Closing the Compliance Gap: How AP Can Leverage TIN Matching to Avoid IRS Penalties

I. Executive Summary

In 2025, amid an era of digital transformation and heightened compliance oversight, organizations must proactively secure their vendor onboarding and payment processes. Fraudulent vendors, mismatched tax identification data, and manual errors not only lead to financial loss but also expose entities to IRS penalties and reputational harm. TIN Matching, also known as TIN Validation, offers a powerful defense against fraud, mismatched or missing EINs, and other filing mistakes. This white paper explores the legal precedent underscoring the need for these tools, outlines the benefits of automated verification, and demonstrates how businesses can implement these safeguards in real-time workflows.

II. Introduction

From federal agencies to small businesses, vendor fraud and tax compliance failures remain persistent risks. The IRS mandates that payers accurately match payee names with their TINs on Form 1099 filings. Failure to do so can result in penalties or trigger withholding requirements. Meanwhile, bad actors often exploit weaknesses in vendor onboarding to create fictitious entities, siphon funds, or bypass sanctions lists. The good news: technologies exist to validate vendor identities in seconds, catch high-risk discrepancies, and maintain clean, audit-ready records.

III. A Legal Wake-Up Call: United States v. Watkins Street Project, LLC and All Star Title, Inc. v. Commissioner

In United States v. Watkins Street Project, LLC, federal prosecutors uncovered a coordinated scheme where fictitious vendors were used to divert funds from a development project. The perpetrators submitted invoices from non-existent businesses using invalid EINs and fabricated identities. Despite red flags, disbursement controls lacked automated verification to flag these discrepancies. Millions of dollars were lost before the fraud was discovered. This case illustrates how critical backend validation, like TIN Matching, is to identifying fraud before money is out the door.

In a separate but equally instructive case, the U.S. Tax Court upheld IRS penalties against a title company for failing to file correct information returns in All Star Title, Inc. v. Commissioner, T.C. Memo. 2023-100. The court emphasized that even administrative oversights or delayed filings—absent willful neglect—do not excuse an entity from penalties when proper procedures are not followed. The taxpayer’s reliance on internal processes without external validation (such as TIN Matching) was found insufficient to avoid penalties.

Together, these cases underscore a dual risk: operational fraud and legal noncompliance. In United States v. Watkins Street Project, LLC, failure to validate vendor data enabled large-scale fraud using fictitious businesses and invalid EINs. In contrast, the GATC case highlights how even non-fraudulent errors—such as late filings and incorrect TINs—can result in substantial IRS penalties when an organization fails to demonstrate “reasonable cause” and responsible compliance behavior, as required under 26 U.S.C. § 6724(a). The court found that GATC did not act in a responsible manner before the failure occurred, rendering its request for relief invalid despite the absence of willful neglect. These cases demonstrate that TIN Matching and EIN Lookup are not merely best practices—they are critical safeguards against both criminal exposure and regulatory enforcement, particularly when courts and regulators evaluate whether proper due diligence was exercised.

IV. The Benefits

A. Fraud Prevention

Fraudulent vendors frequently use falsified TINs, stolen identities, or fabricated business names to gain access to funds. Without real-time validation, these entries may escape manual review—especially in high-volume environments. TIN Matching acts as a digital gatekeeper, instantly flagging discrepancies between submitted vendor data and IRS records.

The Watkins Street Project case demonstrates the devastating impact of failing to detect such discrepancies early. With TIN Matching, red flags such as invalid EINs or mismatched names would have halted payments before funds were stolen.

B. Regulatory Compliance

The IRS requires accurate TIN/name combinations for information returns, especially Form 1099. Failure to comply leads to B Notices, backup withholding, and penalties. As shown in All Star Title, Inc. v. Commissioner (T.C. Memo. 2023-100), even a lack of malicious intent does not shield businesses from fines when procedures break down.

TIN Matching provides a legally defensible control that reduces the risk of incorrect filings. By automating IRS data checks, businesses can proactively correct discrepancies before submission, minimizing exposure to costly compliance failures.

C. Operational Efficiency

Manual vendor verification is labor-intensive and error-prone. Organizations must often chase down vendors for corrections, delaying payments and complicating reconciliation. Automated TIN Matching and EIN Lookup eliminate these inefficiencies by validating vendor entries at the source.

If integrated with ERP and procurement systems, these tools streamline workflows, reduce human error, and allow compliance teams to scale securely and cost-effectively. The result is faster processing, fewer disputes, and greater trust in financial data integrity.

V. Implementation Strategies

Implementing TIN Matching and EIN Lookup is both practical and essential with today’s technology. Compliance tools such as EINsearch.com offer secure, API-enabled validation for real-time or batch processing, allowing organizations to seamlessly integrate compliance checks into their existing vendor onboarding workflows. To operationalize these tools effectively, organizations should:

• Map their current vendor onboarding process
• Identify risk points for fraud or miskeyed data
• Integrate TIN validation at the point of vendor intake
• Schedule recurring audits to maintain clean data
• Use platforms that include audit trails, OFAC screening, and permission controls

The legal precedent set in the GATC case underscores the importance of these controls. The court determined that GATC failed to act in a “responsible manner” under 26 U.S.C. § 6724(a), thereby upholding significant penalties for late and incorrect filings despite the absence of willful neglect. This case illustrates that, from a regulatory standpoint, an organization must be able to demonstrate not only intent to comply but also the existence of proactive, systematic procedures to ensure accurate reporting.

Platforms such as EINsearch.com enable this level of operational diligence by offering centralized access to TIN Matching, EIN Lookup, and OFAC—all of which support a compliance posture that is defensible under IRS scrutiny. By embedding these functions directly into onboarding and payment systems, organizations can reduce legal exposure, maintain data integrity, and respond more effectively to both audits and enforcement actions. In light of the expectations outlined in GATC and related cases, automated validation tools are no longer optional—they are essential infrastructure for compliance in today’s regulatory environment.

References

• All Star Title, Inc. v. Commissioner, T.C. Memo. 2023-100.
• United States v. Watkins Street Project, LLC, No. 1:19-cr-00046 (D.D.C. 2021).