Victims of tax identity theft face ‘unconscionable’ IRS delays, taxpayer advocate finds

Personal finance

Erin Collins, national taxpayer advocate at the Taxpayer Advocate Service, speaks at a Senate Appropriations subcommittee hearing in Washington, D.C., on May 19, 2021.
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After a few difficult years, the IRS has boosted taxpayer service and technology with an infusion of funding. But there’s still room for improvement — especially for tax identity theft victims, according to the agency’s internal watchdog.

The National Taxpayer Advocate on Wednesday released its annual report to Congress, which cited “unconscionable delays” in IRS support for victims of tax-related identity theft.

“Individuals who are victims of tax-related identity theft are waiting an average of nearly 19 months for the IRS to process their returns and send their refunds,” wrote National Taxpayer Advocate Erin Collins.

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Shifted resources contributed to “unreasonable” delays for identity theft victims and returns flagged for possible identity theft, according to the report. During fiscal 2023, the IRS reassigned 572 workers to focus on telephone service.

The agency’s Identity Theft Victim Assistance program had 294,138 individual case receipts during fiscal 2023, up from 92,631 in 2019. Resolution times have skyrocketed to 556 days, which far exceeds the agency’s 120-day goal.

“It’s too early to tell what the new tax filing season will bring, but with a record number of data breaches reported in 2023 flooding identity markets with more personal information, it’s likely we’ll see more attempts to impersonate tax filers this year,” said James Lee, chief operating officer of the Identity Theft Resource Center.

“The Taxpayer Advocate raises a number of very important areas that we are looking at to make improvements under our strategic operating plan with Inflation Reduction Act funding,” IRS Commissioner Danny Werfel said in a statement. 

“Many of these issues identified in her report ultimately depend on adequate IRS resources,” he said. “This is another reason why the Inflation Reduction Act funding and our annual appropriations are so critical to making transformational changes to the IRS to help taxpayers and the nation.” 

The comments come as Congress faces a looming government shutdown deadline, with negotiations for possible IRS funding cuts.

Tax identity theft often affects lower earners

With many Americans relying on tax refunds, these delays can create financial hardship, particularly for lower earners claiming the earned income tax credit. Some 69% of taxpayers with resolved identity theft cases had adjusted gross incomes at or below 250% of the federal poverty level, IRS data shows.

“The IRS should do everything possible to timely assist these victims and provide them with the peace of mind that the IRS is looking out for their best interests and protecting their rights,” Collins wrote.

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