Grassley Urges IRS To Amend Anti-Fraud Program On Refunds

by Mike Godfrey, Tax-News.com, Washington

23 January 2006

In a letter to US Treasury Secretary John Snow last week, Senate Finance Committee chairman, Charles Grassley (R-Iowa) expressed concern with regard to the many thousands of tax refund freezes put in place by the Internal Revenue Service this year, an issue also recently raised by the National Taxpayer Advocate, Nina Olson.

A report submitted to Congress earlier this month by Ms Olson, while expressing support for a strong IRS enforcement presence, also warned that the IRS is expanding enforcement at the expense of taxpayer service.

The report cited Criminal Investigation (CI) refund freezes as the second most serious problem facing taxpayers, stating that CI places “freezes” on hundreds of thousands of refunds each year due to a suspicion of fraud and then makes a “determination” whether the returns are, in fact, fraudulent without notifying taxpayers that their refund claims are under review or giving them an opportunity to present evidence supporting their positions.

In FY 2004, more than 28,000 taxpayers whose refunds had been frozen sought assistance from the Taxpayer Advocate Service (TAS). The TAS research function studied a statistically representative sample of these cases and found that, with TAS assistance, taxpayers ultimately received the full amount of the refund they had claimed in 66 percent of the frozen-refund cases and a portion of the refund they had claimed in an additional 14 percent of the cases.

Olson urged the IRS to implement procedures to notify taxpayers promptly that their refunds have been frozen, provide taxpayers with an opportunity to submit supporting documentation, and bring cases to a quicker resolution.

Calling for the tax authority to provide at least ninety days notice that an anticipated refund has been frozen, Senator Grassley stated in his letter that:

"As is so often the case with the work of the IRS it is a necessary balance between taxpayer rights and enforcement of the law. My concern is that the balance has been lost in this case when the...taxpayer is provided little, and sometimes zero, timely notice that they will not be getting a refund."

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