The Internal Revenue Service’s ability to detect fraudulent tax refund claims may have been weakened by a recent move to assign the task to a relatively inexperienced group of employees, according to a new report.

J. Russell George

The report, by the Treasury Department’s Inspector General of Tax Administration, noted that the IRS transferred responsibility for the initial review of questionable refunds last October from its Criminal Investigation Division to the Accounts Management function of its Wage and Investment Division in order to complete the work more efficiently.

However, the IRS may have underestimated the number of employees needed to scan potentially fraudulent returns, which could result in the IRS not having adequate staff to identify and stop fraudulent refunds, according to the report. In addition, the majority of people performing these duties will be new employees. Of the 359 employees who will be working in the Questionable Refund Program, 222 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,” said TIGTA Inspector General J. Russell George in a statement. “However, the benefits of the program’s transition from Criminal Investigation to Wage and Investment remains to be seen.”

The report 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 tasks of the Questionable Refund Program. The IRS agreed with TIGTA’s recommendation.

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