Fraudulent Tax Refunds

Thursday, January 14, 2016

Due to a computer programming glitch and the IRS’ poor monitoring of fraudulent tax returns resulted that led to the payout of over $46 million in tax refunds in 2014, the IRS will have stricter guidelines to follow to ensure that these mistakes will not occur again. This was part of the findings from an audit conducted by the Treasury Inspector General for Tax Administration (TIGTA). The audit was conducted to investigate the IRS’ role in how the tax refund fraud occurred in the first place.  

The investigation revealed that the IRS erroneously released these tax refunds. In general, there are compliance measures in place for the IRS to identify, assess and prevent releasing improper refunds.  The tax experts say that this usually entails protecting dollars through measures to identify what looks like fraudulent tax returns. The IRS would need to verify how accurate the numbers reported on the tax return is. For example, the IRS verifies income and withholding information that is reported.in 2014, the IRS did prevent over $15 billion from being refunded for over 2 million tax returns, which were associated with identity theft. 

In 2013, the IRS released more than $27 million in tax refunds due to tax fraud for over 13,000 returns. Many of these returns claim a questionable tax credit. Many of these returns were not verified by the IRS.

TIGTA’s report has revealed that the IRS is working on improving its programs in order to prevent the release of fraudulent tax refunds.  However, there are many who are not reassured by this since there are no ways to ensure that tax examiners will complete their verification work in a timely manner before they release the tax refund.

The audit has brought up certain points for the IRS to address, which include correcting the program that causes an incorrect override of the 14 day processing delay that is necessary to make sure that tax refunds are not erroneously issued before the proper screening and verifying strategies are complete. Also this includes the IRS developing a process to make sure that tax refunds with a possible fraudulent return associated with it will not be released without the proper checks and balances. The IRS is serious about complying with all the recommendations.

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