Is the cost of the IRS' new fraud detection program justified?

The Internal Revenue Service has electronic procedures for reviewing tax returns for indicia of fraud. Yet by the IRS’ own admission, their fraud detection system may be outdated.

The current system was developed in 1994. Called the Electronic Fraud Detection System, the program's primary goal is to avoid the issuance of fraudulent refunds. The new program is called the Return Review Program, which reportedly takes advantage of advances made in new technology since 1994. 

Yet replacing the EFDS with the RRP seems to have hit a roadblock. According to an IRS official, a plan is not yet in place for completely retiring the EFDS. If both fraud detection programs are run simultaneously, the additional operational and maintenance costs to taxpayers might total around $18 million per year.

Businesses are clearly a focus area of fraud detection programs, as the IRS wants to avoid paying out refunds to imaginary businesses. Yet will the new system create tax controversies where none should rightfully exist? Regardless, the process for responding to a tax controversy will presumably remain the same.

Under either fraud detection system, an attorney can help represent an individual or corporate taxpayer in a broad range of interactions, including collection, examination and appeal matters before the IRS. If administrative remedies do not result in a resolution, an attorney can also represent a taxpayer in court. Our law firm focuses on serving business tax clients in Washington, D.C. and the surrounding communities in Maryland and Northern Virginia. We understand how to effectively negotiate with local IRS counsel. Check out our firm’s website to learn more.

Source: Accounting Today, “IRS Struggling to Ditch Outdated Fraud Detection System,” Michael Cohn, Nov. 25, 2015

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