TREASURY INSPECTOR GENERAL FOR TAX ADMINISTRATION

Office of Audit

Highlights

THE TAXPAYER PROTECTION PROGRAM INCLUDES PROCESSES AND PROCEDURES THAT ARE GENERALLY EFFECTIVE IN REDUCING TAXPAYER BURDEN

Final Report issued on October 17, 2018

Highlights of Reference Number:  2019-40-004 to the Commissioner of Internal Revenue.

IMPACT ON TAXPAYERS

In January 2012, the IRS established the Taxpayer Protection Program (TPP) to proactively identify and prevent the processing of identity theft tax returns and assist taxpayers whose identities are used to file such returns.  However, as part of the TPP process to identify potential identity theft returns, many legitimate taxpayer returns are also selected.  When this happens, it is considered to be a “false positive.”  Taxpayers selected by this process must contact the IRS to authenticate their identity and confirm that they filed the return so that the TPP can issue their refund. 

WHY TIGTA DID THE AUDIT

This audit was initiated to assess the IRS’s efforts to reduce the burden for innocent taxpayers whose tax returns and refunds are held during processing as a result of TPP identity theft filters. 

WHAT TIGTA FOUND

For Calendar Year (CY) 2017, the IRS reported that the TPP’s false positive rate was 65 percent.  To reduce the number of legitimate returns sent to the TPP, the IRS analyzes results from the prior year’s identity theft filters and modifies or retires filters that select a high rate of taxpayer returns.

The TPP also implemented processes and procedures that were generally effective to reduce burden for taxpayers whose returns are identified as potential identity theft.  Our analysis of returns that were sent to the TPP in CY 2017 through May 25, 2017, and were issued a refund, found that the refunds were issued in an average of 46 days.  The refund issuance time frame is directly contingent upon the time frame in which the taxpayer contacts the IRS and passes authentication in response to a TPP letter.  The 46-day average time is less than the nine weeks that IRS customer service representatives inform taxpayers to expect their refunds.

In addition, the IRS issued a TPP letter to 1,481,740 (99 percent) of 1,501,652 individuals whose tax returns were sent to the TPP in CY 2017, as of May 25, 2017.  For the majority of the 19,912 (1 percent) individuals who were not issued a letter, a programming error prevented the required TPP marker from posting to the taxpayers’ accounts.  Without this marker, TPP tax returns were not held from processing and letters were not issued to the individuals.  The IRS identified the programming error on January 27, 2017, and promptly corrected it on January 30, 2017.

Finally, some taxpayers did not receive refunds to which they were entitled because tax examiners did not properly resolve their cases.  Our review of a statistically valid sample of 26 tax returns sent to the Return Integrity and Compliance Services (RICS) organization by the Compliance Services Collection Operations (CSCO) function in CY 2017 identified that employees did not properly resolve three (11.5 percent) returns, with refunds totaling $261,613. 

In CY 2017, the CSCO function referred 282 tax returns to the RICS organization.  TIGTA estimates that 19 identity theft tax returns referred to the RICS organization in CY 2017 were not accurately resolved, resulting in taxpayer refunds being delayed or not issued.

WHAT TIGTA RECOMMENDED

TIGTA recommended that the IRS review the 256 cases that the CSCO function referred to the RICS organization in CY 2017 that were not included in the sample of 26 cases to ensure that the cases were properly resolved. 

The IRS agreed with this recommendation and plans to review the referred cases for accuracy and completeness. 

READ THE FULL REPORT

To view the report, including the scope, methodology, and full IRS response, go to:

http://www.treasury.gov/tigta/auditreports/2019reports/201940004fr.pdf.

 

Phone Number   /  202-622-6500

E-mail Address  /  TIGTACommunications@tigta.treas.gov

Website             /  http://www.treasury.gov/tigta