Rampant identity theft taxes the IRS
The Internal Revenue Service (IRS) is struggling with widespread identity fraud, leading to a backlog of 500,000 unresolved fraud cases, leaving taxpayers without the refunds and tax credits they deserve, the agency’s watchdog wrote in a report to Congress on Wednesday.
The National Taxpayer Advocate report described the slow pace of addressing identity fraud cases as a “blemish” on the performance of the IRS, which is in the midst of a sweeping modernization campaign aimed at improving services for taxpayers. While the IRS has been watchdog for identity theft delays last yearthe gap has only grown.
The IRS takes nearly two years to process relief cases from identity fraud victims and has an inventory of about 500,000 cases, up from 484,000 cases in September.
“IRS delays in resolving identity theft victim assistance cases are unconscionable,” taxpayer advocate Erin Collins wrote in the report.
She called on the agency to prioritize helping victims, adding: “Nearly two-year delays make a mockery of the Taxpayer Bill of Rights’ right to quality service.” The backlog of cases is likely to give congressional Republicans more fodder to criticize the IRS and call for it to cut back more of the $80 billion in funding the agency received through the Inflation Reduction Act of 2022. Critics of the agency have argued that it is bloated and failing to use that money properly.
The IRS said in a statement that it recognizes that the identity theft backlog remains one of the most significant service gaps and is working to implement “a range of improvements” to provide faster services to victims . That includes training and directing more staff to work on the cases, an agency spokesperson said.
Identity theft has long been a problem for the IRS. Criminals often steal taxpayers’ identification information and file paperwork to fraudulently claim their refunds. Taxpayers don’t realize this until they try to claim their refund, leading to a cumbersome process of filing an identity theft affidavit and a paper tax return before the agency will open a case to investigate.
At that point, identity theft victims must wait months before they can receive the money they are entitled to.
The National Taxpayer Advocate said most identity theft victims were at the lower end of the income scale and often needed their refunds and refundable tax credits to cover their living expenses.
“The IRS is victimizing taxpayers again by making them wait nearly two years to resolve their cases and receive their refunds,” the report said.
The report said the problem was partly due to the agency diverting resources to improve metrics that show how efficiently calls are answered. However, the watchdog said the IRS used an outdated methodology to track how quickly calls were answered and that most callers were disconnected or routed to automated operators.
Despite the criticism, the watchdog noted that the IRS is adding staff to tackle identity fraud cases and that the 2024 tax season went “smoothly” overall.
The IRS was originally given $80 billion to improve its technology and enforcement capabilities, but last year Congress demanded about $20 billion of that money back amid a spending battle between Republicans and Democrats.
A report released last week by the Treasury Inspector General for Tax Administration said the IRS has spent $5.7 billion, or 10 percent, of its Inflation Reduction Act funding so far. However, about $2 billion of that money was spent on normal operating costs that the IRS did not have sufficient funds to cover.
