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Treasury Inspector General for Tax Administration

Press Release

September 17, 2009
Contact: Li-Yun Chien
(202) 622-6500

IRS Pays Millions of Dollars In Interest On Improperly Frozen Refunds

The Treasury Inspector General for Tax Administration (TIGTA) today publicly released its audit report of the Internal Revenue Service's (IRS) handling of taxpayer accounts with large dollar refund freezes.

The IRS's computer system automatically places a freeze on taxpayer refunds exceeding the large dollar refund threshold (currently $10 million) to prevent it from automatically issuing a refund or offsetting another tax liability. This freeze is intended to alert IRS employees that a large dollar refund, if appropriate, must be issued manually. Frozen refunds that are not manually processed in a timely manner are considered to be "improperly frozen."

In reports issued in 1999 and 2002, TIGTA concluded that the IRS was paying interest to taxpayers whose large dollar refunds had been frozen. TIGTA's new report concludes that while fewer taxpayer accounts are being improperly frozen, the Federal government is still paying millions of dollars in interest in connection with such frozen accounts. The IRS is required to pay interest to taxpayers if a refund is not paid within 45 days from the date a valid and timely return is filed. In this follow-up review, TIGTA identified 49 accounts with refunds not released in a timely manner, resulting in the Federal government incurring $62.9 million in additional interest payments. While the IRS was taking steps to release the freeze on 12 of these accounts, the 37 other accounts identified by TIGTA could have remained unnoticed, resulting in an additional $5.92 million in interest each year.

TIGTA also found that the computer reprogramming done by the IRS in response to TIGTA's previous audits was insufficient. TIGTA recommended that the IRS reprogram its computers to properly alert employees about frozen refunds, revise its procedures for processing frozen refunds, and ensure that training materials for those involved with frozen refunds include such procedures.

IRS officials agreed with TIGTA's recommendations and have taken or plan to take appropriate corrective actions.

"Improperly frozen refunds cost American taxpayers millions of dollars in interest each year. Although fewer taxpayers are subject to large dollar refund freezes, the percentage of improperly frozen accounts remains high," commented J. Russell George, the Treasury Inspector General for Tax Administration. To view the report, including scope, methodology, and full IRS response, go to: https://www.treasury.gov/tigta/auditreports/2009reports/200930106fr.pdf


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