IRS programming glitch costs millions in errant tax refunds

A programming error has cost the Internal Revenue Service millions in faultily disbursed tax refunds, a Nov. 12 Treasury Inspector General for Tax Administration (TIGTA) report made public Dec. 21, revealed.

The refund claims, identified as sketchy by the Return Integrity and Compliance Services' Integrity and Verification Operations  teams, should have been held for further review, but the computer glitch TIGTA discovered did precisely the opposite.

If a return that had been slapped with a two-week resequencing tag was also selected for examination within the IRS' systems, the error would kick in, removing the hold altogether and allowing the suspect refund to be disbursed.

The damage for the 2013 tax year alone: more than 13,000 erroneous tax refunds totaling more than $27 million.

The IRS apparently failed to catch the glitch because of poor oversight of tax return review timelines.

TIGTA also found another 3,910 2013 returns that the IRS had marked for review, but which examiners had left unverified. Those returns cost some $19 million.

TIGTA recommended that the IRS fix the glitch within the IVO system, institute periodic testing to reconcile verification records with other IRS systems and hold reviewers to account when it comes to verifying claims in a timely fashion.

"While the IRS has made important strides in its programs that prevent the issuance of fraudulent refunds, our auditors found that it is not always ensuring that tax examiners timely complete their verification work before releasing refunds," IRS watchdog J. Russell George said.

The IRS agreed with the TIGTA recommendations.