IRS improves fraud security

The IRS has crafted a better system for picking out fraudulent tax returns but needs to improve security for that program, a federal watchdog said in a report released Tuesday.

The Department of Treasury's inspector general for tax administration found that the new system, the Return Review Program (RRP), was able to detect returns potentially linked to identity theft not found by the previous Electronic Fraud Detection System.

The inspector general found that, over 32 days worth of testing, the RRP found about 25 percent more identity theft cases, totaling around $43 million in refunds.

But the problem, according to the audit, is that the IRS classifies the new system as a resource and not a major system, which has left some security vulnerabilities. The IRS kicked off the RRP in 2009 and began evaluating its performance last year.

“The RRP test results show potential improvements in the IRS approach to prevent, detect, and resolve pre-refund tax fraud,” Russell George, the tax administration inspector general, said in a statement. “While these potential improvements are encouraging, the IRS must also ensure the system is properly classified and meets security requirements."

The IRS agreed with the inspector general's recommendations, including to shore up any security vulnerabilities. The agency has called identity theft an increasing problem in recent years.