Compassionate Conservatism

Do you pay taxes? Sure you do! Because you're not rich.

Tax refunds sought by 1.6 million poor Americans over the last five years were frozen and their returns labeled fraudulent, although the vast majority appear to have done nothing wrong, the Internal Revenue Service's taxpayer advocate told Congress yesterday.

A computer program identified the refund requests as suspect and automatically flagged the taxpayers for extra scrutiny for years to come, the advocate said in her annual report to Congress. These taxpayers were not told that the I.R.S. criminal investigation division suspected fraud.

The advocate, Nina Olson, said the I.R.S. devoted vastly more resources to pursuing questionable refunds sought by the poor - which under the highest estimate is $9 billion - than to the $100 billion in taxes not paid each year by people who work for cash and either fail to file tax returns or understate their income.

As for the suspected fraud in refund requests, Ms. Olson said her staff sampled the suspect returns and found that 66 percent were entitled to the amount sought or more. Another 14 percent were due a partial refund. She expressed doubt that many among the remaining 20 percent had committed fraud.

Unless taxpayers press for their refunds, Ms. Olson said, they "are not given an opportunity to substantiate their claims or to show that any overclaims identified were due to honest error rather than fraud."
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Her staff's sample of frozen returns found that the average reported income was about $13,000 and the refund due was about $3,500.

And just imagine the savings if you can list your official residence as the Cayman Islands.