IRS reported that between January 2015 and November 2017, RRP  prevented the issuance of more than $6.51 billion in invalid refunds. Detection: RRP Uses Multiple Data Sources and Predictive Models, Among Other Techniques, to Detect Suspicious Returns

According to IRS, RRP uses advanced analytic techniques and evaluates  data from various sources to assign multiple scores to individual returns  claiming refunds. The scores are based on characteristics of IDT and  other refund fraud known to IRS. IRS Routinely Monitors RRP’s Performance and Adapts RRP to Improve Detection and Address Evolving Fraud Threats

As the primary system for detecting IDT and other refund fraud and  preventing IRS from paying invalid refunds, RRP is an integral part of  IRS’s ability to process returns during the filing season. IRS Evaluates and Updates RRP Each Year

According to IRS officials, each year beginning in February, IRS  evaluates and updates RRP to improve detection and accuracy for the  next filing season. As IRS Continues to Develop the Return Review Program, Additional Opportunities Exist to Improve Enforcement

		IRS Plans to Expand RRP Capabilities to Further Prevent Invalid Refunds

IRS plans to continue developing RRP to expand its capabilities to detect  refund fraud on business and partnership returns, as well as on individual  returns that improperly claim nonrefundable tax credits. Our prior work has identified actions that Congress could take that would  improve IRS’s ability to administer the tax system and enforce tax laws. IRS officials told us that having W-2s available for analysis sooner  would benefit RRP detection and selection of fraudulent returns. As of April 2018, IRS officials had drafted but not yet approved a work  request to send IRMF data to RRP daily between January and March  during the 2019 filing season. Until IRS makes incoming  employer W-2s available to RRP more frequently, IRS will not address  an opportunity to expand the use of RRP’s systemic verification  process to more accurately detect and select invalid refund returns for  additional action. In each of its  congressional justifications for fiscal years 2012 to 2016, IRS  requested that Congress require returns prepared electronically but  filed on paper include a scannable code printed on the return. This information could  help IRS make progress toward its mission by improving RRP’s  detection and selection of suspicious returns. IRS Has Not Fully Considered Opportunities to Use RRP to Improve Other Tax Enforcement Activities

IRS has not yet evaluated the costs and benefits of expanding RRP to  improve other tax enforcement activities, such as compliance checks or  audits, for returns not claiming refunds. IRS reported that RRP automated and streamlined many of  IRS’s selection and treatment processes for preventing the issuance  of invalid refunds. However, until IRS expands RRP to analyze and score  individual returns not claiming refunds, IRS will be limited in its ability  to use RRP’s data analytics to help IRS address other types of  noncompliance and fraud. These opportunities include examining the costs and benefits of making  more information from paper returns available electronically and making  W-2 information available to RRP for income verification more frequently. Matter for Congressional Consideration

Congress should consider legislation to require that returns prepared  electronically but filed on paper include a scannable code printed on the  return. (Recommendation 1)
The Commissioner of Internal Revenue should update and expand a  2012 analysis of the costs and benefits of digitizing returns filed on paper  to consider any new technology or additional benefits associated with  RRP’s enhanced enforcement capabilities. Appendix I: Return Review Program Investment Summary

The Return Review Program (RRP) is one of the Internal Revenue  Service’s (IRS) major information technology investments.
Why GAO Did This Study

Tax noncompliance, including refund fraud, threatens the integrity of the tax system and costs the federal government hundreds of billions of dollars annually. RRP is IRS's primary pre-refund system for detecting and preventing the issuance of invalid refunds. IRS reported that between January 2015 and November 2017 RRP prevented the issuance of more than $6.51 billion in invalid refunds.
GAO was asked to examine RRP's capabilities. This report (1) describes how RRP detects and selects suspicious returns and prevents invalid refunds; (2) assesses how IRS monitors and adapts RRP; and (3) examines what else, if anything, IRS can do to strengthen RRP and use it to address other enforcement issues.
GAO reviewed IRS plans for RRP and documents on its performance. GAO compared IRS's efforts to federal internal control standards, GAO's Fraud Risk Framework and IRS's strategic plan. GAO interviewed IRS officials who work on and use RRP.

What GAO Found

The Internal Revenue Service's (IRS) Return Review Program (RRP) detects and selects potentially fraudulent returns to prevent the issuance of invalid refunds. According to IRS, RRP uses advanced analytic techniques and various data sources, including prior-year tax returns, to assign multiple scores to individual returns based on characteristics of identity theft and other refund fraud.
GAO found that IRS routinely monitors RRP's performance and adapts RRP to improve detection and address evolving fraud threats. Each year IRS updates RRP's detection tools to improve accuracy for the next filing season.
IRS has plans to continue developing RRP to further prevent invalid refunds, including using RRP to analyze and detect fraudulent business returns. However, GAO identified other opportunities for IRS to improve RRP's fraud detection and to use RRP for other enforcement activities:
RRP's ability to accurately detect and select suspicious returns could benefit from having information on Forms W-2, Wage and Tax Statements (W-2) available for analysis more frequently. As of April 2018, IRS officials said they were drafting but had not yet approved a work request to load W-2s into RRP daily instead of weekly for the 2019 filing season.
IRS could collect more information electronically from paper filers. One approach IRS evaluated in 2012 is to digitize some paper returns using barcoding technology, but it has not updated that analysis or expanded it to consider other digitizing technologies. IRS requested that Congress require that returns prepared electronically but filed on paper include a scannable code printed on the return, but Congress had not done so as of May 2018.
IRS could apply RRP's capabilities to improve other tax enforcement activities, such as audit selection or underreporting detection. Individuals' underreporting of tax liabilities accounts for hundreds of billions in lost tax revenue. Until IRS evaluates the costs and benefits of expanding RRP to analyze returns not claiming refunds, IRS will not have the information needed to make decisions that could help streamline processes for detecting and treating additional types of noncompliance and fraud.

What GAO Recommends

GAO suggests Congress consider legislation to require that returns prepared electronically but filed on paper include a scannable code. GAO is also making five recommendations to IRS, including that IRS take action to make incoming W-2s available to RRP more frequently, update and expand a 2012 analysis of the costs and benefits of digitizing returns filed on paper, evaluate the costs and benefits of expanding RRP to analyze returns not claiming refunds, and take any appropriate action based on those evaluations. IRS agreed with GAO's recommendations.