The IRS needs to do more to ensure that agencies file correct information returns for vendor payments and follow up with those that don’t, the General Accounting Office has said.

The IRS uses taxpayer identification numbers to make sure income is reported by matching them with the TINs on information returns filed by third parties, such as federal agencies. But use of IRS’s TIN program is optional for agencies, something GAO says accounted for about $5 billion in unreported payments to 152,000 payees in three federal departments in 2000 and 2001.

GAO studied agency vendor payment records and found many to include invalid vendor TINs, and recommended that IRS and the Office of Management and Budget ensure that vendor TINs are validated using the IRS’s online TIN-matching program.

Currently, IRS does not have a program to identify and follow up with agencies that do not file correct returns for vendor payments, says GAO. However, it credited the IRS with helping agencies comply with annual information return filing requirements, such as notifying agencies in 2003 about 2001 returns that included invalid vendor TINs. IRS suggested agencies limit future payments to vendors in response to invalid TINs.

IRS and the Office of Management and Budget agreed to implement GAO’s recommendations. Get Document