The processes used by the IRS to verify taxpayers’ income and withholding status are inadvertently resulting in the issuance of potentially fraudulent tax refunds, according to a new report.

The report, from the Treasury Inspector General for Tax Administration, noted that a common characteristic of fraudulent tax returns is that the income and withholding reported on the tax return are false. The Electronic Fraud Detection System, or EFDS, is the IRS’s main tool for identifying potentially fraudulent tax returns at the time they are processed. As of April 3, 2013, the IRS reported that it prevented the issuance this year of nearly $1.2 billion in fraudulent tax refunds through its income and withholding verification processes. Yet those same processes are nevertheless leading to the issuance of many potentially fraudulent tax refunds.

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