IRS Double-Checking to Verify Refund Claims : Taxes: Precaution will cause some delays. Past fraud has cost billions of dollars annually.

The Internal Revenue Service, which has been losing as much as $5 billion a year in refund fraud, this year is checking every Social Security number on every return that seeks a refund and will hold up payment if the names and numbers don’t match.

The procedure will delay refunds to about 7 million of the 86 million or so taxpayers who will file for refunds this spring, IRS officials said Wednesday.

“Some (refunds) will never go out, some will eventually go out over a period of time, some of those will go out after there’s been an examination to determine whether the claim is in fact correct or not correct,” said Phil Brand, IRS chief compliance officer.

The new program is made possible in part by improved computer capacity and in part by the agency deciding to assign more of its staff to the refund program, officials said.

The IRS staff will type into a computer the Social Security number from a newly filed return and check the Social Security Administration database to see if the number exists and if it goes with the name on the return--a privilege allowed by privacy laws. In the past, this process took so much time that the agency got by with spot checks, officials said.

Returns that are legitimate will be processed as quickly as possible, officials said. Those that are not may be subject to criminal investigation.

Officials said checking Social Security numbers will catch taxpayers who claim bogus dependents as well as more sophisticated scams, such as making up a taxpayer and claiming a refund for him or her.

Typically, the IRS processes paper returns and mails out refunds in about six weeks, faster in the early part of the year when the load is lighter, officials said. Returns filed electronically are usually done in three weeks or so. Most legitimate returns should not be affected, officials said.

A return the IRS deems questionable could be held up as long as eight weeks, even if it checks out as legitimate, officials said. An example of this could be a woman who marries and starts using her husband’s name, they said.

“There will be some individuals who are held up who are fully entitled to the refund,” Brand said. “It’s the unfortunate part about a process like this,” but “what you say is, ‘I’ve got to weigh the balance’ ” against fraud losses.

IRS officials said about 1,300 agency employees at service centers throughout the country have been assigned to follow up on questionable refunds. The IRS has been under pressure from Capitol Hill to deal with incorrect or fraudulent refunds. Programs such as the earned-income tax credit, which allow for “refundable” credits--under which a taxpayer can get back more money than was withheld--have been hit especially hard in recent years.

Many scams have involved electronic returns. A man who had signed up with the IRS as a preparer of electronic returns told a House of Representatives hearing last year that he had filed thousands of false W-2 forms showing that wages had been withheld for workers, and then claimed refunds for them.

Brand said the new system will be especially alert to systematic efforts to bilk the system. He said that in addition to checking Social Security numbers, the IRS will be sending agents to visit some tax return preparers it believes may be suspect.

“As we identify schemes, we will be moving to make arrests or anything else that is appropriate,” he said.

The IRS has already announced other steps to combat fraud, including elimination of the “direct deposit indicator,” an acknowledgment to someone filing electronically that a refund can be expected.

The indicator was a tool of banks and others that make loans based on pending refunds, and they are unhappy with the change.

Brand said such lenders should “make a business decision” on their own about such loans and not rely on the IRS to verify pending refunds.