The Internal Revenue Service cost the federal government $200 million to $300 million this year because a computer program that screened tax returns for fraudulent refunds wasn't operating.
The tax agency said Friday that a contractor, El Segundo-based Computer Sciences Corp., promised to deliver by January a new version of a program, used since 1996, that searches for signs of fraud in every tax return claiming a refund.
Computer Sciences did not produce a working program by the deadline, and IRS officials could not put the old program back into operation in time for last spring's tax filing deadline.
As a result, the IRS has stopped only 34% of the fraudulent refund claims that it had caught by this time last year, the tax collectors said. It estimates the loss to the government at $200 million to $300 million.
IRS Commissioner Mark Everson said the performance of the IRS and Computer Sciences "were insufficient and are unacceptable."
He said the IRS did not make the problem known earlier so as not to "provide a roadmap for those who would game the system."
Everson said he was reviewing the agency's options with the contractor and had punished or fired some IRS employees. The IRS instructed Computer Sciences to stop work on the new program and restore the old program before taxpayers file their 2007 returns.
The IRS has spent almost $21 million on the project.
Computer Sciences issued a statement Friday saying the company was working with the IRS to make sure that the old system works before taxpayers file their returns next year.
Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said the IRS should not have trusted a contractor that repeatedly missed project deadlines, eventually costing the government millions. "That's money down the drain," he said.
The panel's top Democrat, Sen. Max Baucus of Montana, said the country could not afford to have the IRS add to the billions of taxes that go uncollected every year.
"They need to end this pattern of waste and complacency that costs honest taxpayers so much money," he said.
The IRS has other methods of detecting and stopping fraudulent refund claims. It compares information reported on tax returns with other government records to look for improperly large refund claims. It also tracks returns filed by prisoners to find inmates who file false returns claiming refunds.
An identity theft program helps catch returns filed with improper Social Security numbers. The IRS also keeps tabs on the Social Security numbers of deceased taxpayers to curb fraud.