IRS’s Outdated Fraud Prevention System Could Cost Taxpayers Millions

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Juliegrace Brufke Capitol Hill Reporter
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The Internal Revenue Service’s systems for detecting fraud may wind up costing taxpayers millions, a Treasury Inspector General for Tax Administration audit found .

According to the report, the IRS has been using a program, the Electronic Fraud Detection System, developed in 1994, as its primary safeguard against fraud. But due to software limitations of the EFDS, the agency has been testing an alternative for the past two years.

Upkeep of the EFDS in conjunction with the development of its projected replacement, the Return Review Program (RRP), could cost taxpayers upwards of $18.2 million annually. The agency says keeping the old system in place would be even more costly in the long run.

Sen. Chuck Grassley sent a letter to the IRS Commissioner John Koskinen in 2014 expressing his concerns over its 2015 plans for fraud prevention. The Iowa Republican said it is “alarming” a new system had not been implemented since the agency said it was “too risky to maintain, upgrade, or operate beyond 2014.”

The IRS has yet to set a date to terminate the EDFS, but said it would follow TIGTA’s recommendation and try to finalize a retirement plan for the program by the beginning 2016.

The IRS is responsible for overseeing the Affordable Care Act premium tax credits. Premium tax credits are said to be one of the most heavily targeted areas for fraud, creating more issues for the archaic system the agency is using.

“As stated in the IRS’s Fiscal Year 2015 Congressional Budget Submission, the EFDS is vulnerable to structural failure and potentially the inability to detect up to $1.5 billion in fraudulent refunds each year that it is not replaced,” the report reads.

Despite the risk of losing billions to fraud, the RRP system won’t be ready until at least January.

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