The Treasury Inspector General for Tax Administration released a partially redacted report on May 20 asserting that the IRS has failed to take steps to address nearly $2 billion in discrepancies between withholding reported on withholding tax returns and withholding reported on information returns. The TIGTA report found that 7,265 taxpayers reported nearly $925 million in withholding on Forms 1099 and W-2G in 2016 but failed to file a Form 945, Annual Return of Withheld Federal Income Tax. In the same year, another 3,163 taxpayers reported $760 million more in withholding on Forms 1099 and W-2G than they reported on the Form 945. Conversely, the report found 3,527 taxpayers who reported a total of $241 million more in withholding on the 2016 Form 945 than they reported on Forms 1099 and W-2G.
According to the report, the IRS indicated that it has submitted information technology programming requests to expand the combined annual wage reconciliation module to address the identified discrepancies. However, the IRS cancelled a January 2018 request to focus on tax reform implementation. The request was resubmitted in December 2018. The IRS’s response to the report indicates that it intends to use data analytics to identify the size and scope of the issue and identify compliance activities necessary to address noncompliance in this area. As previously reported, IRS officials recently indicated a backup withholding audit campaign is underway.