The ongoing fight against identity theft and related tax refund fraud has prompted the IRS to beef up its procedures of detecting such activities. The IRS installed new anti-fraud software but no software is without its bugs. As a result of problems in calibrating it for it to more accurately spot potential schemes on tax returns, some returns that contained accurate information were flagged as potentially fraudulent when they were not, causing delays in processing those returns.
According to IRS spokesman David D. Stewart, "The delay was in calibrating the system for fraud detection". During the initial delays, taxpayers who tried to use the popular Where's My Refund program got little or no information because the system was down for several days, Stewart added. But since then, the IRS has overcome much of the glitches initially experienced.
The software program used for fraud detection is developed by SAS which is used for analyzing legislation and tax-code changes, predicting the tax-revenue impact of events like Hurricane Katrina, and formulating long-range collections forecasts for the US Treasury. IRS Economist Dan Howar and his colleagues have directed their energies on campaigns to reduce fraud and abuse and improve the efforts of the agency's collections team. For instance, the IRS estimates that between 21-26% of all claims for the Earned Income Tax Credit (EITC) are paid in error, although many such errors are unintentional due to the complexity of the law governing EITC. On the other hand, some claims are clearly fraudulent, potentially costing the government billions of dollars in bogus claims.
Howar said, "SAS® Enterprise Miner™ is helping us identify likely candidates for further investigation. That's enabling us to identify and educate filers and tax preparers to correct the improper returns. And, we're using the same techniques and models to perform similar analyses of telephone tax refunds, and fraudulent tax filings among prisoners. Given the volume of claims involved, it's safe to say that SAS Enterprise Miner is playing a key role in IRS efforts that are saving taxpayers many millions of dollars in inappropriate claims that might otherwise go undetected."
One of the key factors under IRS scrutiny is its accounts receivable i.e. the amount of uncollected money that is assessed and must remain on the books by statute for ten years. Some of these unpaid assessments are potentially collectible as a result of taxpayer agreements, court decisions, liens and other measures.