IRS supervisors ignored employees who tried to warn agency higher-ups of fraud in a program designed to collect taxes from immigrants, resulting in the agency paying out potentially bogus refunds.
The Treasury inspector general for tax administration said the IRS even eliminated some methods employees had used to figure out questionable refund requests, and that the agency doesn’t have the ability to verify applicants’ identity or foreign status.
Investigators “found an environment which discourages employees from detecting fraudulent applications,” said J. Russell George, the inspector general.
The IRS pays out $6.8 billion in refunds to taxpayers who file using Individual Taxpayer Identification Numbers (ITINs), who are generally immigrants, here both legally and illegally. The amount of fraud was not stated.
The agency said it has put new checks in place to try to crack down on fraud, with employees getting training from the Homeland Security Department on how to verify documents when an immigrant applies for an ITIN.
But the IRS disputed the inspector general’s assumption that fraud is rampant in many of the cases where taxpayers are using the same addresses for multiple applications.
“While this is one of many risk factors for fraud, it is also the case that some taxpayers list the address of the tax-return preparer to ensure that any future correspondence from the IRS is received. The IRS is analyzing this issue in more detail as it conducts its review of the ITIN program,” the agency said.
The auditors took a closer look at fraud after being prompted by senators, who said they’d heard complaints from IRS employees that their warnings were being ignored.
Mr. George confirmed that, saying IRS supervisors were urging employees to turn their backs on potential fraud from identity theft.
“This report is shocking,” said Rep. Charles Boustany, the Louisiana Republican who chairs the House subcommittee that oversees the IRS. “It’s one thing if the IRS tries to catch fraud and fails, but it’s quite another when management apparently takes steps to weaken program integrity.”