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Refund Delays Continue to Be Big Problem for IRS, Advocate Says

Jan. 8, 2020, 6:05 PM

IRS fraud detection filters continue to incorrectly flag hundreds of thousands of taxpayers’ returns—delaying refunds for people who are counting on receiving them, according to a new report.

An IRS official in May said the agency had adjusted its filters for last year’s filing season so that fewer returns would be wrongly stopped. But new data from the Taxpayer Advocate Service shows the problem persisted.

During the 2019 tax filing season the agency used a new refund fraud filter, known as “Filter X,” that flagged and stopped the processing of nearly 1.1 million returns, acting National Taxpayer Advocate Bridget Roberts said in an annual report to Congress released Jan. 8. More than half of those refunds were eventually paid, she said.

The false positive rate for other non-identity theft refund fraud filters was also high: 71 out of every 100 refunds stopped by the filters was later determined to be legitimate, Roberts said.

Roberts acknowledged that while the filters are flawed, they have been an important tool for combating fraud. The filters saved the agency from distributing about $2.7 billion in improper refunds from Jan. 1 through Sept. 30 of last year, the report said.

IRS spokesman Dean Patterson said IRS leadership will review the advocate’s report and consider it as the agency continues to look for ways to improve and evolve. Roberts said her organization is working with the IRS to try to reduce the problem for the upcoming filing season, which kicks off Jan. 27.

The persisting issue has added to a growing backlog of cases at the advocacy service. The number of cases stemming from the fraud filters increased to about 92,000 in fiscal 2019 from about 20,000 in fiscal 2017, Roberts said.

To contact the reporter on this story: Allyson Versprille in Washington at aversprille@bloombergtax.com

To contact the editors responsible for this story: Patrick Ambrosio at pambrosio@bloombergtax.com; Kathy Larsen at klarsen@bloombergtax.com