For ID Theft Victims, a Long Wait for Tax Refunds

Victims of identity theft are continuing to experience long delays and errors in receiving their tax refunds, according to a new report.

The report, by the Treasury Inspector General for Tax Administration, found that on average, the IRS took 278 days to resolve the tax accounts of identity theft victims due a refund, according to TIGTA’s review of a statistically valid sample of 100 identity theft tax accounts resolved in the Accounts Management function in fiscal year 2013. That represents an improvement, however, compared to the average 312 days it took the IRS to resolve tax accounts of identity theft victims due a refund in FY 2012.

The report follows up on a 2013 TIGTA report that concluded the IRS was not providing quality customer service to identity theft victims. TIGTA’s latest review found that the IRS continues to make errors when resolving the tax accounts of victims of identity theft.

Based on the results of TIGTA’s sample of 100 identity theft tax accounts resolved during FY 2013, TIGTA estimated that of the 267,692 taxpayers whose accounts were resolved, 25,565 (or a little less than 10%) may have been incorrectly resolved, resulting in the delay of refunds or the victim receiving an incorrect refund amount.

“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 TIGTA Inspector General J. Russell George in a statement. “While the IRS is making some progress in assisting victims of identity theft, those who have been affected by this devastating crime deserve better.”

TIGTA continued to find that the information the IRS reports related to the time period for case processing and resolution is misleading. For example, the IRS informs taxpayers who inquire about the status of their identity theft case that cases are resolved within 180 days when in fact on average it took the IRS 278 days to close the cases that it resolved in FY 2013.

TIGTA made five recommendations to the IRS, including that it develop processes and procedures to ensure that case closing actions and account adjustments are accurate; accurately calculate the average time it takes to fully resolve taxpayer accounts affected by identity theft; and, accurately report the number of identity theft cases resolved to include only those taxpayers for whom the IRS fully resolves their account and issues any refunds due.

The IRS agreed with three recommendations and partially agreed with another recommendation.

“Identity theft remains one of the most significant and pervasive threats confronting the United States tax system and the taxpaying public it serves,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in response to the report. “The IRS continues to search for opportunities to improve the taxpayer experience when confronted with this stressful and unfortunate situation.”

The IRS disagreed with the recommendation to develop processes and procedures to calculate the average time it takes to fully resolve taxpayer accounts. TIGTA said, however, it continues to believe that further actions are needed to improve its tracking of these timeframes. Until this is corrected, the IRS will continue to provide an inaccurate account resolution timeframe to taxpayers due a refund, according to TIGTA.

The IRS released a statement Thursday further responding to the report. “The IRS has added and strengthened protections in our processing systems to protect the nation's taxpayers,” said the IRS. “For this tax season, we continue to make important progress in stopping identity theft and other fraudulent refunds. However, the IRS remains concerned with the methodology of this TIGTA report. TIGTA did not pull a sample from the entire population of affected cases, but rather, only looked at returns where a refund was anticipated by the victim. Further, this report predates improvements we put in place in January 2013 in response to TIGTA’s previous report. We do not believe the current report captures the impact of the steps we took to protect taxpayers.

“TIGTA also challenges the case resolution timeframes set by the IRS, but pulled cases for this audit prior to new changes and improvements being put in place—even though they knew the changes were anticipated at the start of the new year,” the IRS statement continued. “In fact, nearly half of the cases sampled were closed before January 2013 and do not reflect the current status of our inventory, nor processes. For cases received after January 2013, we stand-by our average of 120 day timeframe for case resolution.

“The IRS appreciates TIGTA’s acknowledgment of improvements made to streamline our processes, including codes to expedite assignment of cases and special teams to handle older cases,” the IRS added. “The IRS has also improved its ability to detect refund fraud during processing so immediate actions can be taken to prevent a fraudulent return from impacting a victim’s account. And when a victim is affected, we have worked to streamline the process so victims are issued refunds more quickly than before. The IRS has reduced case backlogs and centralized all work under a single operating division to maximize efficiencies. We closely monitor incoming tax returns, watching for fraud indicators and adjusting our systems as necessary. Preventing and detecting identity theft and refund fraud remains a top priority for the IRS.”

Michael Cohn it the editor-in-chief of AccountingToday.com.

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