The IRS is struggling to ensure that illegal immigrants are able to illegally use Social Security numbers for legitimate purposes, the agency's head told senators on Tuesday, without allowing the numbers to be used for "bad" reasons.

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IRS Commissioner John Koskinen made the statement in response to a question from Sen. Dan Coats, R-Ind., during a session of the Senate Finance Committee about why the IRS appears to be collaborating with taxpayers who file tax returns using fraudulent information. Coats said that his staff had discovered the practice after looking into agency procedures.

"What we learned is that ... the IRS continues to process tax returns with false W-2 information and issue refunds as if they were routine tax returns, and say that's not really our job," Coats said. "We also learned the IRS ignores notifications from the Social Security Administration that a name does not match a Social Security number, and you use your own system to determine whether a number is valid."

Asked to explain those practices, Koskinen replied, "What happens in these situations is someone is using a Social Security number to get a job, but they're filing their tax return with their [taxpayer identification number]." What that means, he said, is that "they are undocumented aliens … . They're paying taxes. It's in everybody's interest to have them pay the taxes they owe."

As long as the information is being used only to fraudulently obtain jobs, Koskinen said, rather than to claim false tax returns, the agency has an interest in helping them. "The question is whether the Social Security number they're using to get the job has been stolen. It's not the normal identity theft situation," he said.

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The comments came in the broader context of a hearing on cybersecurity in the agency. About 464,000 illegally obtained Social Security numbers were targeted by hackers in a February cyber breach of the agency, while information on 330,000 taxpayers was stolen in an unrelated breach last year.

He added that the agency wanted to differentiate that "bad" misuse of personal data from other uses. "There are questions about whether there's a way we could simply advise people… . A lot of the time those Social Security numbers are borrowed from friends and acquaintances and they know they've been used, other times they don't."

He also said that the agency is working to determine "the most effective way to do with this without necessarily having people decide not to file their taxes… . Obviously the priority is to have the IRS collecting those taxes."

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"In some cases, there may be a need for statutory authority [from Congress], because we are very sensitive to protecting taxpayer information on both sides," he added.