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October 30, 2008

Robert Sperling
(202) 622-6500

TIGTA Releases Review of the IRS Private Debt Collection Program Procedures

The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its most recent review of the Internal Revenue Service's (IRS's) Questionable Refund Program (QRP).

The report concludes that the number of falsified tax returns, filed in an attempt to obtain fraudulent tax refunds, has increased dramatically between 2006 and 2007. TIGTA estimates the IRS issued approximately $1.6 billion in fraudulent refunds to taxpayers during this 2-year timeframe because of a failed fraud detection system and insufficient resources to work all the fraudulent returns.

The current findings are the latest in a series of audits issued by TIGTA identifying problems with the QRP. In March 2007, TIGTA issued a report (Reference No. 2007-20-052) concluding that the IRS's Electronic Fraud Detection System was not operational during Processing Year 2006, resulting in an estimated $318.3 million in fraudulent refunds being issued.

A May 2007 TIGTA report (Reference No. 2007-10-076) concluded that the growth in refund fraud, combined with the IRS's priority of protecting revenue by freezing refunds, may have contributed to the continued challenges the QRP faces.

TIGTA's new report concluded that, during the 2006 Filing Season, the IRS detected and stopped $188 million in fraudulent refunds, but failed to stop an estimated $894 million in fraudulent refunds because its fraud detection system was not operational. While the fraud detection system was available for the 2007 Processing Season, and the IRS initially stopped $1.2 billion in fraudulent refunds, TIGTA estimates an additional $742 million in fraudulent refunds were issued.

"The IRS has numerous compliance priorities in addition to the Questionable Refund Program, which it must balance against its limited resources. However this is a significant revenue loss to the Federal Government and that must be addressed," said J. Russell George, Inspector General, Treasury Inspector General for Tax Administration. "The United States faces an estimated $345 billion Tax Gap each year. In a time of economic challenge, every effort must be made to prevent the loss of money to the U.S. Treasury."

TIGTA made several recommendations, including that the IRS develop a long-term, strategic approach to balancing available resources to address the growth in refund fraud and other compliance priorities.

The IRS agreed with about half of TIGTA's recommendations and has developed a 5-year plan, with executive oversight, for the refund fraud program.