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IRS Screening for Bogus Refunds Lapsed in '06

July 16, 2006|Mary Dalrymple | Associated Press Writer

WASHINGTON — The Internal Revenue Service cost the government as much as $300 million this year because a computer program that screens tax returns for fraudulent refunds wasn't operating.

The tax agency said Friday that a contractor promised to deliver by January a new version of a program, used since 1996, that looks for signs of fraud in every tax return claiming a refund.

The contractor, Computer Sciences Corp., did not produce a working program by the deadline, and IRS officials could not put the old program back into operation in time for this spring's tax filing deadline.

As a result, the IRS has stopped just 34% of the fraudulent refund claims that it had caught by this time last year, the tax agency said. It estimates the loss to the government at $200 million to $300 million.

IRS Commissioner Mark W. Everson said the performance of the IRS and the contractor "were insufficient and are unacceptable." He said the IRS did not make the problem known earlier so as not to "provide a roadmap for those who would game the system."

Everson said he was reviewing the agency's options with the contractor and had begun disciplining or firing IRS employees. The IRS instructed the contractor to stop work on the new program and restore the old one. .

The IRS has spent almost $21 million on the project.

Computer Sciences Corp. issued a statement Friday saying the company was working with the IRS to make sure the old system worked before taxpayers filed their returns next year.

Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) said the IRS should not have trusted a contractor that repeatedly missed project deadlines, eventually costing the government millions. "That's money down the drain," he said.

The panel's top Democrat, Sen. Max Baucus of Montana, said the country could not afford to have the IRS add to the billions of taxes that went uncollected every year. "They need to end this pattern of waste and complacency that costs honest taxpayers so much money," he said.

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