IRS to launch improved digital tax claim system
The IRS is about to launch yet another digital system designed to spot “frivolous” tax returns after the last several systems let too many bogus claims through, according to a recent tax audit released this month.
The tax agency had thought it had solved the problem when it moved to a new system in 2012, but there was a major drop in the number of frivolous tax claims flagged. Employees eventually figured out the new system was missing a number of bogus claims.
So they went back to the original system — one the agency initially had said was too time consuming. Yet the agency’s inspector general said the IRS is still missing a number of frivolous tax claims, either because employees aren’t trained well enough to spot them or because the dollar threshold for investigating is too high.
The IRS insists it has a new system ready for the upcoming filing season that will finally set things right.
“Our review identified that the IRS’ processes and procedures are contributing to the reduction in claims it identifies,” Michael E. McKenney, deputy assistant inspector general for audit, wrote in his report.
His probe found that about 58,000 returns investigators examined from 2015 didn’t get flagged, even though they should have hit an internal trigger for excessive tax withholding.
“Fraud patterns are constantly evolving. As such, the IRS needs to continuously adapt its detection processes to include evaluating the use of specific dollar tolerances that may be known to fraudsters,” Mr. McKenney wrote.
The IRS lists more than 50 potential frivolous claims, which include a wide range of excuses taxpayers make to get out of paying what they owe. Among those is the frivolous redemption claim, in which taxpayers submit false information about what they earned and what was withheld.
Spotting those claims has long been a goal for the tax-collecting agency.
The original system relied on computer software that forced users to probe data sets for problems, and the IRS said it resulted in employees manually inspecting some 180,000 returns per year.
In 2012, the IRS switched to a new, more automated software system for identifying the frivolous claims.