Washington – Criminal investigators at the Internal Revenue Service froze more than 120,000 taxpayers’ refunds last year on suspicion of fraud without notifying the taxpayers or giving them a chance to respond, the federal National Taxpayer Advocate said in a report released Tuesday.
In fact, based on data from fiscal 2004, the advocate estimated that as many as 1.6 million refunds have been frozen by the IRS’s Criminal Investigation division over five years without letting taxpayers know they were under “suspicion of criminality or giving the taxpayers an opportunity to provide documentation to support their refund claims.”
“At a minimum, this procedure constitutes an extraordinary violation of fundamental taxpayer rights and fairness. In our view, it may also constitute a violation of due process of law,” said Taxpayer Advocate Nina Olson in her annual report to lawmakers on problem areas in tax administration.
Many taxpayers whose refunds were hung up in the process were low-income taxpayers claiming the earned-income tax credit, and in a sample examined by the Taxpayer Advocate Service, nearly two-thirds of them were fully entitled to receive a refund.
“Even in cases where (the investigation division) has made ‘conclusive’ determinations of fraud and characterized the taxpayers as ‘criminals,’ it has not provided the affected taxpayers with any notice or opportunity to present documentation to rebut CI’s suspicion before a final ‘determination’ is made.”
Some refunds are eventually released or the taxpayers subjected to audit. But in many cases, the report said, refunds remain frozen for years.
Taxpayers mystified at the disappearance of their refunds have flooded the Taxpayer Advocate Service with requests for assistance. Last year the service handled more than 28,000 such requests, up from about 16,400 a year earlier.
