The IRS needs to figure out an end-of-life plan for its fraud detection system before it costs taxpayers millions of dollars and results in billions in fraudulent returns, a Treasury Department watchdog said in a report released Wednesday.
The Treasury Inspector General for Tax Administration said the IRS’ Electronic Fraud Detection System could cost taxpayers approximately $18.2 million per year to maintain while the agency prepares to move to its new Return Review Program. Despite the IRS writing in a 2013 report to Congress that EFDS would become too risky to operate after the 2015 filing season, the agency has yet to determine a retirement plan or termination date for the system.
The IRS is replacing the system because it cannot keep up with the number of returns that could be considered fraudulent, including premium tax credits related to the Affordable Care Act that come in the form of a refund. Those credits are considered highly susceptible to fraudulent claims. In all, the IG finds that the structural deficiencies in EFDS could mean $1.5 billion in fraudulent returns for every year the system is not replaced.
The report is just one of many hits the IRS has taken with regard to its IT and information security systems this year. Hundreds of thousands of taxpayers had their information accessed via the IRS “Get Transcript” application by criminals who filed fraudulent returns.
In July, the IG released a report saying the IRS has not given enough attention to features that would provide “dynamic online account access.”
Earlier this month, the Government Accountability Office said the IRS isn’t managing and safeguarding its financial IT systems properly.
The IRS agreed with the findings of the audit, and the agency plans to have a retirement plan for EFDS in place by January 2016.
Read the full report below.