Waiting for your Refund?- IRS to Review Anti-Fraud Program the Freezes Refunds

Category: Tax Law and Planning

From Yahoo News: IRS to Review Anti-Fraud Program - "WASHINGTON - IRS Commissioner Mark Everson ordered a review Tuesday of a tax fraud detection program criticized for freezing thousands of refunds without notifying taxpayers.

Everson said the tax agency will soon announce new procedures to advise taxpayers when a refund has been frozen. The agency will also revise its fraud screening procedures so that it withholds fewer refunds owed to innocent taxpayers."

Of course, why are you expecting such a large refund in the first place? One way to look at a refund is an interest free loan to the government. After all - all a refund is is a return of your own money that you haven't been able to spend because you voluntarily gave too much to the government in taxes. See my prior post Review your withholding - A Tax Refund is an Interest Free Loan to the IRS about adjusting your withholding to maximize your paycheck.

The article goes on to claim that: "Refunds claimed on tax returns determined to be fraudulent remain frozen for a number of years until the IRS sees the taxpayer file a number of legitimate returns.

The tax agency said it's fighting a rising tide of refund fraud, which it now estimates to be more than $500 million a year. A significant portion involves false earned income tax credit claims, which can amount to $4,400 on a tax return, the IRS said.

Nearly 75 percent of the pool of frozen refunds studied by the taxpayer advocate were low-income families claiming the earned income tax credit, designed to reduce poverty among the working poor.

The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny. The IRS said about 200,000 refunds are held longer than a week, but many of those can be held for months or years."

The IRS admits is does not normally inform taxpayers they are suspected of fraud during the time they are investigating the return - with the result that unless you keep pushing for where your refund is, you may not know why you don't have it.

Having said that, statistics show that the frozen refunds are only a drop in the refund bucket: "The IRS issues more than 100 million refunds each year, and the Questionable Refund Program withholds less than 1 percent for further scrutiny."