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The Resource Center Identity Theft & Protection | post

A Little Compassion for the IRS

by Joe Mason on

I think the day has arrived. I think it's time to show a little compassion for the Internal Revenue Service as the Agency is being pulled in two very opposite directions with, to some degree, taxpayers caught in the middle.

Congress' last-minute passage of legislation to avoid the so-called financial cliff contained a number of significant changes to the tax code. That meant that the IRS had to reprogram its computers in order to process 2012 returns.

In turn, the Agency's only option was to delay the processing of 2012 returns until the last day of January. The start of processing has resulted in a torrent of electronically filed returns, and with that deluge comes the clash of priorities.

Because of the delay in the start of processing there is intense pressure to get refunds in the mail or sent electronically to the banks of taxpayers who have been waiting. But at the same time Congress has been all over the Agency to radically reduce the number of refunds being sent to scammers who are electronically filing phony returns seeking false refunds.

See the obvious conflict?

On the one hand the Agency says it has in place new safeguards to prevent — or all least cut down — on the number of fraudulent returns that generate refunds. But at the heart of this new system are computer programs that are looking for tell-tale signs of a fraudulent return, and will kick those returns out of the system where they can be manually reviewed by the Agency's growing cadre of identity theft specialists.

Many of the false returns that are filed seek sizable refunds. One hope is that the people filing these returns will make mistakes because they are not up to date on last-minute tax code changes and, as a result, their returns will be kicked out to be manually examined, or will be rejected and returned to the sender to be refilled with changes made.

There is also a hope that many taxpayers are heeding the IRS' advice to file early and, as a result, their legitimate returns will be in the system when a phony return using their name or Social Security number shows up, and the two returns will kick out of the system with the fraudulent return obvious.

But this new computer monitoring that has been installed in itself will likely generally slow down the electronic processing of refunds. It will not be long before impatient taxpayers waiting for legitimate refunds will begin bombarding the Agency, and not long thereafter those taxpayers will complain to their Congress-persons who will in turn demand action to get refunds out.

This seems like a textbook example of being caught between a rock and a hard place or damned if they do and damned if they don't. Maybe things will work out right — legitimate refunds will flow out to taxpayers while the phony returns will be caught, no refunds will go out, and the proper law enforcement agencies brought into the picture.