GAO SAYS IRS SHOULD ENFORCE DIVIDEND AND INTEREST WITHHOLDING RULES AND IMPROVE PROCEDURES TO ENSURE THAT PAYORS OBTAIN CORRECT TINs.

In a report prepared for the Joint Committee on Taxation, the GAO identified several steps the Service could take to improve the accuracy of payor identification numbers and thus the usefulness of interest and dividend returns in the Service's information matching program.

The GAO's recommended steps involve: (1) enforcing the 20 percent withholding requirement; (2) reducing the volume of incorrect identification numbers for which payors are asked to certify due diligence; (3) providing payors with more timely information on missing or incorrect identification numbers; and (4) doing additional research to resolve more incorrect numbers.

The Service replied to the report, agreeing with the recommendations and general conclusions, but taking issue with the GAO's estimate as to the amount of money that should have been withheld but was not. In its rejoinder to the Service, the GAO has revised its report to make clear that the $2.4 billion that it estimates is not being withheld, but should have been withheld, represents potential nonwithholding and that an unknown portion may be covered by withholding exemptions.