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

The QRP detects and stops fraudulent claims for refunds on income tax returns. Tax returns that are electronically identified as being questionable are reviewed by IRS employees to identify potential fraud. During this review process, IRS employees use additional information, including prior year tax returns, to determine if further verification is warranted.

If a tax return is selected for verification, the refund is held until employers or third parties are contacted to verify wage information. If the verification concludes that a tax return contains false information (e.g., false wages), the tax return is referred to either the Accounts Management function or the Examination function for resolution. If fraud is not detected, the IRS releases the refund.

In October 2009, the IRS transferred responsibility for initial review of questionable refunds from its Criminal Investigation Division to the Accounts Management function of its Wage and Investment Division. According to the IRS, moving these resources will capitalize on opportunities to complete this work more efficiently.

TIGTA's review found that the IRS may have underestimated the number of employees needed to scan potentially fraudulent returns, which could result in the IRS not having adequate staffing to identify and stop fraudulent refunds. Furthermore, the majority of the individuals performing these duties will be new employees. Of the 359 employees who will be working in the QRP, 62 percent (222 employees) will be new to the program.

"The changes to the Questionable Refund Program were supposed to improve the IRS's ability to quickly identify fraudulent claims for refunds on income tax returns. However, the benefits of the program's transition from Criminal Investigation to Wage and Investment remain to be seen," commented J. Russell George, the Treasury Inspector General for Tax Administration.

TIGTA recommended that the IRS perform a comprehensive analysis during the 2010 filing season to determine the volume of work and the staff hours needed to perform the work in the QRP. The IRS agreed with TIGTA's recommendation.

TIGTA plans to monitor the impact of the QRP's transition during the 2010 filing season and will include results in its filing season audit reports.