Audit: IRS coding error led to $27M erroneous refunds

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The IRS sent out more than 13,000 refund payments last year, amounting to more than $27 million, despite the fact the returns were flagged as potentially suspicious by tax examiners, owing to a programming error in its software that remains unfixed, the agency’s inspector general said in a report Monday.

“While the IRS has made important strides in its programs that prevent the issuance of fraudulent refunds, our auditors found that it is not always ensuring that tax examiners timely complete their verification work before releasing refunds,” Treasury Inspector General for Tax Affairs J. Russell George said in a statement.

The report does not say who was responsible for the programming error, and the inspector general’s press office did not provide any more information.

The report states that how much of the $27 million was actually fraudulently claimed “is contingent upon the verification of income and withholding information shown on each tax return.” Verification did not take place for for the 13,043 returns identified by the auditors, because the refunds were erroneously issued first, and the inspector general’s press office did not provide any further guidance on the issue.

The report explains the programming error meant that when a refund return was flagged both for a two-week delay because it had been identified as potentially fraudulent and for a longer delay because it had been identified as “claiming a questionable tax credit,” everything except the tax-credit portion of the refund was sent out anyway “before the IRS [could] complete its verification of income and withholding.”

The report adds that the IRS in June submitted a “programming update request” to fix the problem, “however, the implementation of such programming changes are subject to budgetary constraints, limited resources, and competing priorities. Consequently, and due solely to those constraints, the IRS cannot provide an implementation date.”

Contact the reporter on this story at shaun.waterman@fedscoop.com. Follow him on Twitter at @WatermanReports or on LinkedIn at http://www.linkedin.com/in/shaunwaterman. Sign up for stories like this every morning in your email inbox at fdscp.com/sign-me-on

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Citizen Services, Department of Justice (DOJ), Departments, Federal Bureau of Investigation (FBI), Government IT News, Internal Revenue Service, oversight, Regulations & Oversight, Treasury Department
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