The IRS can do more with its fraud detection system

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The IRS often gets hammered by federal watchdogs for getting IT wrong. Now, the Government Accountability Office wants the agency to expand use of a system that has been successful in identifying fraudulent tax activity.

An Aug. 22 audit found that the IRS has made strides over the last three years improving its Return Review Program, an automated system that leverages advanced analytics and multiple data streams to spot anomalies, inconsistencies and other markers indicating potentially fraudulent tax activity. Agency officials have claimed billions in savings under the program.

However, auditors believe the agency can make much better use of the program if it can collect more information from Americans who file their taxes by paper and apply RRP's capabilities to other tax enforcement activities like audit selection and underreporting of income. If the IRS can rely on the system to spot and detect more illegal or fraudulent activity on the front end, GAO said it believes it will free up enforcement officials to pursue new or emerging fraud schemes on the back end.

The IRS has worked to implement a series of upgrades to the system since it was halted in 2014 due to budget constraints. Last year, then-Commissioner John Koskinen cited improvements to add and expand on the information streams that flow through the system, improving the system's ability to catch tax frauds. An audit from the Treasury inspector general backed up those assertions, finding the system had improved capabilities and raised fraud detection rates compared to a 2015 audit.

The agency is also attempting to limit the amount of personal data that taxpayers provide to third-parties during filing season. This week, IRS announced a new format for individual tax transcripts that partially redacts personally identifiable information -- Social Security numbers, telephone numbers, first and last names and street addresses -- that is frequently obtained and used by scammers to file false tax returns.

"We believe the change we are announcing today will better protect taxpayer data from unauthorized disclosure and theft," said acting IRS Commissioner David Kautter in an Aug. 22 statement.

Auditors want IRS officials to evaluate the costs and benefits of expanding the RRP to other areas, increase the pace of feeding W-2 data into the system from weekly to daily and better digitize returns filed on paper. They also want Congress to look into mandating that returns prepared electronically but filed on paper include scannable codes.

In a letter responding to the findings, Kautter agreed with all the recommendations and promised a more detailed corrective action in the future.

About the Author

Derek B. Johnson is a former senior staff writer at FCW.


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