Treasury watchdog pushes IRS to modernize work with unidentified payments
The IRS’s oversight of billions of dollars in unidentified taxpayer payments would benefit greatly from modernization, the Treasury Inspector General for Tax Modernization said in a report late last week.
Based on a fiscal 2025 audit, TIGTA recommended that the IRS develop an electronic management system to get a better handle on money it receives from taxpayers that has missing or incomplete information, such as checks or money orders without ID numbers or proper form types.
From fiscal 2022 through 2024, the IRS took in roughly $3.2 billion in unidentified payments. It was able to apply $2.3 billion to taxpayer accounts, but the watchdog said its program management controls “are not sufficient.” The IRS’s hardcore payment tracer referral program, the process used to find missing or misapplied payments, also has its share of shortcomings, per the report.
“For example, the unidentified payment inventory is not centrally managed in a case management system,” the report stated. “Rather, the IRS manages unidentified payments as three separate inventories through each Tax Processing Center’s accounting system. Additionally, unidentified payments are assigned and monitored manually. Therefore, the IRS does not have the ability to efficiently evaluate program results, such as the timeliness of case resolution.”
The scope of the IRS’s payment-processing problem is immense: According to TIGTA, the agency reported receiving more than 302.6 million payments totaling over $5.4 trillion in 2025 alone. Missing or incomplete payment information can occur in either paper or electronic payments, and the agency still receives tens of millions of both.
A March 2025 executive order directed the Treasury Department to phase out paper-check disbursements by Sept. 30 of last year, but the IRS still received 41.4 million paper payments last year, compared with 261.2 million electronic payments. TIGTA said that an electronic case management system “and associated internal controls” would help the IRS more effectively oversee these disparate parts.
The advantages of an electronic payment system are myriad, the watchdog said, helping the IRS “better manage and allocate inventory by location,” “create consistency and reduce employee error in case documentation,” and “ work electronic case files.” That last point aligns with Office of Management and Budget and National Archives and Records Administration guidance on agencies transitioning to electronic records.
“Unidentified payments and hardcore payment tracer referrals involve payments that taxpayers made to satisfy their tax obligations,” the report said. “Inefficiencies resolving these payments can increase the burden on taxpayers and result in additional taxpayer calls, letters, and visits to the IRS.”
Until the new system is launched, TIGTA urged the IRS to develop an interim process to better track hardcore payment tracers while at the same time evaluating metrics “to help assess the efficiency and effectiveness of the IRS’s processes” in ID’ing and addressing mystery payments. The IRS agreed with all of the watchdog’s recommendations and already implemented a new tracer-tracking process.
