There is no one easy answer to this statement. However, they rely tremendously on computer technology to help spot potential abuses. Some returns are manually pulled and reviewed, but the IRS uses computers to look for “red flags.”
Much of this electronic screening uses something the IRS refers to as “tolerance levels.” The exact tolerance levels are dollar values or other measures which are programmed into the IRS computers as trigger points and these values and dollar amounts are closely guarded secrets. In fact, the IRS knows the scammers are constantly testing the tolerance levels with fraudulent tax returns.
Some of those tolerance levels are determined by empirical data, which the IRS studies and others are admittedly “picked by the seat of their pants” as stated by Mark Matthews the IRS Deputy Commissioner for services and enforcement from 2003 to 2006.
The IRS said it blocked more than $14 billion dollars in refunds on fraudulent tax returns during the 2011 tax return processing. Most of that was related to identity theft.
Russell George, who heads the Inspector General’s office, told a panel that congress should expand the IRS’s access to wage and withholding data from the department of health and human services social security records to make it easier for the IRS to spot fraudulent refund claims. This will allow them to check the taxpayers filings against the data.
The IRS actually has about 5000 less people working for them in this tax filing season than they did in 2011, 60% of those cuts were in the enforcement area. The total IRS workforce dropped from 94,346 in 2010 to 91,380 in the fall of 2011.
Unfortunately, identity theft fraud cases increased from 2010 to 2011 by 431%.