Good Start for Electronic Tax Filing Season

WASHINGTON - Taxpayers are setting a brisk pace for filing their tax forms electronically this year. Even before the deadline for employers to give out W-2 forms, almost 2.1 million electronic (ELF) tax returns were in -- six percent (113,000) ahead of the filing at the end of January 1992.

Those who try to use electronic filing to send in fraudulent returns are finding that there chance of getting caught are greater than ever as the IRS steps up efforts to snare them faster.

"The IRS won't let a few criminals spoil the benefit of electronic tax filing for the millions of honest taxpayers," Acting IRS Commissioner Mike Dolan said. "If you think you can misuse the system because the technology makes it a quick crime, you had better think again."

Filing fake tax returns to claim false refunds happens every year and IRS criminal investigators at the processing centers routinely review suspicious paper returns. Often such returns use phony income or tax withholding amounts to claim refunds when, in fact, none is due. In most cases criminal investigators identify the fake returns in time to block refunds from being issued. Over the last decade they blocked over 90 percent of the over 48,000 fraudulently claimed refunds on paper returns.

However, the speedy processing of electronic returns caused the IRS to take extra steps to meet the challenge of false electronic returns, since faster processing means less time to intercept false refunds. In 1990, around 400 false (ELF) returns were detected. Last year more than 12,000 such returns were found, partially as a result of the IRS' increased ability to spot fake ELF returns faster. After stopping 40 percent of these refunds on ELF returns in 1990, the IRS caught nearly 70 percent in 1992. Although this saved $22 million in FRAUDULENT refunds from going out, electronic filing schemers still got over $11 million in refunds last year.

Preliminary data this year shows that the IRS has already detected over 350 fictitious electronic returns and blocked 98 percent of the false refunds claimed.

In addition to stopping phony refunds from being issued, the IRS said it will continue to work with the Department of Justice to aggressively pursue criminal prosecutions of all ELF scheme perpetrators. During the last three years, there have been 470 convictions. In December, a dozen college students pleaded guilty to an ELF scheme that involved false Earned Income Credit claims. In another case, a man was sentenced to 15 months in prison in a scheme involving 250 false ELF returns claiming over $750,000 in refunds.

During the past year, the IRS and representatives of the major electronic return preparers and filers have shared information about fraud schemes detected and worked together to address the problem.

One change the IRS put in place means additional screening before a return is accepted for processing. As part of its longterm computer modernization program, the IRS has recently enhanced its capability to provide on-line verification that taxpayer names and social security numbers match. This improves IRS' ability to stop returns with fictitious names or numbers, which are often used in fraud schemes, from ever entering the system.

The IRS also beefed up staffing in processing centers for the questionable refund detection teams. These teams of criminal investigators are trained expressly to review tax filings for suspicious entries or attachments.

In addition, major tax preparation firms have trained their employees to be more aware of suspicious situations.

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