Special Task Force to Target Tax Cheats : Probe: Inter-agency federal effort will search for ways to halt refund fraud. Returns filed by computer will get particular attention.

Embarrassed by disclosures of widespread losses from tax refund fraud, the Clinton Administration on Wednesday announced creation of a special federal task force to detect and punish tax cheats.

Estimates this week by Rep. Bill Archer (R-Tex.) put losses to the Treasury from tax refund fraud at $9 billion. Archer, the House Ways and Means Committee’s ranking minority member, has joined other congressional leaders in chastising the Internal Revenue Service for its failure to address the problem and in demanding action.

Bowing to congressional pressure, Treasury Secretary Lloyd Bentsen said at a Senate hearing Wednesday that a special inter-agency effort--involving the Treasury Department, the Justice Department and the Office of Management and Budget--will study the tax fraud problem and recommend ways to correct it.

The task force will be particularly interested in recommendations from outside consultants on ways to detect fraud among the estimated 14 million returns filed by computer.

“Not only does the IRS have to go after those who fail to report their income, now they have the added responsibility of quickly verifying information on electronic returns claiming refunds,” Bentsen said.

The problem of tax fraud--particularly stemming from abuse of the earned income tax credit--has been exacerbated by the ease and speed of electronic filing.

While the IRS needs six or seven weeks to process refunds from paper returns, it only requires two or three weeks to send refunds based on electronic returns.

About 55,000 firms or individuals across the nation are now authorized to transmit tax information to the IRS by computer. The agency says the speed of the technology gives it less time to verify taxpayer information and determine whether claims for refunds are correct.

Bentsen told the Senate Appropriations subcommittee responsible for Treasury Department funding that he and IRS Commissioner Margaret M. Richardson “are committed to attacking the fraud problem as aggressively as possible.”

He said the Treasury Department also will ask Congress for extra funds this fiscal year to help the IRS improve enforcement of the tax laws. The department wants $72 million “specially earmarked to go after tax fraud schemes, including electronic-refund fraud,” Bentsen said.

The earned income tax credit is designed to put more cash in the hands of low-income wage-earners. It can benefit workers with children who earn up to $23,500 annually, either by reducing their tax liability or providing a direct cash refund.

Abuse of the earned income tax credit is particularly troublesome for the Administration, which considers it one of the most effective anti-poverty programs in the nation--when used properly. The tax bill passed by Congress last year will expand the credit substantially.

Ronald K. Noble, the assistant Treasury secretary for enforcement whom President Clinton is elevating to undersecretary for enforcement, will head the special task force. His deputies will be Leslie B. Samuels, assistant secretary for tax policy, and Jean E. Hanson, the Treasury Department’s general counsel.

The IRS, which is part of the Treasury Department, will supply personnel and documents to the task force. But the direction of the investigation and the development of policies to reduce fraud will be determined by the Treasury Department leadership, rather than the top ranks of the IRS.

In complaining that the IRS’ fraud prevention and detection systems “are seriously flawed,” the leaders of the House Ways and Means Committee said in a letter to Bentsen last month that the IRS has treated the problem as an internal matter, while denying it faces a crisis.

“Several times over the past eight years, we have been told that everything is under control and that exposing the problem will only make the situation worse,” the letter said. “Knowing what we know now and knowing that IRS has failed to keep this committee and your department fully apprised, we ask that you take charge.”

The letter was signed by Reps. Dan Rostenkowski (D-Ill.), chairman of the panel, Archer, J.J. Pickle (D-Tex.), chairman of its oversight subcommittee and Amo Houghten (R-N.Y.), ranking Republican on the subcommittee.