IRS Fraud Crackdown Slowing Refunds, Investigators Say

The Internal Revenue Service has delayed 1.5 million refund claims so far this year and millions more will be slow in arriving because of the agency’s anti-fraud crackdown, congressional investigators said Monday.

Among the returns subject to the delays are those with Social Security number discrepancies and those that claim the earned-income tax credit for the working poor, the General Accounting Office said.

IRS Commissioner Margaret Milner Richardson apologized for the delays, which can be as long as eight weeks, but said the agency must be aggressive in its attack on fraud. Tax fraud has been estimated to total as much as $5 billion a year. Returns filed electronically through tax-preparation services are also being flagged for special attention.

“I regret there are people who are legitimately entitled to refunds . . . caught in the initial screens, but we’ve been very concerned about the integrity of the system,” she told the House Ways and Means oversight subcommittee.

Tax professionals said women who change their names because of marriage or divorce will be affected as well if they haven’t told the Social Security Administration of the change.

After years of complaints that it was not doing enough to stop fraudulent refund claims, the IRS this year began using computer screenings to flag returns claiming the earned-income credit. It also began checking the Social Security numbers of spouses and dependents, in addition to those of the returns’ filers, in an effort to snag phony exemption claims.

Separately, the GAO said IRS taxpayer assistance telephone lines continue to be overwhelmed with calls in anticipation of the April 17 filing deadline, with seven in eight going unanswered during a spot check earlier this month.