TIGTA Report Addresses IRS Business Fraud Detection Efforts
The Treasury Inspector General for Tax Administration (TIGTA) has recently released a report evaluating the IRS’ business identity theft and tax fraud detection efforts.
Per the partially redacted report, the IRS used 84 selection filters last year to identify 60,296 business tax returns claiming refunds for further review as potentially fraudulent. Other fraud detection actions taken by the IRS identified in the report included the development of procedures to rapidly review business tax returns with high refund amounts and putting into place a selection filter to identify discrepancies in estimated tax payment reporting.
The report also stated that the IRS has not been catching all fraudulent business returns. The TIGTA report noted that in its first Business Taxonomy Report published last December, the IRS said it protected almost $3.8 billion in fraudulent tax refunds from being issued since tax year 2016, but identity thieves also received fraudulent refunds ranging from approximately $6 million to $3.2 billion. The TIGTA stated that it was able to identify 3,243 returns filed as of Dec. 31, 2020, with refunds totaling $17.2 million that had characteristics of confirmed fraudulent returns that were not caught by the IRS' filters.
The TIGTA made four recommendations in the report, including evaluating the expansion of clustering in filters, continuing research to make the Identity Protection Personal Identification Number program available to businesses, and developing a program to identify and verify certain information that was redacted from the report. The IRS agreed with three of the four recommendations. It did not agree to develop a program to identify and verify the redacted information. The TIGTA reiterated its belief that a pre-refund process is needed to prevent the distribution of potentially fraudulent refunds.
In response to the TIGTA report, the IRS said it is proud of its work in expanding identity theft protections to more business return filers and that during processing year 2021, use of 84 pre-refund identity theft filters resulted in revenue protection of $7.3 trillion in calendar year 2020 and $2.3 trillion in calendar year 2021. These amounts included revenue protected from possibly fraudulent refund claims connected to returns filed by suspected identity thieves attempting to obtain COVID-19-related refundable business credits.