The Internal Revenue Service issued more than $46 million in erroneous tax refunds due to a computer glitch and ineffective monitoring, issues that left uncorrected could cost taxpayers up to $230 million over the next five years.
The Treasury Inspector General for Tax Administration (TIGTA) released an audit Monday faulting the IRS for approving thousands of potentially fraudulent tax refunds in 2013.
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"TIGTA identified that because of a programming error, over $27 million of refunds were erroneously issued for 13,043 Tax Year 2013 tax returns," the audit said. "The programming error is overriding the IRS’s two-week processing delay on some refund tax returns that are identified by the IRS as potentially fraudulent."
The audit said the returns were flagged for claiming a "questionable tax credit" but were then automatically issued before the IRS could complete its verification process.
In addition, the audit identified 3,910 "potentially fraudulent" tax returns that were issued due to ineffective monitoring, totaling $19 million.
"The IRS did not ensure that tax examiners timely completed their verification work," the audit said. "Name mismatches in IRS systems prevented refund holds from posting to tax accounts. Refund holds were either not set correctly or not functioning as intended."
Rep. Diane Black (R., Tenn.) called for IRS Commissioner John Koskinen to step down for what she called the latest misstep by the agency.
"We didn’t need another reminder that the IRS is mired in incompetence and mismanagement, but we got it anyway," she said in a statement. "This latest study comes on the heels of stinging reports that IRS employees failed to pay their own tax bill and granted illegal contracts to tax cheats. It is abundantly clear that Commissioner John Koskinen has failed in his duty to restore trust at the IRS and must be replaced, but Congress is not guiltless either."
"Just last week, my colleagues voted over my objections to give this bureaucracy another $290 million in the bloated omnibus bill," Black continued. "Only in Washington is this kind of ineptitude rewarded with a bigger check. Taxpayers have every right to be outraged by the dysfunction at the IRS–I know I am."
The audit predicted that the programming error could lead the IRS to issue $135.5 million in erroneous refunds over the next five years. Ineffective monitoring could also cost taxpayers more than $95 million in erroneous refunds because "tax returns are not being verified as required."
In all, the mistakes could cost $230.4 million over the next five years.
The audit recommended that the IRS improve its screening and verification processes.
"In addition, procedures should be revised to ensure that when tax returns identified as potentially fraudulent are also assigned to another IRS function, the tax refunds are held until the tax return is screened and verified," the audit said. "IRS officials agreed with our recommendations and planned to implement actions to extend tax account freezes to prevent the release of potentially fraudulent tax refunds."
"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," said Treasury Inspector General for Tax Administration J. Russell George.