bustedIn total, the agency failed to prevent 1.1 million potentially fraudulent tax returns for 2011 from being processed, according to an audit by the Treasury Inspector General for Tax Administration. That includes 5,500 fraudulent returns filed by a single tax preparer — for a refund of nearly $27 million — and a payout of $490,000 to an address in Bulgaria that was listed on more than 700 tax returns.

But the report said the IRS is improving. The $3.6 billion in fraudulent refund claims is down from the $5.2 billion the agency paid out the year before.

The IRS said it has caught 12.6 million suspicious returns, amounting to $40 billion in refunds over the last two years. Earlier this year, it arrested hundreds of identity theft suspects in a series of raids.

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