Taxpayer Advocate reports that too many taxpayers who file legitimate returns are being harmed because the IRS’s anti-fraud filters unnecessarily flag their returns and delay their refunds for weeks or months. During the 2019 filing season, the IRS used a new refund fraud filter (known as “Filter X”) that ultimately flagged and stopped the processing of nearly 1.1 million returns. More than half the refunds were eventually paid. The false positive rate for other non-identity theft refund fraud filters was 71% (meaning that 71 out of every 100 refunds stopped by these filters were eventually determined to be legitimate).
The increase in returns flagged by these filters (known as “pre-refund wage verification hold” cases) has had a significant impact on TAS’s case advocacy operations. The number of TAS cases generated by these filters has increased from about 20,000 in FY 2017 to about 92,000 in FY 2019. TAS case receipts have increased by 44% over the past two years, entirely attributable to this category of cases, and this work surge has increased the average cycle time of TAS cases across-the-board. TAS is working with the IRS to try to reduce this workstream of cases for the upcoming filing season.
