IRS supervisors ignored employees who tried to warn agency higher-ups of fraud in a program designed to collect taxes from immigrants, resulting in the agency paying out potentially bogus refunds, according to an official audit released Wednesday.
The Treasury's inspector general for tax administration (TIGTA) said the IRS is too focused on getting out refunds quickly rather than getting them only to qualified taxpayers. Auditors also said the agency eliminated some methods employees had used to figure out questionable refund requests and doesn't have the right training or tools to screen out bogus identity documents when immigrants apply for taxpayer numbers.
"TIGTA found an environment which discourages employees from detecting fraudulent applications," said J. Russell George, the inspector general.
In the wake of the finding, one congressman called on the IRS commissioner to resign.
IRS pays out $6.8 billion in refunds to taxpayers who file using Individual Taxpayer Identification Numbers (ITINs). They generally are immigrants, here both legally and illegally. The potential amount of fraud was not stated, but the investigators detailed seven schemes that paid out $9 million in tax refunds in 2011
The agency said it has put new checks in place to try to crack down on fraud, including getting training from the Homeland Security Department on how to verify documents when an immigrant applies for an ITIN.
But the IRS disputed the inspector general's assumption that fraud is rampant in many of the cases in which taxpayers are using the same addresses for multiple applications.
"While this is one of many risk factors for fraud, it is also the case that some taxpayers list the address of the tax return preparer to ensure that any future correspondence from the IRS is received. The IRS is analyzing this issue in more detail as it conducts its review of the ITIN program," the agency said in a statement.
The auditors took a closer look at fraud after being prompted by senators, who said they had heard complaints from IRS employees that their warnings were being ignored.
Mr. George confirmed that, saying IRS supervisors were urging employees to turn their backs on potential fraud from identity theft.
Rep. Sam Johnson, Texas Republican, called for IRS Commissioner Douglas H. Shulman to resign.
He has written a bill that would limit the popular child tax credit to only those taxpayers who have a Social Security number. The House passed a bill that included a version of his legislation, but the Senate has not acted on it.
The IRS said the law doesn't prohibit illegal immigrant parents from obtaining the credit, though many members of Congress disagree.
Overall, the audit painted a picture of some cases investigators said should have raised red flags.
For example, investigators said the IRS issued 23,994 refunds to one address in Atlanta, totaling $46 million in refunds.
And one single bank account was issued 8,393 refunds totaling $236,747, while another account was issued 2,706 refunds totaled $7.3 million in 2011.
"This report is shocking," said Rep. Charles W. Boustany Jr., Louisiana Republican and chairman of the House subcommittee that oversees the IRS. "It's one thing if the IRS tries to catch fraud and fails, but it's quite another when management apparently takes steps to weaken program integrity."
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Stephen Dinan can be reached at email@example.com.
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