IRS Efforts to Control Fraud in 1995

Pursuant to a congressional request, GAO reviewed the status and results of Internal Revenue Service (IRS) efforts to reduce its exposure to fraud in 1995. GAO noted that: (1) IRS established electronic filing filters to screen electronically submitted tax returns for missing, invalid, or duplicate social security numbers (SSN) and prevent those returns from being filed electronically; (2) electronic filing filters identified 4.1 million SSN problems in 1995; (3) IRS also expanded its process for determining the suitability of tax return preparers and transmitters in its electronic filing program and eliminated the Direct Deposit Indicator (DDI), which may have encouraged filing fraud for refund anticipation loans; (4) IRS delayed refunds in order to allow more time to verify SSN on paper returns and updated its Questionable Refund Program by revising formulas for scoring fraud potential of tax returns, expanding the Electronic Fraud Detection System (EFDS), and implementing the Abusive Return Tracking System; and (5) declines in fraudulent returns identified by IRS staff in 1995 were most likely due to upfront filters and problems encountered with implementing new procedures.