IRS Moves to Block ‘Rapid Refund’ Scam Artists : Fraud: Treasury Secretary Bentsen says advance notices of credits due electronic filers will cease. They are used by thieves to bilk banks.

WASHINGTON —  In an attempt to thwart thieves who use computers to obtain fraudulent income tax refunds, the Internal Revenue Service said Wednesday that it will no longer provide immediate confirmation that a refund is on the way to taxpayers whose returns are filed electronically.

Treasury Secretary Lloyd Bentsen said that, by no longer confirming refunds within 48 hours of an electronic filing, the IRS will make it more difficult for scam artists to obtain cash advances known as “rapid refunds” from banks via tax preparers.

“The crooks take the money and run, and the taxpayers and banks get burned,” Bentsen said. “So we’re no longer going to tell the electronic filing operations whether a refund is likely to be coming. The taxpayers will still get any refund they’re due but we won’t be sending out that notification.”

Banks grant “rapid refunds” to taxpayers who show that they have a tax refund coming. The bank pays the amount of the refund, after taking a percentage for its trouble, then receives the full refund when the government pays.

When fraud occurs, if the bank has paid the person who filed the return but the government has not paid the bank, it is the bank that loses, said Frank Keith, chief of media relations at the IRS.

However, when the government has paid the bank, Keith said, taxpayers lose.

Treasury officials said that fraudulent tax filings cost the government as much as $5 billion annually.

The policy change is aimed primarily at fraud involving the Earned Income Tax Credit, which provides payments or reduces tax liability for low-income working families with children.

Bentsen said that, during the last two weeks in January, 1.3 million electronic returns were filed claiming the Earned Income Tax Credit. IRS studies indicate that 29% of those filings probably claimed more than was due.

Tax preparation industry representatives are still studying the announcement and withheld comment Wednesday.

Bentsen also announced that he would develop proposals to deny the Earned Income Tax Credit to illegal immigrants. The IRS estimates that more than 150,000 illegal immigrants claimed the credit this year on 1993 taxes.

Fraud can easily occur with illegal immigrants, Bentsen said, because there are no records to verify the existence of children they might claim.