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IRS has no plans to verify tax returns ahead of refunds: watchdog

WASHINGTON (Reuters) - The Internal Revenue Service is a long way from developing a system to verify an individual's annual income-tax filing before sending out a refund, a government watchdog said on Tuesday.

Individuals who under-report income on their taxes cost the United States billions of dollars a year in revenue, according to IRS estimates.

The IRS does not double-check most tax filings against third-party reporting, such as income information from an employer, before issuing a refund.

By April 19, 2012, the IRS had issued 82 percent of refunds to individual taxpayers, but had received only 30 percent of all corroborating information, according to a report released Tuesday by the Government Accountability Office, Congress's investigative arm.

The idea of "real-time tax" reporting started under former IRS Commissioner Doug Shulman. But the IRS today has no timeline to explore real-time tax options, GAO said.

"Without a timeline for the overall exploratory effort, IRS cannot know if its efforts will be completed in even the broad time frames IRS is considering, and Congress may not be able to determine what legislative action might be required," GAO said.

A list of tentative tax reform options released in March by Senate Finance Committee Chairman Max Baucus, a Democrat, called for improving the IRS process for matching a taxpayer's stated income with information from an employer.

Shulman stepped down at the end of his term in November. Since last month, the IRS has been grappling with a scandal over its practice of targeting conservative groups for extra scrutiny from 2010 to 2012.

(Reporting by Patrick Temple-West; Editing by Kevin Drawbaugh and Mohammad Zargham)

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