Impact on Productivity: Tax fraud Cases Occupying IRS Time

Erin Collins, the National Taxpayer Advocate (NTA), recently took the Internal Revenue Service (IRS) to task for an unprocessed backlog of 500,000 tax fraud cases.

The backlog is partly due to the rapidly rising number of scamsters using stolen social security numbers to file returns and obtain refunds in the names of unsuspecting victims. The tax fraud is often not detected until the taxpayer attempts to claim their own refund and has their return frozen until the IRS can identify which return is fraudulent.

The processing delay is also due to the allocation of resources by the IRS to taking taxpayer telephone calls at the onset of the pandemic. In the past several years, the IRS has had a poor reputation for telephone customer service. While the IRS has improved its telephone customer service in the past two tax seasons, it came at the cost of faster processing of claims for victims of identity theft. In addition to the shock and concern of learning a tax refund has been stolen, taxpayers can expect a delay—processing time for Identity Theft Victim Assistance (IDTVA) has increased from 556 days in 2023 to 675 days in 2024.

Identity tax fraud affects taxpayers across the board. In her mid-year report to Congress, Ms. Collins noted that approximately 69 percent of cases resolved as of September 2023 involved taxpayers at or below 250 percent of the Federal Poverty Level. Said Ms. Collins, “That means those taxpayers were disproportionately likely to qualify for refundable tax credits and disproportionately likely to need their refunds to pay their living expenses. I called the delay unconscionable, and IRS leaders agreed to prioritize reducing delays.”

The NTA estimates hundreds of thousands of taxpayers are victims of tax-related identity theft each year. If your tax refund is stolen, you can follow these steps to notify the IRS and then wait for a response:

• Even if you usually file electronically, prepare, and file a paper tax return with the IRS.
• Prepare and submit an Identity Theft Affidavit. Attach the Affidavit to your paper tax return and send it in.  You can also file the Affidavit electronically or mail it separately to the IRS.
• One way to thwart tax-return fraud in the future is the use of an Identity Protection Pin (IP PIN) instead of your social security number. A new number is generated each year and can help you avoid tax fraud if your personally identifiable information (PII) is compromised by a data breach.

If your tax return is stolen, there are steps you can take to protect yourself in the future, and remedy the theft of your return…it just may take a while.

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