Wednesday, September 18th, 2013 @ 1:42AM

WASHINGTON | Mon Aug 26, 2013 6:15pm EDT

(Reuters) – The U.S. Internal Revenue Service is lagging in efforts to upgrade a key software program needed to prevent the burgeoning problem of tax refund fraud schemes, the agency’s watchdog said on Monday.

Facing an estimated $5 billion a year in tax revenue lost to identity theft refund fraud, the IRS is upgrading its software to make it harder for criminals to cash in bogus tax refunds.

But the upgrade to spot illicit tax filings – one of many tools the IRS is employing to combat the problem – came under renewed pressure from the Treasury Inspector General for Tax Administration, which on Monday identified weaknesses in the program’s rollout.

"The IRS must take further action to ensure the successful deployment and implementation of its new fraud detection system," TIGTA said in a report.

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