The IRS Commissioner is slated to begin a review of what the IRS calls the “Questionable Refund Program”. This controversial program sometimes blocks folks from receiving their refunds but does not notify them that their refund has been blocked. The IRS will begin certain notification procedures to tax payers to notify them that about their frozen refunds.
“We will announce plans in the very near future to institute notification procedures as well as significant processing improvements to minimize the number of taxpayers whose refunds are frozen unnecessarily,” the commissioner said.
The IRS has received a good amount of heat, and deservedly so, from members of Congress and the National Taxpayer Advocate. They have raised the issues that the IRS is causing lengthy delays and is not providing notification to taxpayers who file for a refund claim that their refund has been frozen. Congress and the Taxpayer Advocate have both asked the IRS to make changes to the program which is keeping law abiding citizens from getting their rightful refunds.
The IRS says that taxpayers who make claims for fraudulent refunds are undermining the integrity of the tax system. The IRS has finally agreed that notification should be given when a refund has been frozen. The IRS Commissioner said. “Honest taxpayers expecting a refund deserve to be treated fairly.” Well, its that a revolutionary idea. The sad thing is that they only arrived at this conclusion after being raked over the fire.
The IRS established the “Questionable Refund Program” to deal with the serious problem of taxpayers filing for fraudulent refunds, which they say has increased significantly in recent years. According to the IRS the number of fraudulent refund claims now exceed a half-billion dollars a year.
Once again Congress is partly to blame for the problem. Congress wants to have their cake and eat it too. Congress wants the IRS to be aggressive in going after fraudsters and collecting unpaid taxes and getting non-filers back into the tax system, but they also don’t want any bad news stories about how aggressive the IRS is. Congressmen don’t like it when they get lots of telephone calls complaining about the IRS heavy-handed tactics. In the past Congress has held a number of hearings urging the IRS to devote “additional resources” (read: attack dogs collection officers) and improve its detection and prevention of fraudulent refunds, particularly those involving prisoners.
The IRS says that a typical fraudulent refund claim involves a taxpayer who is claiming false income and false withholding amounts. A significant portion includes false Earned Income Tax Credit claims of up to $4,400 per return.
Each year the IRS claims it receives more than 130 million individual income tax returns and issues over 100 million refunds totaling over $200 billion. The “Questionable Refund Program” places a hold on about 1 million refunds claims so that they can be reviewed. The IRS says that most of the claims for refund are not held longer than “the normal refund cycle”, but that they do hold about 200,000 or 0.2 percent of all refund claims for a longer period of time, and some “are held for period of months or even years”.
This admission by the IRS is pretty galling. They expect, no, they demand, that we taxpayers meet their requirements in a very timely fashion, yet they sit on these refund claims for months or even years after they would normally be sent out. During this time it appears that they are just taking their sweet time in getting around to handling the cases. And the worst part is that this freeze on a person’s refunds affects their next year’s refund as well, even if both refunds are legitimate. I’m all in favor of stopping fraudsters, but IRS needs to let the innocent folks get their refund.
The IRS admits that some “taxpayers may be unaware that their refunds have been frozen”. This is a great shame, unless it is for the very small number of taxpayers whose refunds have been frozen because they are under criminal investigation.