Did The IRS Really Issued $1B In Bad Refunds In 2007?

The Inspector General seems to think so:

The government sent out more than $1 billion in fraudulent refunds last year and offered this explanation Thursday for the bad checks in the mail: The Internal Revenue Service has too few resources to pursue every tax fraud case.

IRS investigators never even looked at an estimated $742 million in fraudulent refunds, according to a report by the Treasury Department office that monitors the agency. When they did identify an additional $264 million in bad refunds, it was too late to stop them from being issued.

Reading further into the story, it sounds like what the Inspector General is really saying is that that because the IRS lacks the resources to audit every tax return, most tax returns are fraudulently understating income and overstating expenses. Thus, most refunds are larger than they should be.

Well, that's mighty nice of the Inspector General to overreach like that. For my clients, we're accurately reporting income and expenses and taking full advantage of the tax laws to reduce tax burdens. There's nothing fraudulent about that. We're claiming refunds for our clients that our clients are legally entitled to.

This report sounds like just the ammunition the IRS needs to go to Congress to ask for more funding. And it's nothing but hype. It will be troubling if Congress listens to this - and there's no reason to believe they won't - and increases funding, though I doubt they'll do that because of other budget shortfalls. Instead, Congress'll direct the IRS to the priorities Congress chooses and if that means closer scrutiny of tax returns, well, that's what the IRS will do.

Tough times loom ahead for taxpayers, not only with a probable increased tax burden thanks to a new administration but with an ever-increasingly invasive government prying into taxpayers' financial affairs. Look out!