Summary: A major advantage to filing electronically with the Internal Revenue Service (IRS)--returns are sent via telephone lines and processed by computer--is that taxpayers can receive their refunds faster. The soaring popularity of electronic filing, however, has been accompanied by a rising incidence of fraudulent electronic returns; IRS identified more than 11,000 fraudulent returns in the first seven months of 1992. IRS began tightening its controls in 1992 both by beefing up its screening of individuals and firms who want to file electronically and by increasing the number of fraud detection personnel. These steps probably contributed to the rise in the number of fraudulent returns spotted in 1992. The amount of fraudulent returns that IRS identified but could not stop before issuance, however, increased by 35 percent during the first seven months of 1992 compared to the same period a year earlier--from $6.3 million to $8.5 million. A system of controls to totally prevent electronic filing fraud or to identify and stop all fraudulent returns before they are issued may be unrealistic. In GAO's view, however, additional controls can be implemented to further reduce IRS' vulnerability.
