Archive for Wednesday, January 25, 2006

IRS reviewing program that freezes refunds

January 25, 2006

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— IRS Commissioner Mark Everson ordered a review Tuesday of a tax fraud detection program criticized for freezing thousands of refunds without notifying taxpayers.

Everson said the tax agency will soon announce new procedures to advise taxpayers when a refund has been frozen. The agency also will revise its fraud-screening procedures so that it withholds fewer refunds owed to innocent taxpayers.

"Honest taxpayers expecting a refund deserve to be treated fairly," Everson said.

National Taxpayer Advocate Nina Olson criticized the program in her annual list of the worst problems facing taxpayers. Her office, which helps taxpayers resolve disputes with the IRS, handles more frozen refunds than any other issue.

A study of those cases found no evidence of fraud in two out of three instances.

Lawmakers said the IRS needed to take more care to prevent innocent taxpayers from enduring long delays in receiving a refund, and Everson said critics raised legitimate complaints.

IRS criminal investigators use the Questionable Refund Program to screen tax returns for indications of fraud. It temporarily freezes refunds when it detects evidence of potential fraud. In most cases, the tax agency does not inform taxpayers that they're suspected of fraud. A taxpayer wouldn't be told anything until six months after trying to find out what happened to an expected refund.

Refunds claimed on tax returns determined to be fraudulent remain frozen for a number of years until the IRS sees the taxpayer file a number of legitimate returns.

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