What is the IRS’s Questionable Refund Program?
You may never have heard of a questionable refund, much less a program about them, but it’s real. The IRS’s Questionable Refund Program was created in 1977 to help identify tax returns containing red flags for potential criminal activity so that fraudulent returns won’t be paid. When a questionable refund detection team finds a suspicious return, they refer it to the IRS’s Criminal Investigation division.
Later on, the Identity Theft and Assumption Deterrence Act of 1998 gave additional responsibilities to the Criminal Investigation division. The Act made it a criminal offense to purloin someone’s name or means of identification in order to commit any federal crime or state- or local-level felony. This carries through to the QRP because fraudulent tax returns are often associated with identity theft.
How does the QRP work?
It’s a bit like an audit, but the activity happens before you would be contacted. Historically, the IRS has routinely received tips about potential tax fraud or identity theft from tax preparers, banks and concerned citizens, and it still does today.
In addition to tips from helpful outsiders, however, the QRP has access to the Criminal Division’s Electronic Fraud Detection System, or ELF. The ELF is a computer system programmed to identify certain red flags the IRS is looking for on individual or business tax returns. Not only are those returns flagged, but the ELF provides a great deal of additional data for the questionable refund detection team to use in its analysis and recommendations.
Once a case has been referred to Criminal Investigation for additional scrutiny, the questionable refund detection team seeks to deny any possibly fraudulent refund. Criminal Investigation has full authority to follow up and recommend prosecution under the Identity Theft and Assumption Deterrence Act alone or in tandem with related allegations, such as money laundering or criminal tax offenses.
If the IRS has contacted you about potential criminal activity, your first step is to make sure it’s really the IRS calling. If it is, do not hesitate to contact an attorney with experience handling criminal tax matters. Now is not the time to skimp on legal representation — your freedom could be at stake.