How the IRS Is Misleading Victims of Identity Theft

The Internal Revenue Service generally tells victims of tax identity theft that their case will be resolved in 180 days, but it takes on average 278 days to resolve such cases, according to the Treasury Inspector General for Tax Administration. Moreover, almost one in 10 cases are resolved incorrectly by the tax collection agency, the audit found.

For its part, the IRS does not believe it should change procedures in calculating the time it takes to resolve a case.

The inspector general report released this month, ahead of tax filing deadline, is a follow-up to a 2013 audit that determined the tax collecting agency provides poor customer service for victims of refund fraud – the practice of stealing someone’s identity to gain a tax refund.

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“Refund fraud adversely affects the ability of innocent taxpayers to file their tax returns and timely receive their tax refunds, often imposing significant financial hardship," said Treasury Inspector General for Tax Administration J. Russell George. "While the IRS is making some progress in assisting victims of identity theft, those who have been affected by this devastating crime deserve better."

In 2013, about 2.9 million tax identity theft incidents happened, an increase from 1.8 million in 2012, the Chicago Tribune reported.

The average for resolving a case in 2013 is down from the average of 312 days in fiscal year 2012, but it is still well over what the IRS instructs employees to tell taxpayers who were victims of fraud.

“IRS guidance in FY 2013 instructed employees to inform taxpayers who inquire about the status of their identity theft case that cases are resolved within 180 days,” the IG report says. “In our prior review, we reported that the IRS’s own case processing data did not support the 180-day resolution time period. In fact, IRS data showed case resolutions were taking between 228 to 298 days.”

The report goes on to say, “The IRS disagreed with the recommendation to develop processes and procedures to calculate the average time it takes to fully resolve taxpayer accounts.” It further adds, "When the IRS provides misleading identity theft case resolution time periods, it creates a false portrayal of improvement to stakeholders and makes it more difficult for the IRS to gage and improve its own operations."

Based on a sampling of 100 identity theft tax accounts, the inspector general projects that 25,565 cases out of 267,692 – were resolved incorrectly, or almost 10 percent.