Internal audit reveals IRS improperly identified hundreds of thousands of taxpayers as potential frauds

January 12, 2006

An internal audit of the IRS has found that the IRS has improperly identified hundreds of thousands of taxpayers as potential cheats and frozen refunds. Many of the taxpayers are unaware their refunds are frozen because the IRS does not notify taxpayers of their investigations. The audit found that 80% of a sample of cases flaged as potential cheats were actually legitimate refunds.

Many of the frozen refunds were from the poor. The median gross income from the sample was $13,300 with a median refund of $3,519. The median delay was 8 1/2 months.

Republican Senator Charles E. Grassley, Chairman of the Senate Finance Committee, said "Refunds have been a source of abuse recently, but we need to make sure taxpayers have proper due process when the IRS decides to freeze a refund." he noted that taxpayers "can't effectively challenge the IRS' actions."

Democrat Senator said the IRS was after fraud "at the expense of honest taxpayers who need these refunds for food, medicine, home heating and other basic needs."