The Internal Revenue Service announced new steps to improve the Questionable Refund Program and reduce the number of taxpayers subject to frozen refunds.

"The actions we're announcing constitute significant improvements to an important program," said IRS Commissioner Mark W. Everson, in a statement.

Changes include:

  • Improvements to screening procedures in the coming months, with the agency working to improve the accuracy of filters in the program to reduce the initial number of valid refund claims held.
  • Notification to taxpayers whose refunds are frozen, beginning this tax season.
  • Earlier release of refunds, with the IRS expediting the review of returns.

The agency moved quickly to combat one of the major complaints outlined in the Jan. 10 report from the national taxpayer advocate. National Taxpayer Advocate Nina Olson wrote in her annual report that her office, which helps taxpayers resolve disputes with the IRS, handles frozen refunds more than any other issue. "The IRS has worked closely with my office to devise procedures that strike the proper balance between combating suspected tax fraud and protecting taxpayer rights, particularly the rights of honest taxpayers whose refunds are frozen in error," Olson said, in a statement.

In the past, the IRS has not informed taxpayers that they're suspected of fraud, with the agency's explanation being that many of the returns are subject to additional criminal investigation. The IRS said that refund fraud has increased significantly in recent years, and the agency estimates that false claims exceed $500 million each year. The IRS said that the computerized Questionable Refund Program holds for further scrutiny less than 1 percent of more than 100 million refund returns annually.

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