Monday, April 9, 2012

IRS 'nice bad guy' act has some side-effects

By Allison Linn

You?ve filed your tax return. Now comes the happy anticipation of wondering how quickly your refund will show up ? and grousing when it isn?t in your bank account quickly.

The IRS has for years faced intense pressure to make the painful process of paying taxes more palatable by at least providing a zippy tax refund. But such service may be coming at a price as the Internal Revenue Service faces a surge of identity theft tax fraud, as well as the usual tax cheats.

Some victims complain that much of the fraud could have been avoided if the Internal Revenue Service had more carefully screened the fake return in the first place.

?From a publicity point of view you?re trying to be the nice bad guy,? said Roberton Williams, senior fellow with the Tax Policy Center.

That is a tough balance, he pointed out.

"(They are) supposed to process returns very quickly and worry about the fraud aspect, and at the same time Congress is saying, 'Do it with less money,'" Williams said.

The IRS has struggled with its image for decades, wrangling with a dual role of helping taxpayers file their returns and enforcing against tax cheats.

The agency, once known as the Bureau of Internal Revenue, changed its name to the Internal Revenue Service in 1953 in an early effort to appear more customer-centric, said Joseph Thorndike, director of the Tax History Project for Tax Analysts.

But hatred is not too strong a word to express how some people feel about the agency. In 2010 a tax protester crashed his plane into an IRS office in Austin, Texas, killing himself and an agency employee. At the time a Treasury official said there were more than 1,000 threats a year against IRS employees, a figure that had been climbing.

The IRS also struggles with funding. Last year President Barack Obama sought to boost the agency's $12.1 billion budget by more than $1 billion, so it could hire more workers. Instead Republicans led a successful effort to trim the budget to $11.8 billion.?

Pressure to speed the refunds can be be intense in a soft economy, when individuals ? and the economy in general ? could use that money.

The IRS processed about 145 million returns last year, and three-fourths of those taxpayers got refunds. The average refund was about $3,000.

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But the IRS has stepped up screening efforts to try to stop fraud. Spokesman Terry Lemons said IRS officials have identified about 2 million individual returns for review so far this tax season, out of about 84 million that have been received. That?s about the same number of returns that it reviewed in all of last year.

When the IRS does flag a return for such a fraud screen, Lemons said the delay in sending out a refund will vary widely depending on what agents find.

The IRS also has gradually increased the number of returns that get audited over the past decade or so, following a drop-off in 1998, when the IRS went through a major overhaul to focus more on customer service. It currently audits about 1 percent of all returns, Lemons said.

He concedes it?s tricky.

?On the one hand you have millions and millions of taxpayers who have worked hard and are entitled to refunds, and they should be able to get that as quickly as possible,? Lemons said. On the other hand, he said, the IRS has an obligation to taxpayers to make sure returns are checked thoroughly for potential fraud.

In testimony to a Congressional subcommittee last month, Nina Olson, the taxpayer advocate, said that although taxpayers who are victims of fraud need to be protected, so do the majority of legitimate taxpayers who rely on their refund checks.

?With the introduction of e-filing, combined with the increasing number of refundable credits run through the tax code, our tax system has shifted, for better or worse, to one of instant gratification,? Olson said in the written testimony.

Still, she noted, ?The benefit of enjoying such a tax system is somewhat offset by the increased ability of perpetrators to defraud the government.?

Over the years, he said, the IRS has seemed to sway back and forth depending on the political mood and other factors, said Thorndike, the tax historian. Now is one of those times when Thorndike thinks sympathies are more with helping the taxpayer.

?This is the age of the Tea Party, at least sort of, still, and that makes people even more unsympathetic to the federal tax collector,? Thorndike said. ?So it?s not a great time for the IRS to be doing anything other than emphasizing customer service.?

Is the IRS striking the right balance? Tell us on our Facebook page.

Would you be willing to see a delay in tax refunds in exchange for more fraud screening?

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