extract and verified that the data in the extracts were
the same as the data captured in the IRS’s Integrated Data Retrieval System.5 We determined
that the data were sufficiently reliable for purposes of this report.

Internal Controls Methodology
Internal controls relate to management’s plans, methods, and procedures used to meet their
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance. We determined that the
following internal controls were relevant to our audit objective: the IRS’s error codes and fraud
filters to identify potentially fraudulent international tax returns. We evaluated these controls by
the reviewing the Internal Revenue Manual, meeting with IRS management and subject matter
experts, and reviewing relevant documentation provided by the IRS.

1
The IRS database that maintains transactions or records of individual tax accounts.
2
IRS database that is a compilation of selected entity data from various IRS Master Files that also includes data from
the Social Security Administration.
3
The official repository of all electronic returns processed through the Modernized e-File system.
4
A TIGTA repository of IRS data.
5
IRS computer system capable of retrieving or updating stored information. It works in conjunction with a taxpayer’s
account records.
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Appendix II
Outcome Measures
This appendix presents detailed information on the measurable impact that our recommended
corrective actions will have on tax administration. These benefits will be incorporated into our
Semiannual Report to Congress.

Type and Value of Outcome Measure:
• Revenue Protection – Potential; $17,786,343 in refunds claimed on 6,731 tax returns
without a *******2******* the IRS ***********************2************************* on
international returns (see Recommendations 1 and 2).

Methodology Used to Measure the Reported Benefit:
From the IRTF, we identified 873,009 Tax Year 2018 international tax returns (Forms 1040NR,
1040NR-EZ, 1040-PR, and 1040-SS) filed during Processing Year 2019, as of December 12, 2019.
We matched these tax returns to the IRMF to obtain ******2****** for the primary taxpayer and
spouse for Tax Year 2018. If a *******2******* was present, we excluded these returns from our
analysis and did not ensure that the ******2****** fully supported the *************2**************
reported by the taxpayer on their return. If a ******2****** was not present, we considered the
tax return as an exception, as the IRS had ****************************2****************************
reported by the taxpayer on their return. We then limited our population to tax returns that
********2********, which effectively excluded Forms 1040-PR and 1040-SS, as these returns report
*****************2*****************. We identified 31,993 Forms 1040NR/NR-EZ for which ***2***
***************************2**************************. We limited our results to taxpayers who
claimed a refund when they filed their tax return. Our analysis identified 6,731 tax returns
***********2*********that claimed refunds totaling $17,786,343.

Type and Value of Outcome Measure:
• Cost Savings (Funds Put to Better Use) – Potential; $2,366,596 paid in the ACTC on
1,368 tax returns because the IRS does not have processes in place to verify ******2******
****************************2**************************** on Forms 1040-PR or 1040-SS
(see Recommendations 3 and 4).

Methodology Used to Measure the Reported Benefit:
From the IRTF for Processing Year 2019, we identified all Forms 1040-PR or 1040-SS that claimed
the ACTC for Tax Year 2018. We matched these returns to the IMF, Tax Module Table, for Tax
Year 2018, to identify the tax returns that posted, with a Transaction Code (TC)1 150. Using the
IRMF, we obtained the ******2****** for the primary taxpayer and spouse for Tax Year 2018. We
identified the taxpayers with one ******2****** and those with ********2******** present. For the
taxpayers with more than ********2********, we determined if ******************2****************
**********************2**********************. We kept the ******************2****************in

1
A three-digit code used to identify actions being taken on a taxpayer’s account.
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our population for the taxpayers with ***************************2*************************. If we
could not reasonably determine *************2************** to keep for the taxpayers, we
allowed the taxpayer credit for the ******2***** with the largest *********2********** amounts.
We computed the total *********************************2*********************************** and
then summed these amounts per return.
We matched these returns to the IMF Other Transaction Table for Tax Year 2018 to obtain the
tax returns with a TC 766 or 767 with a Credit Reference Number2 336 for the returns that
received the ACTC, including reversals. We calculated the difference between the total ***2***
****************************2************************** to the total **************2***************
*************2*************** Forms 1040-PR/SS ******2***** and identified those with a
difference greater than $100. We found 1,368 tax returns received $2,366,596 in potentially
erroneous ACTC, as the ******2***** reported on the tax return were not supported.

Type and Value of Outcome Measure:
• Cost Savings (Funds Put to Better Use) – Potential; $6,464 in the ACTC paid on five tax
returns because of IRS employee errors in verifying these returns during processing
(see page 10).

Methodology Used to Measure the Reported Benefit:
From the IRTF, we identified 873,009 Tax Year 2018 international tax returns (Forms 1040NR,
1040-PR, and 1040-SS) filed during Processing Year 2019, as of December 12, 2019. We
matched these returns to the IMF Tax Module Table and identified 40,456 that posted. We
limited our population to the 906 that filed a Form 1040NR. We matched the 906 returns to the
IMF to obtain the population that had the ACTC, TC 766, and Credit Reference Number 336
posted to the tax account. We identified 753 Forms 1040NR that had the ACTC credit posted to
the tax account. From this population, we identified one taxpayer had an Internal Revenue
Service Number 3 and four taxpayers had a TIN that was issued after the due date of the return.
These five taxpayers received $6,464 in the ACTC.

Type and Value of Outcome Measure:
• Cost Savings (Funds Put to Better Use) – Potential; $61,855 in the ACTC paid on 48 tax
returns because the IRS does *************2*************** to identify international returns
claiming the ACTC by taxpayers who ********************2********************** that
qualifies (see Recommendations 6 and 8).

Methodology Used to Measure the Reported Benefit:
From the IRTF, we identified 873,009 Tax Year 2018 international tax returns (Forms 1040NR,
1040-PR, and 1040-SS) filed during Processing Year 2019, as of December 12, 2019. We
matched these returns to the IMF Tax Module Table and identified 40,456 that posted to the
Master File. We limited our population to the 906 returns that filed a Form 1040NR. We
matched the 906 returns to the IMF to obtain the population that had the ACTC, TC 766, and
Credit Reference Number 336 posted to the tax account. From this population, we identified

2
A three-digit code that refers to a specific credit on each tax return.
3
A number assigned by the IRS that is used in place of a required TIN during processing.
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48 taxpayers whose *********2********** the tax return ********************2**********************
********************2**********************. These 48 taxpayers received $61,855 in the ACTC.

Type and Value of Outcome Measure:
• Cost Savings (Funds Put to Better Use) – Potential; $102,582 in the ACTC paid on
**1** tax returns because the IRS does not have processes in place to ensure that tax
examiners take appropriate actions when verifying the number of qualifying children
(see Recommendations 7 and 8).

Methodology Used to Measure the Reported Benefit:
From the IRTF, we identified 873,009 Tax Year 2018 international tax returns (Forms 1040NR,
1040-PR, and 1040-SS) filed during Processing Year 2019, as of December 12, 2019. We limited
our population to 39,824 Forms 1040-PR or 1040-SS returns that claimed the ACTC. We
matched these returns to the IMF Tax Module Table and identified 39,532 that posted. We
identified 409 returns that *************2************* qualifying children. Qualifying children
must have a valid Social Security Number that was issued before the due date of the return,
including extensions. We matched these returns to the IMF Other Tax Module Transaction Table
to identify tax accounts that had a TC 766 Action Code 336 on the tax account. We identified *1*
tax returns that received $101,133 in the ACTC.
In addition, from the population of 873,009, we identified 906 Forms 1040NR that posted to the
IMF and claimed the ACTC. We matched these returns to the IMF Other Tax Module Transaction
Table and identified 753 tax returns that had a TC 766 and Credit Reference Number 336,
indicating they received the ACTC. From this population, we identified ***********1***********
**************************************************1***********************************************.
o ***********1***********.
o ***************1********** in the ACTC received..

Management’s Response: IRS management disagreed with the outcome measure,
stating that in their review of *1* of the *1* returns, management found on *1* returns
that the qualifying dependent was not visible in the file that TIGTA used for assuming an
error in processing. Those *1* returns account for $40,984 in properly allowed ACTC.

Office of Audit Comment: Management’s review indicated that data were not
available to TIGTA because tax examiners did not take appropriate actions when
verifying the number of qualifying children. While management states that *1* of
the *1* returns they reviewed properly received $40,984 in the ACTC,
management did not provide TIGTA with any documentation to support this. In
addition, the IRS subsequently reviewed the remaining *1* returns and agreed
with the data TIGTA used but indicated it could not confirm whether the
taxpayers were not eligible for the ACTC without reviewing the paper returns.

Type and Value of Outcome Measure:
• Cost Savings (Funds Put to Better Use) – Potential; $33,151,406 paid in refundable AOTC
on 36,373 tax returns because the IRS does not have filters in place to identify

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nonresidents *********2********** claim the AOTC that they are not entitled to receive
(see Recommendations 12 and 13).

Methodology Used to Measure the Reported Benefit:
From the IRTF for Processing Year 2019, we identified *****2****** filed for Tax Year 2018
claiming refundable AOTC. From the IMF Other Transaction Table for Tax Year 2018, we
obtained tax returns with a TC 766 and/or TC 767 with a Credit Reference Number 260, for those
who received refundable AOTC, including reversals. We matched these returns to the National
Account Profile to obtain citizenship codes. We filtered for those with a citizenship code of ‘B,’
which indicates a legal alien eligible to work in the United States. We matched these returns to
the IRMF to obtain *****2****** for the taxpayers. We filtered for returns without *******2*******
*****2*****, as this would indicate they were a nonresident. We limited our analysis to tax
returns with *****2***** and a *****2***** because we could not determine if **********2*********
*********2********** if there was no *****2*****. We found 36,373 potential nonresidents who
filed a Form 1040 and received $33,151,406 in refundable AOTC to which they were not entitled.

Management’s Response: IRS management disagreed with the outcome measure,
stating that numerous factors contribute to whether an individual is considered a
nonresident or resident alien for tax purposes. Additionally, there are several reasons
that a resident alien *************************2*************************. Legal resident
aliens from countries that entered into ************************2************************
************2************, with the United States for the purposes of avoiding double
taxation of income with respect to ***********2***********, could avoid paying *****2*****
*****2***** by providing a ************2************ from their home country to their
employer in the United States. A return with no ***************2*************** is not
indicative of nonresident alien status, this criterion alone is not determinative to confirm
that these taxpayers should be classified as nonresident aliens. Based on a review of a
sample of these returns, some taxpayers appear to be students and all the taxpayers had
a Social Security Number with a Citizenship Code associated with a Legal Alien –
Authorized to Work. TIGTA's methodology uses the taxpayer's National Account Profile
citizenship code and whether their ************************2************************.

Office of Audit Comment: As footnoted in our report, we acknowledge that
there are exceptions in which a valid foreign person would be considered a
resident and not subject to the tax. However, we are unable to identify
individuals with these exceptions with the available tax return data, nor has the
IRS provided us with such data.

Type and Value of Outcome Measure:
• Cost Savings (Funds Put to Better Use) – Potential; $50,600,852 in refundable credits paid
on 13,924 tax returns because the IRS ***********2************ identify international
taxpayers ***********2************ (see Recommendations 14 and 15).

Methodology Used to Measure the Reported Benefit:
From the IRS’s Compliance Data Warehouse, ******2***** data, we used the tax jurisdiction code
and identified 1,381,143 Tax Year 2018 ***************2**************** located in a U.S. territory.
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There are five U.S. territories: American Samoa, the CNMI, Guam, Puerto Rico, and the USVI. We
matched the employee TINs ***********2*********** the Processing Year 2019 IRTF and identified
71,943 tax returns filed by these employee TINs. We matched these returns to the IMF Tax
Module Table and identified 71,382 posted tax returns. We removed 38,731 tax returns that did
not claim any refundable credits. The remaining 32,651 tax returns claimed refundable credits.
We matched these returns to the Tax Year 2018 IMF Other Tax Module Transaction and
identified 32,303 tax returns that had at least one refundable transaction code: TC 766 Credit
Reference Number 260, TC766 Credit Reference Number 336, or TC768, or any reversal
transaction codes: TC 767 Credit Reference Number 260, TC767 Credit Reference Number 336,
or TC 765. We limited our analysis to returns that had only territory ****2**** and no U.S.
****2**** and returns in which the ****2**** from territory ***************2****************
**************************2*************************. We limited our results to returns with credits
exceeding $250. The net amount of refundable credits received for these 13,924 returns was
$50,600,852.

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Appendix III
Tax Year 2018 Form W-2 and Form 499R-2/W-2PR
Tax Year 2018 Form W-2

Source: The IRS.
Tax Year 2018 Form 499R-2/W-2PR

Source: Hacienda.Gobierno.pr.

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Appendix IV
U.S. Territories Filing Requirements
Bona Fide Bona Fide Not Bona Fide Not Bona Fide
Territory Resident Territory Resident Territory Resident Territory Resident
U.S. Territory and and not a and and not a
U.S. Citizen or U.S. Citizen or U.S. Citizen or U.S. Citizen or
Resident Alien Resident Alien Resident Alien Resident Alien
An American Samoa An American Samoa tax An American Samoa An American Samoa tax
tax return reporting return reporting worldwide tax return reporting return reporting only your
your gross income income. only your income from income from sources within
from worldwide sources within American Samoa. In this
sources. If you report American Samoa. situation, wages for services
non-American Samoa Wages for services performed in American
source income on your performed in American Samoa, whether for a
American Samoa tax Samoa, whether for a private employer, the U.S.
return, you can claim a private employer, the Government, or otherwise,
credit against your U.S. Government, or is income from sources
American Samoa tax otherwise, is income within American Samoa.
liability for income from sources within
taxes paid on that American Samoa.
income to the United
States, a foreign
country, or another
American possession.
Samoa A U.S. tax return A U.S. tax return A U.S. tax return A U.S. tax return
reporting income from (Form 1040 or 1040-SR, U.S. reporting your income (Form 1040NR), reporting
worldwide sources, but Tax Return for Seniors) from worldwide U.S. source income
excluding income from reporting income from sources. You can take according to the rules for a
sources within worldwide sources, but a credit against your nonresident.
American Samoa by excluding American Samoa U.S. tax liability if you
attaching Form 4563, source income, by attaching paid income taxes to
Exclusion of Income Form 4563, other than American Samoa (or
for Bona Fide amounts for services other possession or
Residents of American performed as an employee foreign country) and
Samoa. However, of the United States or any reported income from
amounts received for of its agencies. those sources on your
services performed as U.S. tax return.
an employee of the
United States or any of
its agencies cannot be
excluded.

File your income tax return with the CNMI. Include You are not liable for A CNMI tax return
income from worldwide sources on your CNMI return. filing an income tax reporting only your income
In determining your total tax payments, include all return with, or for from sources within the
income tax withheld by either the CNMI or the United paying tax to, the CNMI. In this situation,
Commonwealth
States, any credit for an overpayment of income tax CNMI for the tax year. wages for services
of Northern
to either the CNMI or the United States, and any performed in the CNMI,
Mariana Islands
payments of estimated tax to either the CNMI or the whether for a private
(CNMI) United States. Pay any balance of tax due with your employer, the U.S.
tax return. Government, or otherwise,
is income from sources
within the CNMI.

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Generally, if you properly file your return with, and File your income tax A U.S. tax return
fully pay your income tax to, the CNMI, then you are return with the United (Form 1040NR) reporting
not liable for filing an income tax return with, or for States. Include income U.S. source income
paying tax to, the United States for the tax year. from worldwide according to the rules for a
sources on your U.S. nonresident.
return. In determining
your total tax
payments, include all
income tax withheld
and paid to either the
United States or the
CNMI, any credit for an
overpayment of
income tax to either
the United States or
the CNMI, and any
payments of estimated
tax to either the United
States or the CNMI.

File your return with Guam. Include income from You are not liable for A Guam tax return
worldwide sources on your Guam return. In filing an income tax reporting only your income
determining your total tax payments, include all return with, or for from sources within Guam.
income tax withheld and paid to either Guam or the paying tax to, Guam In this situation, wages for
United States, any credit for an overpayment of for the tax year. services performed in
income tax to either Guam or the United States, and Guam, whether for a private
any payments of estimated tax to either Guam or the employer, the U.S.
United States. Pay any balance of tax due with your Government, or otherwise,
tax return. is income from sources
within Guam.

Generally, if you properly file your return with, and File your income tax A U.S. tax return
fully pay your income tax to, Guam, then you are not return with the United (Form 1040NR) reporting
liable for filing an income tax return with, or for States. Include income U.S. source income
paying tax to, the United States. from worldwide according to the rules for a
Guam sources on your U.S. nonresident.
return. In determining
your total tax
payments, include all
income tax withheld by
either the United
States or Guam, any
credit for an
overpayment of
income tax to either
the United States or
Guam, and any
payments of estimated
tax to either the United
States or Guam.

A Puerto Rico tax A Puerto Rico tax return A Puerto Rico tax A Puerto Rico tax return
return reporting reporting income from return reporting only reporting only your income
income from worldwide sources. If you your income from from Puerto Rico sources.
worldwide sources. If report U.S. source income Puerto Rico sources. Wages for services
you report U.S. source on your Puerto Rico tax Wages for services performed in Puerto Rico,
Puerto Rico
income on your Puerto return, you can claim a performed in Puerto whether for a private
Rico tax return, you credit against your Puerto Rico, whether for a employer, the U.S.
can claim a credit Rico tax, up to the amount private employer, the Government, or otherwise,
against your Puerto allowable, for income taxes U.S. Government, or is income from Puerto Rico
Rico tax, up to the paid to the United States. otherwise, is income sources.

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amount allowable, for from Puerto Rico
income taxes paid to sources.
the United States.

A U.S. tax return A U.S. tax return A U.S. tax return A U.S. tax return
reporting income from (Form 1040NR) reporting reporting income from (Form 1040NR) according
worldwide sources, but income from worldwide worldwide sources. to the rules for a
excluding Puerto Rico sources, but excluding Generally, you can nonresident.
source income. Puerto Rico source income claim a foreign tax
(other than amounts for credit for income taxes
services performed as an paid to Puerto Rico on
employee of the United the Puerto Rico income
States or any of its that is subject to
agencies). For tax purposes Puerto Rico taxes and
other than reporting not exempt from U.S.
income, however, you will taxes.
be treated as a nonresident
individual. For example,
you are not allowed the
standard deduction, you
cannot file a joint return,
and you are not allowed a
deduction for a dependent
unless that person is a
citizen or national of the
United States. There are
also limitations on what
deductions and credits are
allowed.

File your tax return with the USVI. Include your File your original A USVI tax return reporting
worldwide income on your USVI return. In Form 1040 or 1040-SR only your income from
determining your total tax payments, take into with the United States sources within the USVI. In
account all income tax withheld and paid to either the and an identical copy this situation, wages for
USVI or the United States, any credit for an of that return with the services performed in the
overpayment of income tax to either the USVI or the USVI if you have: USVI, whether for a private
United States, and any payments of estimated tax to employer, the U.S.
Income from sources in
either the USVI or the United States. Pay any balance Government, or otherwise,
the USVI, or
U.S. Virgin of tax due with your tax return. is income from sources
Islands (USVI) Income effectively within the USVI.
connected with the
You generally do not have to file with the United A U.S. tax return
conduct of a trade or
States for any tax year in which you are a bona fide (Form 1040NR) reporting
business in the USVI.
resident of the USVI during the tax year, provided you U.S. source income
report and pay tax on your income from all sources to according to the rules for a
the USVI and identify the source(s) of the income on nonresident.
the return. However, if you have self-employment
income, you may be required to file Form 1040-SS
with the United States.

Source: TIGTA’s review of Publication 570, Tax Guide for Individuals With Income From U.S. Possessions.

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Appendix V
Alien Classifications
For U.S. income tax purposes, an individual who is not a U.S. citizen is referred to as an alien.
Aliens can be classified as either a resident, nonresident, or dual-status alien. Figure 1 shows
how the classification of an alien determines how the alien is taxed, their eligibility for
refundable credits, and what tax return the alien may be required to file.
Figure 1: Alien Classifications
Alien Taxed Eligibility for
Tax Return
Classification and Description On Refundable Credits
Resident – Form 1040. Worldwide Resident aliens are
Individuals are generally resident aliens if they are a income. allowed the EITC, the
lawful permanent resident of the United States at AOTC, and the ACTC,
any time during the tax year, known as the “green if they meet the same
card” test, or meets the substantial presence test. requirements for the
credits as U.S. citizens.

Nonresident - Form 1040NR, Income from Nonresidents are
Individuals who do not meet the definition of a Form 1040NR-EZ, sources within generally not allowed
resident alien are nonresidents. Married individuals Form 1040-PR, or the United the EITC or the AOTC.
may choose to treat a nonresident spouse as a Form 1040-SS. States and on
resident alien for the entire tax year. Nonresidents certain Only nonresidents
who are bona fide residents of American Samoa or income who are U.S.
Puerto Rico for the entire tax year are generally connected nationals, 1 or
taxed as resident aliens for income purposes and with a trade residents of Canada,
should file a Form 1040 but are allowed to exclude or business in Mexico, South Korea,
from gross income all income from sources in the United or India, in limited
American Samoa and Puerto Rico. Individuals are States. circumstances, qualify
not allowed the standard deduction, to file a joint for the ACTC.
return, or claim a dependent unless that person is a
U.S. citizen or U.S. national.

Dual Status – Dependent on Dependent on Dependent on
the residency residency residency status at the
A dual-status alien usually occurs in the tax year the
status at the end status at the end of the tax year.
individual arrives or departs from the United States.
of the tax year. end of the tax
Married individuals may choose to be treated as a
year.
resident alien if: they were a nonresident at the
beginning of the tax year; they were a resident alien
at the end of the tax year; they are married to a U.S.
citizen or resident alien at the end of the tax year;
and the individual’s spouse joins in making the
choice. This choice is made by attaching a
statement to the joint return in the year the choice is
made.

Source: TIGTA’s review of Publication 519, U.S. Tax Guide for Aliens.

1
A U.S. national is an individual who, although not a U.S. citizen, owes his or her allegiance to the United States. U.S.
nationals include American Samoans and Northern Mariana Islanders who chose to become U.S. nationals instead of
U.S. citizens.
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Green Card Test and Substantial Presence Test
Individuals are considered to be a resident alien if they are approved, according to the
immigration laws, to reside permanently in the United States as an immigrant. An individual
generally has this status if the U.S. Citizenship and Immigration Services issued them an alien
registration card, Form I-551, also known as a "green card."
Individuals who have not been issued a green card but who are physically present in the United
States for a specified number of days are also generally considered to be a resident alien.
Individuals who are physically present in the United States at least 31 days during the tax year
and 183 days during the past three tax years 2 are generally considered to be a resident alien.
However, there are some exceptions to this rule.

Exception for individuals with medical conditions or specific visas issued by the
U.S. Citizenship and Immigration Services
Individuals who are unable to leave the United States because of a medical condition or medical
problem can exclude the days they had to remain in the United States when determining
substantial presence. In addition, individuals in the following categories are considered an
exempt individual for the purpose of determining substantial presence:
• An individual temporarily present in the United States as a foreign government-related
individual under an “A” or “G” visa, other than individuals holding “A-3” or “G-5” class
visas.
• A teacher or trainee temporarily present in the United States under a "J" or "Q" visa, who
substantially complies with the requirements of the visa.
• A student temporarily present in the United States under an "F," "J," "M," or "Q" visa, who
substantially complies with the requirements of the visa.
• A professional athlete temporarily in the United States to compete in a charitable sports
event.
Exempt individuals and individuals with a medical condition are instructed to not count the days
they were to exclude when determining the number of days they were physically present in the
United States. Individuals who exclude days they were present in the United States for purposes
of the substantial presence test must include Form 8843, Statement for Exempt Individuals and
Individuals With a Medical Condition, with their income tax return. Individuals who do not have
to file an income tax return are instructed to send Form 8843 to the address indicated in the
Form 8843 instructions by the due date for filing an income tax return. Individuals who do not
timely file Form 8843 cannot exclude the days they were present in the United States as a
professional athlete or because of a medical reason. 3

2
For Tax Year 2018, this would include Tax Years 2016, 2017, and 2018. The 183 days includes all days the individual
was present in Tax Year 2018, one third of the days they were present in Tax Year 2017, and one sixth of the days they
were present in Tax Year 2016.
3
This does not apply if you can show, by clear and convincing evidence, that you took reasonable actions to become
aware of the filing requirements and significant steps to comply with those requirements.
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Closer connection exception
Individuals who met the substantial presence test can still be treated as a nonresident if they are
considered to have a closer connection to a foreign country. Individuals will be considered to
have a closer connection to a foreign country than to the United States if they have maintained
more significant contacts with the foreign country than with the United States. All foreign
individuals who met the substantial presence test can still be treated as a nonresident if they
meet all of the following:
• Were present in the United States less than 183 days during the year.
• Have a closer connection during the year to one foreign country in which they have a tax
home than to the United States (unless they have a closer connection to two foreign
countries).4
• Maintained a tax home in that foreign country during the entire year.
• Have not taken steps toward, and did not have an application pending for, lawful
permanent resident status (green card).
There are additional exception criteria for foreign students who are unable to meet the prior
criteria. A foreign student can be treated as a nonresident if the student meets all of the
following:
• Does not intend to reside permanently in the United States.
• Has substantially complied with the immigration laws and requirements relating to their
student non-immigrant status.
• Has not taken any steps to change their non-immigrant status in the United States
toward becoming a permanent resident of the United States.
• Has a closer connection to a foreign country than to the United States.

4
Individuals who claim a closer connection to two foreign countries must meet additional requirements to be treated
as a nonresident alien.
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Appendix VI
Management’s Response to the Draft Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
ATLANTA, GA 30308

COMMISSIONER
WAGE AND INVESTMENT DIVISION

July 29, 2021

MEMORANDUM FOR MICHAEL E. MCKENNEY
DEPUTY INSPECTOR GENERAL FOR AUDIT

FROM: Kenneth C. Corbin /s/ Kenneth C. Corbin
Commissioner, Wage and Investment Division

SUBJECT: Draft Audit Report - Improvements Are Needed to Identify
Potentially Fraudulent Individual International Tax Returns During
Processing (Audit # 202040001)

Thank you for the opportunity to review and comment on the subject draft audit report.
We appreciate you calling attention to this potential area of identity theft in individual
international tax returns. We recognize there is more work yet to be done in this area
and are committed to protecting U.S. taxpayers by proactively detecting potentially
fraudulent refund claims and preventing their payment. We will continue to evaluate and
refine our processes, protect revenue and collaborate with partners and stakeholders
proactively to improve prevention and detection of identity theft (IDT) tax refund fraud.

As referenced in the ************2***********, the Return Review Program (RRP) previously
identified and selected ************************2**************************************************
**************************************************2**************************************************
**************************************************2**************************************************
**************************************************2**************************************************
**************2**************, as part of the **************2************** when the ******2******
********2******** reported on the return was not supported by third-party income
documents. However, based on an analysis performed in *****2*****, we determined
these selections were not productive due to ************2*********** for these types
of returns, *************************************2**************************************************
*****2****, not being loaded into the Information Returns Masterfile (IRMF) with the
correct fields. The ************2*********** is formatted differently from the *********2********,
************2***********, which is the record layout used in the IRMF for this type of
document.

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The RRP identified and ***********************2**************************************************
**************************************************2*******************, but these filings were
**************************************************2**************************************************
**************2************. As a result, *************2************* process used with the
RRP non-IDT filter selections ************2************** was selecting individual
international returns *****2*****. Therefore, these ********************2************************
**************2************ during the return integrity screening processes. We did make
selections using the Dependent Database for Forms 1040-SS and 1040-PR with
questionable Additional Child Tax Credit (ACTC), and they were treated through our
non-compliance treatment stream in the Automated Questionable Credit (AQC)
program.

We will re-examine the population of Forms 1040-PR and 1040-SS, filed by bona fide
residents of Puerto Rico claiming the CTC, and Forms 1040-NR filed by non-residents
claiming refunds based on ********************2********************. Based on the results of
the study, we will update Non-IDT filters/rules as appropriate for potential Non-IDT
selections in 2022, within our resource capacity. Forms 1040-NR claiming *******2********
**************************************************2**************************************************
***********2**************, are verified by separate processes outside return integrity
screening.

We will also study the feasibility of sampling individual international tax returns, where
the ACTC is claimed and the taxpayer **************************2*****************************
**************************************************2**************, or ***************2***************
to receive refundable credits. This will include returns filed by nonresident aliens
claiming the American Opportunity Tax Credit. We will take appropriate actions based
on the results of the study within our resource capacity. Additionally, we will also review
the individual international returns the Treasury Inspector General for Tax Adminis-
tration (TIGTA) identified as potentially receiving erroneous refunds and/or refundable
credits to which they were not entitled, and will take appropriate actions within our
resource capacity and assessment statute of limitations constraints.

Based on the TIGTA’s findings where the IRS potentially issued refunds of *******2********
****2***** on fraudulent international returns, we **********************2**********************
******************2******************** in 2021. This will ensure individual international
returns with questionable ***********2************ are selected for further review, protecting
revenue. Additionally, for our Large Business and International Campaign 895, U.S.
Territories Erroneous Refundable Credits, we improved our risk assessment model to
include ******************2********************, and refined one Campaign 895 filter to
eliminate the requirement of the *******************2*******************. We began testing
these enhancements with tax year 2019 data and will include them in the examination
process for tax year 2020 returns. These selections would be post refund. Any
modifications to existing filter models in a campaign must be tested and approved by the
campaign team and Risk Identification Control Board.

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We appreciate the identification of opportunities for improving identity theft detection and
prevention processes for individual international tax returns. We continue to improve our
detection of individual identity theft and our abilities to prevent issuance of fraudulent
refunds.

We generally agree with the reported outcome measures, with the following exceptions:

• -Recommendation 5 – On January 4, 2021, we reviewed the 133 international
returns identified by the TIGTA where the IRS potentially issued fraudulent
refunds *************2**************. None of the payments were lost, so there are
no refunds to recover.

• -Recommendation 8 – We accept the $6,464 in erroneous payment of the ACTC
in five returns and *********1*********. We do not agree with the assumption of
improper payments totaling $101,133 in ACTC. In our review of *1* of the *1*
returns, we found on *1* returns that the qualifying dependent was not visible in
the file the TIGTA used for assuming an error in processing. Those *1* returns
account for $40,984 in properly allowed ACTC.

• -Recommendation 9 – We disagree with this outcome measure. Review of the
************************************1*****************************************
************************************1*****************************************
************************************1*****************************************
************************************1*****************************************
*************************1**********.

• -Recommendation 12 – We disagree with this outcome measure. Numerous
factors contribute to whether an individual is considered a nonresident or resident
alien for tax purposes. Additionally, there are several reasons that a resident
alien **************************2*******************************. Legal resident aliens
from countries entered into **************************2*******************************
************2*************, with the U.S. for the purpose of avoiding double
taxation of income with respect to *********2**********, could avoid paying U.S.
*********2********** by providing a ***********2************ from their home country
to their employer in the U.S. A return with no *************2************** is not
indicative of nonresident alien status, this criterion alone is not determinative to
confirm that these taxpayers should be classified as nonresident aliens. Based
on a review of a sample of these returns, some taxpayers appear to be students
and all the taxpayers had an SSN with a Citizenship Code associated with a
Legal Alien – Authorized to Work. The income reporting documents were also
reviewed and showed that the taxpayers were paid by domestic companies with
addresses in the U.S. For the returns reviewed, there were no indications that
*********2********** had been filed. The complexity of this issue is beyond the
scope of the AQC program. An examination of the taxpayer is required to

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Improvements Are Needed to Identify Potentially Fraudulent
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determine whether an international filer has *********2**********.

• -Recommendation 15 – We partially disagree with this outcome measure. We
agree with the measure when related to refundable credits excluding American
Opportunity Tax Credit (AOTC) only claims. The proposed methodology is not
reliable because, for example, both resident alien and nonresident alien students
working part time for their college are *********************2*********************.
For AOTC only claims, numerous factors contribute to whether an individual is
considered a nonresident or resident alien for tax purposes. The TIGTA's
methodology uses the taxpayer's National Account Profile citizenship code and
whether *****************************2***************************. A student working
part time at their college institution ***********************2*************************.
An alien (not a U.S. citizen) is considered a nonresident alien unless they meet
one of two tests, the Green Card test or Substantial Presence Test. Also, even if
they do not meet either of these tests, they may be able to choose to be treated
as a U.S. resident for part of the year. Without conducting an examination or
studying this population, the IRS is unable to determine the alien classification.
Lastly, this outcome measure does not consider resource constraints, workplan
considerations, or fairness in case selection.

Attached is a detailed response with our planned corrective actions to your
recommendations. If you have any questions, please contact me, or a member of your
staff may contact Michael Beebe, Director, Return Integrity and Compliance Services,
Wage and Investment Division, at 470-639-3250.

Attachment

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Attachment

Recommendations

The Commissioner, Wage and Investment Division, should:

RECOMMENDATION 1
Develop pre-refund processes to identify and address Form 1040NR refund claims
where the *********2********** reported on the return is not supported *********2**********
*********2**********.

CORRECTIVE ACTION
We will study this population during 2021 and, based on the results of the study, will
make appropriate changes to the Return Review Program (RRP) Non-Identity Theft
(Non-IDT) filters/rules as appropriate for potential Non-IDT selections in 2022.

IMPLEMENTATION DATE
February 15, 2022

RESPONSIBLE OFFICIAL
Director, Return Integrity Verification Program Management, Return Integrity and
Compliance Services, Wage and Investment Division

RECOMMENDATION 2
Review the 6,731 Forms 1040NR refunds we identified in which *********2**********
*********2********** reported on the tax return was not supported **********2**********
*********2******** and take actions to recover erroneous refunds.

CORRECTIVE ACTION
We will review the 6,731 Forms 1040NR, U.S. Nonresident Alien Income Tax Return,
identified by the Treasury Inspector General for Tax Administration (TIGTA), where the
*********2********** reported on the return *********************2*********************
*********2********, and will take appropriate actions on a sample of these returns based on
resource availability.

IMPLEMENTATION DATE
October 15, 2022

RESPONSIBLE OFFICIAL
Director, Return Integrity Verification Program Management, Return Integrity and
Compliance Services, Wage and Investment Division

RECOMMENDATION 3
Develop at-filing processes to identify and address ACTC claims on Forms 1040-PR
and 1040-SS where the *********2******** reported on the tax return *********2******** Form
*********2********.

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CORRECTIVE ACTION
We will study this population during 2021 and update the RRP Non-IDT filters/rules, as
appropriate, for potential selections in 2022.

IMPLEMENTATION DATE
February 15, 2022

RESPONSIBLE OFFICIAL
Director, Return Integrity Verification Program Management, Return Integrity and
Compliance Services, Wage and Investment Division

RECOMMENDATION 4
Review the 1,368 Forms 1040-PR and 1040-SS we identified where the *********2********
reported on the tax return for the purpose of claiming the ACTC is not *********2********
*********************2********************* and take actions to recover erroneous credits.

CORRECTIVE ACTION
We will review the 1,368 *********************2**************************************************
**************************************************2**************************************************
**************************************************2**************************************************
**************************************************2**************************************************
**************2*************, identified by the TIGTA, where the *********2********
*******2******** reported on the tax return for the purpose of claiming the Additional Child
Tax Credit (ACTC) was *********************2**************************, and will take
appropriate actions on a sample of these returns pursuant to resource availability.

IMPLEMENTATION DATE
October 15, 2022

RESPONSIBLE OFFICIAL
Director, Return Integrity Verification Program Management, Return Integrity and
Compliance Services, Wage and Investment Division

Recommendation

RECOMMENDATION 5
The Commissioner, Wage and Investment Division, should review the 133 international
returns we identified for which the IRS issued a potentially fraudulent refund of
*************2************ and take actions to recover the fraudulent refunds and ensure
that the fraudulently refunded *********2******** are properly credited to the true
taxpayer’s tax liability.

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CORRECTIVE ACTION
On January 4, 2021, we reviewed the 133 international returns identified by the TIGTA
where the IRS potentially issued fraudulent refunds of ************2************. None of
the payments were lost, so there are no refunds to recover.

IMPLEMENTATION DATE
Implemented

RESPONSIBLE OFFICIAL
Director, Return Integrity Verification Program Management, Return Integrity and
Compliance Services, Wage and Investment Division

Recommendations

The Commissioner, Wage and Investment Division, should:

RECOMMENDATION 6
Develop pre-refund processes to systemically identify and address potentially erroneous
ACTC claimed on international refund tax returns *********2******** on the return ****2****
********************************2***************************.

CORRECTIVE ACTION
We will study the feasibility of sampling this work and will take appropriate actions
based on the result of the study and available resources.

IMPLEMENTATION DATE
February 15, 2022

RESPONSIBLE OFFICIAL
Director, Return Integrity Verification Program Management, Return Integrity and
Compliance Services, Wage and Investment Division

RECOMMENDATION 7
Ensure that Error Resolution tax examiners are aware of the proper procedures for
resolving ACTC claims on international tax returns where the taxpayer’s TIN or
spouse’s TIN was not issued prior to the due date of the tax return and where the
taxpayer does not meet the qualifying child requirements.

CORRECTIVE ACTION
We will provide training for returning and new tax examiners in the Error Resolution
function to emphasize this aspect of processing the ACTC.

IMPLEMENTATION DATE
April 15, 2022

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RESPONSIBLE OFFICIAL
Director, Submission Processing, Customer Account Services, Wage and Investment
Division

RECOMMENDATION 8
Review the 99 questionable returns that received ACTC that TIGTA identified and take
actions to recover any erroneous ACTC received.

CORRECTIVE ACTION
We acknowledge erroneous processing in seven returns and will take steps to have the
improperly allowed ACTC corrected. We are reviewing the returns in question to
determine whether the ACTC was properly allowed and take steps, when possible
within the constraints of the assessment statute of limitations date, to have any
improperly allowed ACTC corrected.

IMPLEMENTATION DATE
October 15, 2022

RESPONSIBLE OFFICIAL
Director, Submission Processing, Customer Account Services, Wage and Investment
Division

Recommendation

RECOMMENDATION 9
The Commissioner, Wage and Investment Division, should review the **********1**********
**************************************************1**************************************************
**************************************************1***************************.

CORRECTIVE ACTION
**************************************************1**************************************************
**************************************************1**************************************************
**************************************************1**************************************************
************************1***************************.

IMPLEMENTATION DATE
Implemented

RESPONSIBLE OFFICIAL
Director, Return Integrity Verification Program Management, Return Integrity and
Compliance Services, Wage and Investment Division

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Recommendations

The Commissioner, Wage and Investment Division, should:

RECOMMENDATION 10
Require international taxpayers reporting *************2************** to provide
supporting documentation with their tax return, *****************2************************
*********2******** that the taxpayer *********************2************************.

CORRECTIVE ACTION
The documents are not necessary for satisfying the Beard test for a valid return, and the
IRS does not have the statutory authority to require those documents for inspection
outside of deficiency procedures (an audit of the return), which is not a viable treatment
for use during return processing. Further, ***2*** does not conclusively establish
******2******.

IMPLEMENTATION DATE
N/A

RESPONSIBLE OFFICIAL
N/A

RECOMMENDATION 11
Develop processes to suspend the processing of *********2******** where the supporting
documentation is not provided and correspond with the taxpayer for the missing
documentation.

CORRECTIVE ACTION
The documents are not necessary for satisfying the Beard test for a valid return, and the
IRS does not have the statutory authority to require those documents for inspection
outside of deficiency procedures (an audit of the return), which is not a viable treatment
for use during return processing. Correspondence would not be an effective action as it
would delay return processing and increase costs.

IMPLEMENTATION DATE
N/A

RESPONSIBLE OFFICIAL
N/A

RECOMMENDATION 12
Review the 36,373 returns TIGTA identified that potentially received erroneous AOTC
and take actions to recover any erroneous AOTC received.

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Appendix VII
Abbreviations

ACTC Additional Child Tax Credit
AOTC American Opportunity Tax Credit
CNMI Commonwealth of the Northern Mariana Islands
EIN Employer Identification Number
EITC Earned Income Tax Credit
HCTC Health Coverage Tax Credit
IMF Individual Master File
IRMF Information Returns Master File
IRS Internal Revenue Service
IRTF Individual Return Transaction File
PEPS Postsecondary Education Participants System
RRP Return Review Program
TC Transaction Code
TIGTA Treasury Inspector General for Tax Administration
TIN Taxpayer Identification Number
USVI United States Virgin Islands

Page 46
To report fraud, waste, or abuse,
call our toll-free hotline at:
(800) 366-4484

By Web:
www.treasury.gov/tigta/

Or Write:
Treasury Inspector General for Tax Administration
P.O. Box 589
Ben Franklin Station
Washington, D.C. 20044-0589

Information you provide is confidential, and you may remain anonymous.

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