Social Security: IRS Data Can Help SSA Credit More Wages

Published by the Government Accountability Office on 1990-08-31.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                     United   States   General   Accounting   Office   .-_.'
                     Report to the Chairman,
&A0                  Committee on Ways and Means,
                     House of Representatives

,August   1990

           ,         SOCIAL SECURITY
                     IRS Data Can Help SSA
                     Credit More Wages
United States
General Accounting Office
Washington, D.C. 20648
Human Resources Division


August 31,199O

The Honorable Dan Rostenkowski
Chairman, Committee on Ways and Means
House of Representatives

Dear Mr. Chairman:

Each year, employers report to the Social Security Administration (%A)
the amount of wages (earnings) paid to their employees on Form W-2, so
that SSAcan credit the wages to each worker’s social security account.
Proper credit of wages is important because a worker’s earnings deter-
mine both his or her eligibility for and amount of future social security
benefits. SSArecords each employee’s earnings after checking whether it
has established an account with that person’s name and social security
number (SSN). If the identifying information on Form W-2 cannot be
matched to an established (valid) account, %A records the earnings in a
suspense file. These wage reports remain in the suspense file until
crediting to a valid account is possible.

In March 1989, you expressed concern over whether SSAwas doing all
that it could to see that employees were receiving credit for their wages.
You asked specifically whether SSAcould reduce the size of its suspense
file by using information developed by the Internal Revenue Service
(IRS) for tax compliance purposes. You also asked for statistics on the
growth of SSA’S suspense file over recent years.

As of June 1989, about 178 million wage reports worth $138.4 billion of
uncredited earnings were recorded in SSA’Ssuspense file. It had grown
by 24.2 million reports (a 18percent increase) and $58.2 billion (a 73-
percent increase) over the past 5 years (see app. I).

SSAcould reduce the size of the suspense file and credit more workers’
wages by using independently developed I= data to identify to whom
the uncredited earnings belong. For tax year 1987, IRS officials believe
their data identified taxpayers for about 600,000 uncredited wage
reports, worth about $4.2 billion in uncredited earnings. By matching IRS
resolutions to SSA’Ssuspense file, we found that %A had not resolved
345,950 of these uncredited wage reports worth $2.1 billion.

SSAcould use such data immediately to record the earnings on as many
as 120,000 uncredited wage reports, representing $762 million. The IRS

Page 1                      GAO/HUD-go-112   SSA Can Credit More Wages With IRS Data

    people to whom it issued each SSN. Reports that pass this validation
    check-that    is, the name and SSN correspond with those in an existing
    account-are considered valid and can be credited. Reports that fall are
    identified as invalid.

    SSArecords the invalid reports in its suspense file unless correcting
    information is provided through one of various internal processing
    actions (see app. III). Of the 250 million wage reports received for tax
    year 1987, SSAplaced about 5.8 million (involving social security wages
    of $17.3 billion) in the suspense file.

    There are various reasons wage reports do not pass the            SSA   validation
    control check. For example:

l   SSNS may not match because the employee has reported an incorrect
    number to an employer or the employer has incorrectly recorded the
    employee’s  SSN. Sometimes, employees who do not have their own                SSN

    use someone else’s or give a fictitious one to the employer. In other
    cases, the wage report does not include the       SSN.

l   Names may not match because the employer and/or employee spelled
    the name differently than SSAhas recorded it in its master file. Also,
    frequently individuals who legally change their names do not notify SSA;
    thus the name on the wage report differs from that on the SSAaccount.

    SSAuses a variety of processes in an attempt to identify the people to
    whom these invalid wage reports belong so it can credit the earnings to
    their social security account. Resolution processes include writing the
    person at the address provided on the invalid wage report, contacting
    employers with a high percentage of discrepant wage reports, and peri-
    odically comparing ss’s name and SN control file against the suspense
    file to see if updated information in the control file will permit the
    posting of uncredited wages (see app. III). SSA continues these resolution
    processes for at least 5 years before archiving a wage report as

    These processes resolve several million of the reports recorded in the
    suspense file each year. But despite their success, the suspense file has
    continued to grow.

    In February 1989, because of concerns about the escalation of
    uncredited earnings in the suspense file, the Commissioner of Social
    Security established a task force to suggest ways to increase the rate of
    invalid wage report resolutions. Composed of representatives from

     Page 3                    GAO/II.RD(H)-112   SSA Can Credit   Mom Wages With I&5 Data

                                          As of June 1989, IRShad resolved 345,950 tax year 1987 wage reports,
IRS Data Can Help                         representing $2.1 billion in wages, that SSAcontinued to carry as
SSA Resolve More                          unresolved in its suspense file. Not all of IRS’S resolutions will pass SSA’S
Uncredited Earnings                       validation check (see pp. 2-3) for crediting wages to individual accounts.
                                          However, many could be directly credited and others could be credited
Reports                                   after additional follow-up by SSA.

                                          About 120,000 of the IRS resolutions matched valid SSAaccounts, and we
                                          believe SSA could directly credit them. These resolved wage reports
                                          amounted to about $762 million in uncredited tax year 1987 earnings
                                          (see table 1). For over 53,000 of these resolutions, there was exact
                                          agreement between the identity information on the invalid W-2 and on a
                                          filed tax return.

                                          For another 33,700 wage reports, there was agreement except for minor
                                          variances. In their resolution processes, both agencies manipulate the
                                          identity information, but in different ways, to see if the mismatch can be
                                          resolved. (See app. III for a discussion of SSA’Ssingle select and opera-
                                          tion 30 processes.)

Table 1: IRS Wage Report Resolutions by
Nature of Match to Tax Returns            Dollars in thousands
                                                                                    Resolutions undergoing SSA validation
                                                                                     Passing                  Not passing
                                          Nature of match                           No.        Amount          No.        Amount
                                          Exact                                  53,301         $574,593          189,710       $1,168,270
                                          Minor variances                        33,712          103,912           16,820           56,290
                                          Missing Information                    32,557           83,017           14,718           68,442
                                          Other                                       0                0            5,132           13,850
                                          Total                                119,570         $761,522          226,380        $1,306,852
                                          Source GAO calculations based on comparison of IRS 1987 resolution tapes and the SSA suspense file
                                          as of June 1989

                                          The remaining 32,557 “valid’ wage reports resolved by IRS did not con-
                                          tain certain identity information when submitted to SSA.IRS was able to
                                          obtain this information through its resolution process.

                                          IRS’Smatching of the remaining 226,380 wage reports was to 8SN and
                                          name combinations that did not agree with SSA’S official SSN and name
                                          control file. These resolutions are classified as “invalid” by SSA.How-
                                          ever, the resolutions indicate that IRSidentified persons using identity
                                          information on a tax return that is the same or very similar to identity
                                          information on the invalid W-2. These resolutions could represent

                                          Page 6                             GAO/HRBsOll2       !%A Can Credit   More Wages With IRS Data

SSAalso agreed with our recommendation and said it has initiated action
to accomplish the data exchange. SSAsaid that proposed revisions to the
IRS/SSA memorandum of understanding on combined annual wage
reporting, expected to be effective in August 1990, call for the agencies
to devise ways to help each other with name and SSN matching problems.
With this provision in effect, SSA plans to begin discussions with IRSto
focus on the specific nature of the data exchanges needed to accomplish
our recommendation.

As agreed with your office, we are sending copies of this report to IRS,
.%A, and other interested parties. We also will make copies available to
others upon request. Please call me on (202) 275-5365 if you or your
staff have any questions. Other major contributors to this report are
listed in appendix VI.

Sincerely yours,

Gregory J. McDonald
Associate Director, Income Security

 Page 7                    GAO/HRD~ll2   SSA CM Credit More Wages With IRS Data


IRS        Internal Revenue Service
MEF        master earnings file
NERP       national electronic reinstatement project
SSA        Social Security Administration
SSN        social security number

Page 9                      GAO/HRLHO-112   SSA Can Credit   More Wages With IILS Data
Appendix II

kope and Methodology

              To compare IRS’Sand SSA’Sprocesses for invalid wage report resolutions
              with SA’S suspense file, we interviewed SSAand IRSofficials to determine
              (1) how invalid wage reports are identified and processed, (2) the proce-
              dures followed and efforts made to resolve invalid wage reports, and
              (3) the uses made of both the resolved and unresolved wage reports. We
              then obtained a computer tape of IRSresolutions for tax year 1987 wage
              reports and matched it to SSA’Ssuspense file as of June 1989. The pur-
              pose was to identify tax year 1987 wage reports resolved by IRSthat SA
              continued to carry in its suspense file.’

              To determine the growth in SSA’Ssuspense file, we obtained SA reports
              and calculated the yearly net increase in the number and dollar value of
              wage reports in the suspense. fiie from June 1985 through June 1989. SA
              agreed to study the usefulness of IRS’Sresolution process as a means to
              resolve more uncredited earnings. We did not attempt to quantify the
              number of additional resolutions that SA could make using IRSinforma-
              tion, as this would have been too costly.

              We conducted our review between April and December 1989, primarily
              at IFS and SA headquarters, in accordance with generally accepted gov-
              ernment auditing standards.

              ‘At the time of our review, IRS had not canpleted   its 1988 tax year resohntion   pmcess.

              Page I1                              GAO/ERDB@112        SSA Can Credit    More Wages With IRS Data
                        Appendix ID
                        SSA’s Wage Report   Resolution       Processes

                        They result in about 2.5 million reports being credited to                    MEF   from the
                        suspense file each year.

                        When a wage report is placed in the suspense file, SSAsends a letter to
Decentralized           the employee identified by the wage report explaining why it cannot
Correspondence          process the report. The employee is asked to send in information that
Operation               would resolve the problem. Annually, .%Aresolves about 1.5 million
                        wage reports as a result of its decentralized correspondence operation.

                         If the correspondence was undeliverable or there is no reply from the
Ferret Operation         employee through the decentralized correspondence operation, SSA sub-
                        jects the wage report to the “ferret” operation. This operation matches
                         identity information from IRS’Smaster data file with comparable infor-
                         mation on the invalid wage report to identify information that could
                         resolve the discrepancy. About 16,000 wage reports are resolved annu-
                         ally by means of the ferret operation. It parallels IRS’S wage report reso-
                         lution process in that both agencies use the same data bases-the IRS
                         individual master file and the invalid wage reports.

                        The sweep operation compares the suspense file with SSA’Supdated ssn-
Sweep Operation         and name control file to see if any recent name changes have been
                        reported to SSA that would permit wage reports in the suspense file to be
                        credited to MEF. This operation resolves about 300,000 invalid reports
                        each time it is run, about every 18 to 24 months.

                              involves preparing a computer-generated listing of suspense file
National Electronic     NERP
                        wage reports by the employer identification number. To resolve
Reinstatement Project   uncredited items, SSA’S regional office staff contacts employers sending
                        SSA large numbers of invalid wage reports. The NERP operation has
                        resulted in more than 5,000 employers being contacted since September
                        1985. Since its inception, it has resulted in more than 1.5 million invalid
                        reports worth $6.3 billion being resolved.

                         Operation 30 is a manual effort performed at SSA’s three data operations
Operation 30             centers. Using video display terminals, clerical personnel compare sec-
                         tions of the suspense file with sections of the official SSN and name file.
                         They check for common nicknames and other obvious mistakes in the
                         spelling of names. Operation 30 involves judgment decisions, although

                         Page 13                                 GAO/HED-90-112   SSA Can Credit More Wages With IRS Data
Appendix IV

Comments From the Social Security
A dministration

supplementing those in the
report text appear at the
end of this appendix.                           THE COMMISSIONER      OF SOClAL SECURITY
                                                       BALTIMORE,   MARYLAND       21235

                             Mr. Joseph F. Delfioo
                             Income Security      Issues
                                United   States   General     Accounting       Office
                             Washington,     D.C.    20548

                             Dear Mr.    Delfico:
                             Enclosed    for your information        is our response    to the U.S. General
                             Accounting     Office's    draft  report,    8qSocial Security:   IRS Data Can
                             Help SSA Credit        More Wages.”     Please let us know if we can be of
                             further    assistance.


                                      Page 16                        GAO,‘HRE90112         SSA   Can Credit More WagesWith IRS Data
                            Appendix         IV
                            CommentsFrom the Social Security

                revision.           If the sample has acceptable                accuracy,    the entire
                magnetic          media file is processed  through               initial    validation.
Now on p. 12.   pg     e    7            a
                These paragraphs        include       a reference      to the Possible     Additional
                Reinstatement       (PAR) Operation.           PAR no longer        exists as a
                process.      In November 1989, its functions                were incorporated        into
                the current     Suspense/Reinstate            process.      Additionally,    it should
                be made clear      that     further     review    of the Suspense File       for prior
                year reports     is limited         to reports      from the same (current)
Now on p. 13.   paae       18, aaraaraoh           1. “Ferret   Ouerationl*
                A statement    should be added to note that the Ferret    Operation
                applies   to jbndeliverables  as well as no response  cases.
Now on p. 13.   Paa        19.     DaraaraW2.          ”   t          e                                       t

                This section                 should be updated to show that the NERP has resulted
                in 1.5 million                  items being reinstated in the amount of
                $6.3 billion.

                                Pal&l?                          GAO/HED40-112     SSA Cm Credit More Wages With IRS   Data
Apperkdix V

Comments From the Department of
the Treasury

                                          DEPARTMENT OF THE TREASURY
                                            INTERNAL     REVENUE      SERVICE
                                                WASHINGTON.      O.C. 20220

                                                      JLtL 5    1990

              Mr. Joseph F. Delfico
              Director,   Income Security    Issues
              Human Resources   Division
              U.S. General Accounting     Office
              Washington,    DC 20548
              Dear Mr.   Delfico:
                      We have reviewed     your recent   draft  report   entitled
              “Social   Security:      IRS Data Can Help SSA to Credit        More
              Wages”.     We agree with the report’s      recommendation       that the
              Commissioners       of SSA and IRS amend their    existing    agreement
              that governs      the exchange and use of tax information            to
              provide   for the routine      sharing  of IRS’ wage report        resolution
                       With respect      to the recommendation       for sharing
              resolution      data, we suggest      that GAO include      qualifying
              language     that information      should be shared only to the extent
              permitted      by IRC 6103(l)(5),       in conjunction     with Section 232
              of the Social       Security    Act I42 USC 432).
                       We will   work with SSA to define    the specifics                      of the
              information      to be exchanged in a revised    agreement.
                      Thank     you for     the   opportunity          to review       this   report.
                      Best    regards.

                      Page 19                             GAO/HRBsO112          SSA Can Credit More Wagea With I&3 Data
                                                                    ,,      .       ---,”       .._...._...._,....,.,_..   .,   ,,.   .-




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                                         p-11_,        . . . ._,
Appendix VI

Major Contributors to This Report

                        Roland H. Miller III, Assistant Director, (301) 965-8925
Human Resources         William J. Staab, Assignment Manager
Washington, D.C.

                        Thomas J. Dougherty, Evaluator-in-Charge
Philadelphia Regional   Wayne J. Turowski, Technical Assistance

(106237)                Page 20                    GAO/HRD-90112   SSA Cm Credit More Wages With IRS Data
              Appendix    IV
              CommentsFrom the Socid Security

              The following is GAO'S comment on SA’S letter of July 17, 1990.

              1. SSA’Sother comments concern various changes in its processes or fac-
GAO Comment   tual data that occurred after the conclusion of our field work. In each
              case we adjusted the report to reflect this current information.

              Page 18                       GAO/‘HRD-9l%ll2   SSA Can Credit   More Wages With IRS Data
                             Appendix IV
                             comments From the social   security

                co   MMENTS OF THE SOaL            SECURITY -ON                      ON THE GENERAL
                                                  T REPORT. "SOW              SECURITY:  IRS DATA CA&

                General       Accotiina       Office      IGAO) Recommendation

                The Commissioners   of the Social   Security  Administration        (SSA) and
                Internal   Revenue Service   (IRS) should amend their      existing
                agreement that governs the exchange and use of tax information             to
                provide  for the routine   sharing  of IRS 1 wage report      resolution
                SSA Comment
                We agree.     SSA has initiated      action      to accomplish      the suggested
                data exchange.       Proposed revisions        to the IRS/SSA memorandum of
                understanding      (MOU) on combined      annual wage reporting          call  for
                IRS and SSA to devise ways each agency can help the other with
                name/Social     Security   number (SSN) matching          problems.      We
                anticipate    that these revisions        will     be formally    incorporated     in
                the MOU by August 1990.         Discussions        between IRS and SSA could
                then begin to focus on the specific              nature of these data
                Other     Comments
See comment 1   The comments below are being                   provided     to improve     the     technical
                accuracy of this report.
Now on p. 3.    Paae    6.     line    1
                The report   states,     "These processes          take up to five years to
                complete before      SSA decides       that a wage report          cannot be resolved
                and stops its resolution         initiatives."           As currently     stated,     this
                sentence   seems to give the impression               that SSA's processes         are
                slow.    We believe    this   statement        should be revised        to reflect      the
                fact that SSA's efforts        continue        for at least      five years.
Now on p. 6     Paae 11. DaraaraDh            2
                The last sentence  of this paragraph  should be revised                              to reflect
                the fact that the Suspense File Workgroup expects     to                           issue its
                report  in August 1990 rather  than May 1990.
Now on p. 12.   Paae 16. naraaranh            2
                This paragraph       should be expanded to                 note that all items that
                fail    validation     are screened    against             the Suspense/Reinstate         File
                to see if the same name and SSN were                       previously      incorrectly
                reported       and subsequently    corrected.                Also,    only a sample of wage
                reports      from each magnetic     media file               is run through       initial
                verification       to see if it should be                 returned     to the employer for

                             Page 16                               GAO/HRD9@112   SSA Can Credit   More Wages With IRS Data
Appendix III
SSA’B Wage Report Resolution   Processes

defined procedures must be followed. About 575,000 invalid reports are
resolved annually as a result.

It usually takes about 5 years to complete all of the above operations on
wage reports recorded in the suspense file for a particular tax year.
When it completes them, SSAconsiders that all reasonable efforts to
resolve the invalid reports have been made. It then undertakes no fur-
ther initiatives and archives all invalid wage reports. Any resolution
from the archive file is normally done at the initiative of the person
claiming a benefit.

Page 14                            GAO/HRD-90-112   SSA Can Credit   More Wages With IRS Data
Appendix III

SSA’sWage Report Resolution Processes

               Each year, SSA receives hundreds of millions of wage reports to be
               credited to U.S. workers’ social security accounts. About 94 percent on
               average pass the initial validation screening, %A estimates. SSA credits
               these immediately to individual worker accounts in its master earnings
               file (MEF). Half of the reports that initially fail validation are corrected
               by one of several efforts. SA records the remainder (about 3 percent) in
               its suspense file.

               S.A rekeys or rescans wage reports submitted as paper documents that
               fail initial validation. This is done to correct any errors resulting from
               SA’S data-transcribing or optical-scanning operations.

               Wage reports received on magnetic media are treated somewhat differ-
               ently. SA screens a sample of wage reports from each media file report
               received to see if there are validation problems. If the sample has an
               acceptable accuracy rate, the entire file is processed through validation;
               otherwise, it is returned to the employer for revision.

               All items that continue to fail validation are then screened against the
               suspense/reinstate file to see if the same name and SSN were previously
               incorrectly reported by the same employer and subsequently corrected.
               If so, corrections are made and the wages are credited to MEF. Reproces-
               sing of the corrected and resubmitted wage reports results in an addi-
               tional 1 percent of wage reports being credited to MEF.

               Wage reports that still fail validation are then subjected to SSA’S “single
               select” process. Through computer manipulation of the reported SSN
               digits, SSA attempts to identify and correct transposition errors related
               to incorrect reporting of a single digit. Between 60 and 90 permutations
               are performed on each SSN in an attempt to match the wage report to
               SSA’Sofficial SSN and name record. The single select process results in
               validation of about another 2 percent of the wage reports and their
               crediting to MEF.

               The remaining 3 percent of wage reports (about 6 million annually) are
               classified as invalid and recorded in SSA’S suspense file of uncredited
               earnings, Once this is done, SSA takes a variety of actions in an attempt
               to resolve the problems with the wage report and reduce the number of
               reports in the suspense file. These actions, which occur over about a
               5-year period, include the (1) decentralized correspondence operation,
               (2) ferret operation, (3) sweep operation, (4) national electronic rein-
               statement project ( NEXP),and (5) operation 30. All are described below.

               Page 12                     GAO/~9@112    SSA Can Credit   More Wages With IRS Data
Appendix I

Growth of SSA’sSuspenseFile (1984-89)

                                         Size and value of suspense file
                                    Reports                            Eaminqs
                              Number        Growth rate              Value     Growth rate
              As of June     (millions)        (pe-nt)          (millions)       (percent)
              1984                 153.9               .          $80,212                  .
              1985               156.5              1.7              89,399            11.8
              1986               161 0              29               96,198             7.6
              1987               166.5              3.4             108,971            13.3
              1988               172.6              3.7             127,871            17.3
              1989               178.1              3.2             138,435             8.3
              Net increase        24.2             15.7             50,223             72.6

               Page 10          GAO/HlUHKLl12     SSA Can Credit   More Wages With IRS Data

Appendix I
Growth of SSA’s
Appendix II                                                                                              11
Appendix III                                                                                             12
SSA’sWageReport         Decentralized Correspondence Operation
                        Ferret Operation
Resolution Processes    Sweep Operation                                                                  13
                        National Electronic Reinstatement Project                                        13
                        Operation 30                                                                     13
Appendix IV                                                                                              15
Comments From the
Social Security
Appendix V                                                                                                19
Comments From the
Department of the
Appendix VI
Major Contributors to
This Report
Table                   Table 1: IRS Wage Report Resolutions by Nature of Match                            5
                            to Tax Returns

                        Page 8                    GAO/I4RlMO-I12   SSA Can Credit   More Wages With IRS Data

                       people who had not reported name changes to .%Aor who had given
                       their employers incorrect SNS.

                       Of particular note in this group are 189,000 resolutions that represent
                       exact matches with tax return information. At a minimum, these resolu-
                       tions provide an opportunity for SSAto take additional steps. For
                       example, SSAcould contact these people to request their assistance in
                       resolving the problem with wage reports or send them a copy of their
                       earnings statement. The latter would show that wages earned in certain
                       tax years had not been credited.

                       Because of SSA’Songoing efforts to reduce its suspense file, we shared
                       the results of our work with the suspense file reduction task force.
                       Saying that the IRS resolutions looked like a promising tool, the task
                       force manager indicated it would recommend, in its report to the Com-
                       missioner, that SSApursue obtaining and using the IRSresolution data.
                       The report was expected to be issued in August 1990.

                       The IRSwage report resolution data constitute a tool that SSAcould use
Conclusions            in its efforts to properly credit earnings to valid social security accounts
                       and reduce the size of its suspense file. About one-third of the resolu-
                       tions could be almost immediately credited to valid accounts with little
                       cost to SSA,IRS data indicate. The remaining resolutions would require
                       further research efforts, but the IRS data should provide SSA with a good
                       starting point. Accordingly, SSA should obtain the IRS information.

                       We recommend that the Commissioners of Social Security and the
Recommendation to      Internal Revenue amend their existing agreement governing the
the Commissioners of   exchange and use of tax information to provide for the routine sharing
Social Security and    of IRS’Swage report resolution data.

Internal Revenue

                       SSAand IRS commented on this report in letters dated July 17 and 5,
Agency Comments        respectively (see apps. IV and V). IRS agreed with our recommendation,
                       but emphasized that data can be shared only to the extent permitted by
                       law. IRS said it will work with SSAto define the specifics of the informa-
                       tion to be exchanged in a revised information exchange agreement.

                       Page 6                     GAO/HRD+@112   SSA Cm Credit   More Wages With IlIS Data

                           various SA operating units, the task force worked throughout 1989 to
                           consider various proposals and evaluate whether new procedures
                           should be adopted or existing ones modified. Because the task force
                           goals paralleled the concerns of the House Ways and Means Com-
                           mittee-increased    crediting of wages-we worked closely with the task
                           force and shared with it the overall results of our comparison of IRS and
                           SA data.

IRS ResolvesInvalid Wage   IRS processing of wage report information begins with its receipt of W-2
                           wage information from SSA.The information arrives in weekly batches
Reports Independent of
                           primarily between February and July. Wage reports that SSA has classi-
                           fied as valid are processed directly to IRS’Staxpayer compliance files.
                           Invalid reports are processed through IRS’S computerized resolution rou-
                           tine, designed to identify taxpayers to whom these earnings belong. If
                           resolved, the invalid reports are then processed to the compliance files,
                           which later will be matched against tax returns.

                           IRS’s resolution routine is independent of SA’S efforts. It involves com-
                           puter matching of identity information that is reported on tax returns
                           with comparable information on the invalid wage reports. IFSconsiders
                           an invalid wage report resolved if there is an exact or close match of
                           identity information with a filed tax return. IRS then determines
                           whether its resolution is a valid or invalid name and SSN combination
                           relative to SA’S records. The IRS’S resolution requires special processing
                           for tax administration purposes if there is not a valid SA match. But
                           even if the comparison indicates the resolution is invalid relative to SSA’S
                           records, IRS considers the case resolved because it has found a person
                           who filed a tax return using the same or very similar identity informa-
                           tion. IRS believes many of its invalid resolutions represent people who
                           changed their names but did not notify SA of the change.

                           Although IRS formerly provided information on its resolutions to SSA,it
                           no longer does so. Because IRS provided only its final resolutions, SSA
                           could not associate IRS’S resolution with the original invalid wage reports
                           that were resolved. IRS since has changed its resolution process so as to
                           link each resolution to the original invalid report.

                            Page 4                    GAO/HRlNJO-112   SSA Can Credit More Wages With IRS Data

                  “resolutions” identified name and   SSN   combinations that represented
                  valid social security accounts,

                  The resolutions for the remaining 226,000 wage reports probably could
                  not be credited to valid social security accounts without further SSA
                  research. However, for these reports IRShas identified a person with
                  similar identity information on his or her tax return as on the
                  uncredited wage report. These resolutions could represent people who
                  changed their name through marriage or divorce but never reported the
                  change to SSA.At a minimum, they offer SSApossible leads to resolve
                  uncredited wage reports.

                  To address your concerns, we interviewed IRSand SSAofficials involved
Scopeand          with processing employee wage reports. We also obtained a computer
Methodology       tape of IRSresolutions and matched it to SSA’Ssuspense file as of June
                  1989. Our work was performed at SSA and IRS headquarters during 1989
                  in accordance with generally accepted government auditing standards.
                  See appendix II for further information on our scope and methodology.

                  Both s% and IRS need accurate earnings information to administer their
Background        programs. SSAuses earnings information to determine social security
                  program eligibility and benefit amounts. These are based on a combina-
                  tion of total social security earnings and years of social security cov-
                  erage. IRS uses earnings information to verify income reported on
                  individual tax returns and identify people who either underreported or
                  failed to file a tax return.

How SSA Records   Each year, by the end of February, employers send annual wage reports
Workers’ Wages    on Form W-2 to SSAfor each of their employees. This form identifies the
                  employee by name, address, and SSN; it also shows the employee’s total
                  wages, wages subject to the social security tax, and amounts withheld
                  for local, state, and federal taxes. SSAprocesses the wage reports and
                  credits earnings subject to the social security tax to individual earnings

                  For about 3 percent of the hundreds of millions of wage reports it
                  processes throughout the year, SSAencounters problems in identifying
                  the correct social security account. To assure that reported earnings are
                  credited to valid social security accounts, SSA routinely compares the
                  name and SSN reported on Form W-2 with its control file that identifies

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