Audit: IRS Issued More than $46 Million in Potentially Fraudulent Tax Refunds

More than $46 million worth of tax refunds were erroneously issued last year to potentially fraudulent tax returns, says an audit conducted by the Treasury Inspector General for Tax Administration (TIGTA).

In an audit issued this week, conducted in response to an employee whistleblower, TIGTA found that the Internal Revenue Service failed to address concerns about some taxpayer cases in a timely manner, resulting in the release of tens of millions of potentially inappropriate refunds.

The audit blamed a commuter programming glitch and ineffective monitoring of potentially fraudulent returns.

According to TIGTA, because of a programming error over $27 million tax refunds were erroneously issued for 13,043 Tax Year 2013 tax returns. Another $19 million tax refunds were inappropriately issued due to “ineffective monitoring of potentially fraudulent tax returns” and premature return release.

“TIGTA identified 3,910 Tax Year 2013 tax returns selected for verification with no indication that tax examiners verified the returns,” the report reads. “The IRS issued refunds totaling over $19 million for these tax returns. The IRS did not ensure that tax examiners timely completed their verification work. Name mismatches in IRS systems prevented refund holds from posting to tax accounts. Refund holds were either not set correctly or not functioning as intended.”

TIGTA did highlight, however, that the IRS said that the Integrity and Verification Operations group prevented more than $15 billion in refunds for identity theft or fraud on tax returns last year.

“While the IRS has made important strides in its programs that prevent the issuance of fraudulent refunds, our auditors found that it is not always ensuring that tax examiners timely complete their verification work before releasing refunds,” J. Russell George, Treasury Inspector General for Tax Administration, said in a statement Monday.

TIGTA recommended that the IRS correct the computer glitch, develop processes to ensure that potential fraud cases are not released until a full verification is complete, and figure out why refund holds were ineffective for some accounts.