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Update - Erroneous Federal Tax Refund Offsets based upon Fraudulent Returns


Published: January 30, 2012


DATE: January 30, 2012


RE: Update - Erroneous Federal Tax Refund Offsets based upon Fraudulent Returns

Dear Colleague:

As a follow up to DCL-11-17 dated September 9, 2011, I want to update you on our progress regarding fraudulent tax refund offsets. As you know, the Internal Revenue Service (IRS) saw a significant increase in the number of fraudulent tax returns filed in calendar year 2011. We continue to work closely with states in referring suspected fraud cases to the IRS for investigation. To date, our Federal Collections and Enforcement team has submitted more than 4,000 cases referred by 29 states to the IRS Taxpayer Assurance Team, including over 3,300 cases received in late December. We received several hundred responses from IRS in December and shared the results with the affected states.

Many of you are concerned about a potential reversal of these erroneous offsets and the cost to families and states that would have to absorb the loss. To help mitigate these risks, as noted in DCL-11-17, you may delay distribution of a referred offset until the IRS completes its investigation as long as you clearly document the reason for the delay. Some states are proactively investigating their tax offset collections for suspected fraud prior to disbursement. This is not required and it is at your discretion to decide what action is needed. OCSE is also looking at additional ways to help states identify potentially fraudulent offsets, such as providing information on noncustodial parents who had no reported wages in the past year or are incarcerated.

We are in frequent contact with the IRS regarding this issue and they are updating us regularly on their progress to improve tax fraud detection. Some of their planned improvements for 2012 include:

  • Software filters to flag false returns before they are processed and refunds are issued — including spotting certain changes in a taxpayer's filing, such as a change in address or marital status
  • Additional staff and added systemic research tools to expedite investigating and handling suspected fraudulent payments
  • Issuing an Identity Protection Personal Identification Number (IP PIN) to victims of identity theft tax fraud to use when filing future returns (implemented in 2011)
  • Additional screening against tax returns filed by prisoners
  • Adding sections on their website with information on identity theft and what tax fraud victims can do if they suspect their identity was stolen (www.irs.gov - keyword search: identity theft)

We will continue to provide updates on this topic through monthly Federal Offset calls and other correspondence as needed. If you have questions or need additional information, please contact Rebecca Hamil at 202-205-5612.


Vicki Turetsky
Office of Child Support Enforcement

cc: ACF/OCSE Regional Program Managers

Last Reviewed: June 1, 2019

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