It didn't take long for the Internal Revenue Service to move forward in combating one of the major complaints outlined in the Jan. 10 report from the national taxpayer advocate.

IRS Commissioner Mark W. Everson announced that he has directed a review of the Questionable Refund Program, which will include notification procedures pertaining to frozen refunds.

"We will announce plans in the very near future to institute notification procedures as well as significant processing improvements to minimize the number of taxpayers whose refunds are frozen unnecessarily," Everson said, in a statement.

Taxpayer Advocate Nina Olson wrote in her annual report that her office, which helps taxpayers resolve disputes with the IRS, handles more frozen refunds than any other issue. She said that her staff sampled a number of returns earmarked by the program in 2005, and found that more than two-thirds of the taxpayers were entitled to the amount originally sought or more.

Olson also noted that the IRS devotes more resources to pursuing questionable refunds sought by the poor than to the $100 billion in taxes not paid each year by people who work for cash and either don't file tax returns or understate their income.

In most cases, the IRS does not inform taxpayers that they're suspected of fraud, with the agency's explanation being that many of the returns are subject to additional criminal investigation . A taxpayer wouldn't be told anything until six months after trying to find out what happened to an expected refund.

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. Of the refund claims held beyond the normal refund cycle, about 200,000 of all refund claims are held longer than one week, though many refunds are held for a period of months or even years.

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