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The Resource Center Identity Theft & Protection | post

The IRS is making headway in stopping refunds for phony returns

by Steve Schwartz on

Today, let's talk a bit more about that IRS scandal. No not the one dealing with Tea Party organizations and tax exempt status under Section 501 (C) (4). That scandal is getting more than enough media coverage. Let's talk about the other IRS scandal - shoveling tens of millions of dollars in refunds to scammers filing phony returns that endanger legitimate refunds going to identity theft victims after the scammers have used their Social Security numbers.

Key to this discussion is to introduce you to a term you hopefully have not heard before - "predictive filters." I say hopefully because if you do know the term you either work for the IRS or you have been caught in a new predicament. I also will talk about a "4464C" letter - but more about that in a moment.

For the last 18 months, former acting IRS Commissioner Steve Miller and various IRS officials have been called before a half dozen House and Senate committees whose members demanded that the Agency do something to stem the flow of ill-gotten gains going out to scammers and identity thieves.

So the Agency did respond and now enter the IRS Integrity and Verification Operations (IVO) group, and "predictive filters."

The first thing the IRS did, quite logically, was look at the bogus returns that scammers were filing and asking how they differed from real returns that had been, and later were filed, by the rightful owners of the Social Security numbers.

They found a number of variations, which they will not divulge least the worn the bad guys what they are doing wrong. I can guess it was things like a change of address - not a local change - but across the country. It may be a request to have a refund sent to a prepaid debit card and not a checking account that had been used in the past. It may be a situation where deductions have skyrocketed, or the amount of withhold dropped. It could be a number of other factors.

These red flags have been programmed into the IRS computers as predictive filters to identify potential false returns. Many returns, probably numbering in the millions, have been fed through the computers and many have popped out and flagged for further review.

Now enter the fast becoming infamous - "4464C" letter.

Any taxpayer whose return has been kicked out by the filters receives a Form 4464 C letter informing them that their return is being reviewed to allow the IRS to "ensure the accuracy of return information." The letter says the IRS may contact the taxpayer or third parties for further information and that if the taxpayer does not hear from the IRS or receive his or her refund within 60 days from the date of the letter, the taxpayer may contact the IVO group. It is made clear this is not an audit.

During an April hearing before Congress, then Acting Commissioner Miller said the IRS had stopped 350,000 returns with a total $2.5 billion in fraudulent refunds. Since then the number of suspicious returns seeking refunds that have been rejected for further review exceed two million. This means some two million tax filers have received the 4464 C letter.

This also means that the IRS has a lot of returns to sort through and do follow up on. Obviously, this means that many taxpayers who filed perfectly good returns seeking perfectly honest refunds are now waiting for those refunds. As you might also guess there are quite a few of very unhappy taxpayers who have now contacted their Congressional representatives who in turn are now beating the IRS over the head for delaying refunds.

The predictive filter program appears to be paying real dividends, but it has also put the IRS in a dammed if they do, and dammed if they don't situation.