The Internal Revenue Service distributed roughly $1.6 billion in refunds to taxpayers who filed falsified tax returns in 2006 and 2007, despite efforts to stop them, according to a new report from the Treasury Department's inspector general.

The Treasury Inspector General for Tax Administration found that the number of falsified tax returns filed in an attempt to obtain fraudulent tax refunds increased dramatically between 2006 and 2007. TIGTA blamed the IRS payments on "a failed fraud detection system and insufficient resources to work all the fraudulent returns."

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.

"This is a significant revenue loss to the federal government that must be addressed," said TIGTA Inspector General J. Russell George in a statement. 

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 five-year plan, with executive oversight, for the refund fraud program.

Register or login for access to this item and much more

All Accounting Today content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access