IRS Tax Identifier Number TIN matching is a straightforward tool that can ensure your tax compliance, catching errors before they become expensive problems.
Every year, businesses risk costly IRS penalties simply because a name and taxpayer identification number doesn’t line up. Imagine filing hundreds of 1099s, only to realize later that mismatched records triggered backup withholding and compliance headaches.
Learn how TIN matching works, and how businesses can go beyond tax compliance to stop sophisticated fraud attacks with a more comprehensive verification platform: Trustpair.
IRS TIN Matching: Key Takeaways
- IRS TIN matching checks if a name and TIN align with IRS records.
- It prevents filing errors, backup withholding, and penalties.
- Matching reduces fraud risk by flagging suspicious vendor data.
- Trustpair offers IRS TIN matching alongside real-time vendor verification.
What is a Taxpayer Identification Number?
A taxpayer identification number (TIN) is a unique 9-digit number for employees, freelancers and businesses operating in the US. The TIN is typically as part of the following processes:
- filing tax returns
- verifying account holders prior to making payments
- opening new bank accounts
- assessing affordability in lending
TINs are matched against Internal Revenue Service records to ensure, firstly, that they exist. Secondly it’s so that they are associated with the correct account holder, instead of incorrect information mistakes or an impersonator.
What are the 5 types of TIN?
There are five types of TIN:
- Social security number: a nine digit number given to US citizens upon birth or naturalization, documents typically only show the last four digits of the social security number to prevent identity fraud
- Employer taxpayer identification number: this is an organization-level TIN for US businesses that are required to pay Federal taxes (even sole proprietorship), or for foreign businesses that operate in the US and require them for tax form treaty purposes
- Individual taxpayer identification number: for those ineligible for social security numbers, such as permanent residents or non-resident income earners, regardless of immigration status
- Adoption taxpayer identification number: a temporary identifier for the child of a domestic adoption when the child’s Social Security Number is unable to be found
- Preparer taxpayer identification number: required for professional tax preparers (authorized agents), this number must be included on Federal tax returns on IRS forms
In general, every US citizen has a social security number, and most won’t need any of the other types of TIN. But individuals and businesses might apply for any of the other four when their circumstances make it a necessity. For example, upon registering as a freelancer, you can apply for the Employer TIN for tax purposes.
What is IRS TIN matching?
IRS TIN matching refers to the process of validating a person or business’ Tax Identifier Number against the verified IRS database. It’s a key governance compliance task to lower the risk of impersonation.
The IRS E-Service is offered through its website, empowering firms to enter up to 25 names to verify TINs immediately, or up to 100,000 names for verification within 24 hours.
When should TIN matching happen?
The IRS does the matching when taxes are filed, and errors at this point can lead to costly non-compliance penalties. Therefore, businesses are encouraged to use the TIN matching service themselves prior to submission, to avoid IRS issues and penalties.
At Trustpair, we perform verified database matching at the point of vendor onboarding and prior to every outgoing payment on behalf of our clients. This not only verifies that new suppliers are real, but also protects our clients’ finances in case of unauthorized TIN changes throughout the supplier relationship.
Vendor data management is therefore one of our most recommended situations for TIN matching, alongside:
- Banks responding to new account opening requests that need to verify the account holder’s identity before the account can be granted
- Regulated financial services companies required to meet KYC and AML regulations
- Lenders looking to gain insight into an applicant’s affordability by checking income and expenditure data and payment/credit history
What is the importance of TIN matching?
When businesses get the matching process wrong and fail to file a correct TIN, they become exposed to significant risks, including fraud and non-compliance risks.
Fraud risks
Without verifying the data given to you by individuals representing new customers or suppliers, you could be exposing your business to a greater risk of fraud.
Vendor fraud schemes occur when bad actors either impersonate real companies, or gain access to their systems. In either case, the perpetrators send an invoice to their partners (in this scenario, you!), claiming to have changed bank details.
Without verification, companies that blindly follow the request may find themselves having paid directly to fraudsters and not receiving the goods they’ve paid for. Plus, potentially straining the relationship with the real supplier, who is none-the-wiser and has not been paid.
Instead, data management, including the validation of key account details like the TIN, raises suspicion when it is not matching the account holder’s name. It offers a key moment to begin a wider validation plan – or at least to stop and consider the threat – before the fraudsters can get away with your organization’s money.
Non-compliance risks
The risk of non-compliance is clear. When it comes to companies that don’t perform the TIN matching process before they submit their taxes or other documents, the IRS has no tolerance.
The general line of thinking is that firms have long deadlines and a free service to check they have the correct information and verify TINs before submission, so there shouldn’t be any mistakes. Non-compliance can therefore lead to harsh penalties, and put the entire accounts payable process at risk.
That’s because the IRS has the ability to withhold assets until mismatched TINs are resolved.
What’s the cost of non-compliance?
For businesses that are not subject to particular regulations, the cost of non-compliance is a penalty notice. It starts with a fine of $250 per incorrect TIN submission. This charge comes directly from the IRS, and comes with a significant amount of Social Security administration paperwork; including a ‘B form’ where companies must rectify their mistakes. This significantly adds to the costs, and duties, of administrative staff.
But for banks and other regulated financial institutions, the cost of non-compliance is much greater. TIN matching is an important part of anti-money laundering due diligence practices like Know Your Business. Failing to verify a TIN as part of these regulatory requirements leads to more severe consequences, including enforcement action to the value of millions from the SEC.
With the right to freeze funds until mistakes are rectified, the IRS can also cause operational issues for both types of companies. Frozen funds can lead to missed supplier payments. But this can impact:
- vendor relationships
- product and service availability
- customer satisfaction ratings
To recap:
IRS TIN matching enables companies to verify the identity of their customers, freelancers and third party suppliers. But while IRS TIN Matching helps with tax compliance, it won’t stop sophisticated vendor fraud. Trustpair can help with that – protecting financial accounts with the validation of multiple data points in real time, before a payment is ever made.
