No one asks to become a victim of identity theft. When taxpayers deal with these challenges, the last thing they need is an unreasonable delay in receiving their tax refunds.
Yet sadly, hundreds of thousands of taxpayers each year discover they are victims of tax-related identity theft when they electronically submit their federal income tax return and the IRS rejects their return, informing them that someone else already filed a return with their or their dependent’s Taxpayer Identification Number.
So now what do taxpayers do?
Taxpayers will need to:
- File a paper return;
- Complete Form 14039, Identity Theft Affidavit, and either attach it to the back of the paper return and mail it to the nearest IRS processing center, or file Form 14039 electronically and mail in the paper return separately; and
- Then… wait.
Taxpayers should brace themselves for delays. Long delays. After receiving an IRS notice confirming the agency has received the victim’s paper return with the required Form 14039, the taxpayer may not hear from the IRS again for many, many months. Taxpayers should know it is taking the IRS about 22 months, on average, to work Identity Theft Victim Assistance (IDTVA) cases.
This means these taxpayers won’t receive their corresponding refunds for weeks after the IRS resolves their cases. At the risk of vast understatement, 22 months is unacceptable.
The IRS needs to prioritize assisting these victims, paying out their refunds, and preventing future harm.
Beware: The IRS Is Taking Up to Two Years to Resolve Taxpayers’ Identity Theft Cases
In my 2023 Annual Report to Congress, I pointed out that IRS’s processing times for resolving IDTVA cases as of the end of fiscal year (FY) 2023 was 556 days – nearly 19 months. As of April 2024, this processing time has jumped to 675 days.
The IRS initially caused the increased processing time by temporarily shutting down operations during the beginning of the pandemic. For the past two filing seasons, the IRS has reallocated resources, including employees who work IDTVA cases, to prioritize answering phone calls to meet Treasury’s goal of the IRS achieving an 85 percent Level of Service on its general toll-free phone lines. Although the IRS has met the goal the past two filing seasons, it came at the expense of tax-related identity theft victims, compromising the taxpayer rights to quality service and to pay no more than the correct amount of tax. It is time for the IRS to bring the IDTVA processing time down to its target of 120 days or fewer.
Though the IRS Is Closing More Identity Theft Victim Assistance Cases, Lengthy Processing Times Remain
The IRS is taking steps to try to reduce processing times, and it appears to have increased the number of closed cases. However, this increase in case closures has not yet affected processing times, as they have increased by about 119 days since the end of FY 2023. The IRS needs to prioritize a solution for this problem, similar to the all-hands-on-deck approach it used to address its backlog in processing paper returns during the pandemic. The situation demands a more robust response from the IRS to rapidly decrease processing times and give tax-related identity theft victims the assistance and payment of the refunds they are awaiting.
Lengthy Identity Theft Case Processing Times Can Create Significant Problems for Taxpayers
The most significant impact on taxpayers who experience these protracted IDTVA processing times is the delay in receiving their refunds – particularly low-income taxpayers. Specifically, in FY 2023, about 69 percent of IDTVA taxpayers had an adjusted gross income at or below 250 percent of the Federal Poverty Level, and taxpayers experienced economic burden in about 57 percent of TAS identity theft case receipts. For taxpayers who qualify for refundable tax credits like the Earned Income Tax Credit (which can be worth nearly $8,000), delays of this magnitude can leave them unable to pay their basic living expenses. Delays in receiving their tax refunds can force low-income taxpayers to reprioritize which expenses they can pay. Research has shown that one consequence of this adjustment in priorities is food insecurity; because they may prioritize paying more pressing expenses, such as rent or medical bills, they make up for the deficit by cutting back on food.
Another consequence of the IRS’s lengthy processing time is that identity theft victims aren’t protected against further tax-related identity theft while the IRS works their cases. An Individual Protection PIN (IP PIN), a unique number issued annually and known only to the IRS and the taxpayer, serves as a safeguard when the taxpayer includes it on their return, as the IRS will know it is truly the taxpayer filing the tax return, not a bad actor. But the IRS won’t issue the taxpayer an IP PIN until it resolves their case. Fortunately, a taxpayer can opt-in to the IP PIN program of their own accord at any time, including while the IRS is working their identity theft case.
Additionally, when a taxpayer has an identity theft indicator on their account, they won’t be able to have the IRS send tax transcripts directly to a third party, such as a mortgage lender. In these situations, IRS assistors are instructed to inform the taxpayer: “In cases of identity theft, the financial community has been made aware we will only release transcripts to the taxpayer.” Therefore, the taxpayer will need to request the transcript and send it directly to the lender. This process takes longer and creates more red tape for the taxpayer to push through to complete their mortgage loan applications.
Another situation is where a taxpayer elected to have the overpayment applied to the subsequent tax year on the return, but the IRS hadn’t applied the overpayment because of the open identity theft issue. As a result, the tax liability on the subsequent year goes unpaid, and the taxpayer will receive a collection notice. Because the IRS issues collection balance due notices systemically and the return that elected to have the subsequent refund applied hadn’t yet posted, taxpayers receive the collection balance due notices even though they were working through an identity theft issue in the prior year. To remedy this situation, the IRS informed its customer service representatives that it was sending these notices out in error. Identity theft victims residing in the United States can now call the IRS toll-free at 800-908-4490 to request the IRS place a code on their account to suppress the issuance of further notices and any progression of collection activities. International taxpayers can call 267-941-1000, but charges may apply.
Since identity theft victims are not responsible for the lengthy IDTVA case processing delays or the problems that arise from the delays, the IRS should address these issues systemically by automatically suppressing collection notices for these taxpayers rather than burdening identity theft victims by requiring them to initiate contact with the IRS. If the IRS does not improve its IDTVA case processing times, more issues such as these will likely arise.
Conclusion
Victims of identity theft are already experiencing a tremendous amount of stress. The IRS’s long processing times for resolving these issues not only increases the anxiety but also the consequential refund delays can deprive families of the funds they need to meet their living expenses. These processing times are far outside the processing norms and are completely unacceptable. The IRS has had years to bring these processing times down, yet they have continued to rise. The lengthy time it takes the IRS to resolve an identity theft victim’s issues can also cause additional problems in later tax years, further victimizing the taxpayer. Although the IRS has begun taking steps to reduce these processing times, improvements are happening too slowly; the IRS must prioritize its efforts, assist these victims, and timely pay out the refunds to which they are entitled.
The IRS needs to prioritize working these cases and make significant progress on this issue immediately; until it does, these victims (and new victims) will continue to be harmed.
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The views expressed in this blog are solely those of the National Taxpayer Advocate. The National Taxpayer Advocate presents an independent taxpayer perspective that does not necessarily reflect the position of the IRS, the Treasury Department, or the Office of Management and Budget.