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Audit shows one Raleigh address received 2,408 tax refunds in 2011

RALEIGH A federal audit shows that the Internal Revenue Service issued more than 2,400 refunds to a single Raleigh address in the 2011 tax year – a prominent example of the agency’s poor performance in rooting out fraud.

Refund dollars sent to that undisclosed Raleigh location totaled $7.2 million, the third-highest amount on a nationwide list of recipients that year. One address in Atlanta saw more than 20,000 refunds delivered worth $46.3 million.

The audit report, released last year, sharply criticized the IRS for its oversight of ITIN, or Individual Taxpayer Identification Numbers. These are generally given to nonresident immigrants working both legally and illegally who are not eligible for Social Security numbers.

The Treasury’s inspector general for tax administration found in 2012 that the IRS is focused on processing paperwork quickly rather than on making sure refunds go to qualified applicants.

Some of the problems noted in the audit:

• Copies of documents were routinely accepted rather than originals, a policy other federal agencies do not follow.

• Tax examiners were given time limits for processing applications and were discouraged from reviewing applications with questionable information.

• Newly hired examiners received only about an hour of training on spotting doubtful documentation, with approximately 15 minutes of refresher training.

“The process is so deficient that there is no assurance that ITINs are not being assigned to individuals submitting questionable applications,” the audit said.

IRS spokesman Dan Boone declined to comment this week beyond the agency’s official response in 2012, which defended the ITIN program but agreed with the Treasury audit that changes needed to be made.

“It is important to recognize that the ITIN program is essential to the processing of tax returns that report tens of billions of dollars in taxable income and billions of dollars of tax,” he said.

Boone would not disclose the Raleigh address cited in the audit or comment on whether the refunds sent there are being investigated.

Kate Woomer-Deters, staff attorney with the N.C. Justice Center, said small business owners also use the ITINs – not just undocumented immigrants. The numbers are issued to anyone not using a Social Security number, particularly those being paid cash or who are self-employed. It’s a good guess that without ITINs, some people wouldn’t be paying taxes at all, she said.

She added that the ITIN is a benefit because it can serve as an encouragement to comply with the law.

“A lot of folks feel like any immigrant reform that comes down the pike, they will look at whether you’ve paid taxes in the past,” she said. “They pay to show they are good citizens and are of good moral character.”

The potential for fraud isn’t unique to the ITIN system, Woomer-Deters added . People paying under a Social Security number may also take advantage of the system.

Little initial reaction

Though the Treasury report first appeared in 2012, it garnered little reaction at the time.

The Treasury auditors responded to IRS employees’ complaints that were forwarded to the Treasury by a U.S. representative and senator. They alleged that IRS management ignored fraud because processing a large inventory of applications provided job security.

Rep. Sam Johnson, a Republican of Texas, called for then-IRS Commissioner Douglas Shulman to resign. “I am deeply outraged by this report,” Johnson said. “American taxpayers deserve better protection of their hard-earned money.”

A spokesman for Rep. George Holding, a Republican whose district includes part of Raleigh, had not heard of Raleigh’s placement in the audit this week.

Last December, the Treasury issued a follow-up report citing progress. The number of rejected ITIN applications rose 50 percent between July and December 2012, compared with the same period in 2011.

But even then, Raleigh remained high on the list of most frequently used refund addresses: 124 sent to one place, fourth-highest behind Atlanta, with more than 1,000 to one address.

New attention

The 2012 audit gained traction among conservative bloggers this week following disclosure from CNSNews.com based in Reston, Va.. News of the ITIN refunds acted as a parallel to reports that the IRS targeted tea party and other conservative groups.

In addition to the list that showed a Raleigh address receiving 2,408 refunds in 2011, the audit also detailed addresses nationwide with the most ITINs assigned to them. Phoenix led the list with 15,795 ITINs to one address in 2011, submitted by 74 individuals.

Morganton, NC, with a population near 17,000, came in at No. 10: 6,411 ITINs issued to a single address, submitted by 132 people.

Shaffer: 919-829-4818
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