IRS Delays Identity Theft Cases, Watchdog Reports

The IRS is taking nearly two years to resolve identity theft cases, causing significant delays for affected taxpayers, according to a recent report from the National Taxpayer Advocate (NTA).

This delay has increased from 19 months earlier this year to over 22 months by April 2024, CBS News reported.

The NTA, an independent watchdog within the IRS, highlighted that there were approximately 500,000 unresolved identity theft cases as of April. Identity theft in this context occurs when fraudsters file a tax return using a taxpayer's Social Security number to claim that person's tax refund — an issue typically discovered when the legitimate taxpayer files a return. The IRS then freezes the second return to determine the legitimate filer.

Despite receiving funding from the Inflation Reduction Act (IRA), the IRS has been unable to expedite the resolution of these cases.

Erin M. Collins, who leads the NTA, said, "IRS delays in resolving identity theft victim assistance cases are unconscionable."

These delays have severe repercussions for victims, many of whom are low-income taxpayers relying on their tax refunds to cover essential living expenses. The NTA report noted that delays in receiving tax refunds can exacerbate financial insecurity and hinder victims' ability to secure loans, such as mortgages.

In response to the report, the IRS acknowledged the backlog in an emailed response to CBS MoneyWatch, describing it as "one of the most significant ongoing service gaps." The agency assured that it is working to improve its processes and expedite service to identity theft victims by training and reviewing procedures.

The IRS pointed out that it has tripled its closure rate of identity theft cases since 2020 and that increased funding from the IRA will help further improve its capabilities. However, the agency's budget remains a contentious issue.

The IRS received an $80 billion boost under the IRA, but the funding is at risk due to potential cutbacks. Last year's debt ceiling and budget deal between Republicans and the White House resulted in a $1.4 billion rescission from the agency and plans to divert $20 billion over the next two years to other nondefense programs.

The NTA's report also assessed the IRS' overall performance, noting improvements in technology modernization, customer service, and refund disbursement during the 2024 tax filing season. Collins said: "Not to be overly dramatic, but during the last four years, I believe we have progressed from a place of despair to a place of hope and optimism for the future of the agency and, therefore, for taxpayers."

Despite the improvements, the IRS continues to face challenges and scrutiny. The political controversy over additional funding for the IRS dates back to 2013 when the agency was found to have scrutinized political groups applying for tax-exempt status, affecting both conservative and liberal groups.

Collins remained hopeful about the future, stating: "I believe the IRS has turned the corner, and with the additional multiyear funding provided by the Inflation Reduction Act, particularly for Taxpayer Services and information technology modernization. I am bullish that the taxpayer experience will continue to improve and move onward and upward."

Information from The Associated Press was used in this report.