IRS freezing questionable refunds, says watchdog
WASHINGTON -- The Internal Revenue Service freezes tens of thousands of tax refunds it deems questionable without telling people that they're suspected of fraud, the nation's taxpayer advocate said Tuesday.
Taxpayer Advocate Nina Olson detailed the program, called the Questionable Refund Program, in her annual list of the worst problems facing taxpayers. Her office, which helps sort out disputes with the IRS, has seen a mounting number of people seeking help to claim frozen refunds.
''It is a central tenet of American law that the government must notify an accused person of the offense it suspects he committed and must give the accused person an opportunity to present exculpatory evidence to show his innocence,'' Olson said in her report.
Richard Speier, acting chief of the IRS Criminal Investigation office, said the tax agency is ''very comfortable'' that when it determines that someone committed a fraudulent act that ''we do have that correctly identified.''
Speier said the IRS acknowledges it could do a better job of communicating with these taxpayers. Overall, the program temporarily delays a small number of refunds but stops billions in false refunds from being paid to criminals, the agency said.
6 months for notification
The Questionable Refund Program is run by the IRS Criminal Investigation office and uses computer programs and other methods to screen tax returns claiming refunds for indications of fraud. It temporarily freezes returns that might be fraudulent.
The IRS tries to validate the taxpayers' right to the refund and lifts the freeze if no fraud is found. If the refund cannot be validated, it permanently freezes the refund for further investigation.
The IRS does not inform taxpayers that they're suspected of fraud. Under the program's rules, a taxpayer isn't told anything until six months after trying to find out what happened to the refund.
Once frozen, some tax returns are referred to other IRS offices for an audit. Olson said many probably aren't examined or resolved. Refunds claimed on tax returns determined to be fraudulent remain frozen for an undisclosed number of years until the IRS sees the taxpayer file a number of legitimate returns.
