IRS receives billions in unidentified payments

The Internal Revenue Service received approximately $3.2 billion in unidentified payments from fiscal years 2022 through 2024 and, while it was able to identify the majority of it, $218 million was left unresolved, according to a new report.

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The report, released Tuesday by the Treasury Inspector General for Tax Administration, examined what happens when tax payments have missing or incomplete payment information, such as when the check or money order doesn’t include the taxpayer’s name or ID number.

TIGTA credited the IRS with successfully applying $2.3 billion (70%) to taxpayer accounts. On top of that, $741 million (23%) in unidentified payments were closed from the IRS’s Unidentified Remittance File. The payments were then either transferred to the IRS’s Excess Collection account (which records payments that are still unresolved one year after receipt) or they were removed from the IRS’s unidentified payment inventory. Payments are removed from inventory when the checks are dishonored or voided (for example, when there are insufficient funds in the bank account and the checks are returned as unpaid from a financial institution). The IRS couldn’t resolve the remaining $218 million (7%) of the payments and carried them over as ending inventory.

The report found that IRS programs that resolve billions of dollars in unidentified taxpayer payments need to be improved and modernized. “The IRS receives trillions of dollars in federal tax revenue annually via cash, paper, or electronic payments,” said the report. “Missing or incomplete payment information (e.g., the check or money order does not include the taxpayer’s name, identification number, form type, or tax period) can impact the IRS’s ability to apply payments to the correct taxpayer account. This audit determined the effectiveness of the IRS’s efforts to identify and resolve missing and misapplied payments.”

The unidentified payment inventory isn’t centrally managed in a case management system, according to the report. Instead, the IRS manages unidentified payments as three separate inventories through each Tax Processing Center’s accounting system. In addition, unidentified payments are assigned and monitored manually. That means the IRS lacks the ability to efficiently evaluate program results, such as the timeliness of case resolution. 

The report also found the IRS doesn’t distribute the inventory of work on such payments at its Tax Processing Centers based on the available resources. For example, the Unidentified Remittance unit in the IRS’s Ogden, Utah, Tax Processing Center had the same number of staff as the Kansas City, Missouri, Tax Processing Center, even though the Ogden facility accounted for 40% of unidentified payment inventory compared to 11% in Kansas City.

If taxpayers contact the IRS because their payment is missing, and the IRS employee receiving their inquiry can’t find the payment, their case is sent to one of the three Accounting Operations within the IRS Tax Processing Centers. This process is referred to as a “hardcore payment tracer.” 

A March 2025 executive order from President Trump mandated all payments to and from the federal government be made electronically. Increasing the use of electronic payments will reduce or eliminate the factors that contribute to paper-based unidentified payments, according to the report, but taxpayer errors, such as transposed bank account numbers, can still happen with electronic payments. 

TIGTA also identified inefficiencies in the handling of hardcore payment tracers. Three Accounting Operations track these requests manually in spreadsheets and handle inventory management inconsistently across the operations. Inefficiencies in resolving these payments can increase the burden on taxpayers and lead to extra taxpayer calls, letters and visits to the IRS. 

TIGTA recommended the IRS develop an electronic case management system and associated internal controls to collectively manage inventory streams across the IRS’s accounting operations, as well as develop an interim process to track hardcore payment tracers until an electronic case management system is established and establish evaluative metrics to help assess the efficiency and effectiveness of the IRS’s processes to identify and address unidentified payments and hardcore payment tracers. Implementing an electronic case management system would enable the IRS to oversee and evaluate unidentified payment and hardcore payment tracer inventories; create consistency and reduce employee error in case documentation; and enable the IRS to work electronic case files, according to the report. 

The IRS agreed with all of TIGTA’s recommendations and implemented an interim process for tracking hardcore payment tracers until a system is established.

“To address taxpayer errors that still occur in payments, we are taking steps to modernize how we manage the Unidentified Payments and Hardcore Payment Tracer Referral programs,” wrote Kenneth Corbin, chief of the Taxpayer Services Division at the IRS, in response to the report. “We have implemented interim procedures to support effective tracking and monitoring of Hardcore Payment Tracer referrals using a log that captures referral receipts, rejections, closures and substantiations. To further strengthen our program management, we will develop an electronic case management system to ensure efficient case handling and improve coordination within the Accounting Operations.”