The most effective way to prevent tax returns is to identify crooked preparers. That statement was part of the report to Congress this week by the But that still meant that about $1.5 billion in refunds were paid out to fraudsters last year while the IRS stopped another $19 billion from reaching their pockets. That compares to just under $3 billion in fraudulent returns identified for 2002 and $2.5 billion that was stopped before the refund could be issued.
While the group said that stopping fraud by both taxpayers and preparers is important, it noted that, "Identifying suspicious tax preparers is generally a more cost-effective method of enforcing compliance than conducting examinations of individual taxpayer returns."
In reporting the refund figures, the committee noted the need to sunset the current Electronic Fraud Detection System used to detect fraudulent returns. ETAAC’s research showed that EFDS was designed as a workload selection and delivery system, not as a fraud and compliance detection system. Nevertheless, it is the retrofitting of EFDS that has produced the significant rise in detection of fraudulent returns and the prevention of billions of dollars of refunds being issued.
However, the committee noted the IRS is developing the Return Review Program to modernize its efforts. ETAAC endorsed the program and also the IRS goal of expanding its use to balance-due returns.