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One persistent challenge the IRS continually deals with is preventing fraudulent refunds from being issued. Sadly, this phenomenon has become more and more common, as the number of refundable credits and their values continue to increase, such as the Earned Income Tax Credit (EITC), the Additional Child Tax Credit (ACTC), and the Recovery Rebate Credit (RRC). One way the IRS has addressed this issue is to screen tax returns to determine if income and wages are correct and if the legitimate taxpayer truly filed the tax return. This blog addresses issues where the IRS, through its screening process, flags the tax return as potential identity theft (IDT); processing of the tax return is suspended; and a letter is sent to the filer asking them to authenticate their identity and certain tax return items before processing can resume.
This blog will not discuss how taxpayers who are victims of IDT can work with the IRS to get their tax issues resolved. For more information, visit the Taxpayer Advocate Service (TAS) Identity Theft Get Help page.
Taxpayers whose tax returns have been flagged for possible IDT should receive one of the following letters:
These letters provide several ways taxpayers can authenticate their identity, including using an online option or calling the IRS directly. In limited situations, taxpayers will be asked to make an appointment at a Taxpayer Assistance Center and authenticate their identity in person.
In 2022, the IRS suspended processing of 4.8 million tax returns and requested taxpayers authenticate their identity prior to the IRS releasing their refunds. Out of those, about two million taxpayers responded, verified their identities, and received their refunds; nearly 255,000 were confirmed as IDT; and over 2.5 million remain suspended as of December 31, 2022, because the taxpayers’ identities have still not been authenticated.
If you are still waiting for your tax refund and think your tax return may be one of the 2.5 million that remain suspended from filing season 2022 because the IRS suspects possible IDT, or you still have not received your refund from the tax return you filed in 2023, you might need to verify your identity before your refund is released.
Taxpayers should check to see if they ever received one of the letters above for tax year 2021 or 2022. If the letter cannot be located, taxpayers should check their IRS online account or call the Taxpayer Protection Program (TPP) phone line at 800-830-5084. (If a taxpayer lives outside the U.S., they should call 267-941-1000.) As of January 29, 2023, for those taxpayers who receive a letter asking them to authenticate their identity and return information online, they can go into their online account, which will tell them they need to verify information on their tax return before it can be processed. This will direct the taxpayer to the Identity and Tax Return Verification Service website. If the explanation for the suspended tax return is that the IRS is awaiting authentication of the taxpayer’s identity, an Accounts Management customer service representative will reissue the letter explaining what steps need to be taken and direct taxpayers to the Identity and Tax Return Verification Service.
On one hand, having the IRS protect against IDT is good for all, but for those taxpayers dealing with IDT or needing the IRS to release their refunds when flagged as potential identity theft, the delay causes issues, and the process is confusing and time consuming. The IRS should assist taxpayers throughout the process to reduce the burden for those properly filed tax returns.
There are a couple of explanations as to why a taxpayer may not respond to the letter and authenticate their identity, the most obvious being the tax return truly was filed by an identity thief, and the thief has abandoned their attempt to obtain a fraudulent refund. However, there are other possible explanations as to why the taxpayer’s identity has not been authenticated. The taxpayer may have never received the letter, may have moved, didn’t understand the letter, or couldn’t get through on the IRS’s phone line to authenticate their identity, as the level of service on the TPP phone line was only about 31 percent for FY 2023 as of August 5, 2023. In fact, in a recent conversation with Low Income Taxpayer Clinic (LITC) personnel on the authentication process, it was conveyed that many taxpayers – particularly taxpayers who speak English as a second language – find both the letters and the authentication process complex and confusing.
The IRS’s online tools, such as Where’s My Refund, provide taxpayers with limited information about the status of their refunds; however, this tool only tells taxpayers their tax return has been received or processed, or a refund was issued. No information is provided to taxpayers when processing of a tax return has been suspended for potential IDT. Although the IRS has agreed to make enhancements to its Where’s My Refund? tool and provide taxpayers more information about the status of their tax return, this upgrade has not been done to date. The IRS has committed to devoting some of the Inflation Reduction Act of 2022 funds to roll out several enhancements by next filing season to enhance the usefulness of the tool to taxpayers.
In response to these concerns, the IRS Wage and Investment (W&I) Division made several modifications in an attempt to improve the clarity of the letters. To further explore the issues raised by the LITCs during these conversations, TAS is working with W&I to expand this inquiry to a focus group composed of taxpayers who have received these letters. Additionally, the IRS has recently begun a pilot program in which it will send out several versions of the same type of letter asking taxpayers to authenticate their identities to determine which version is most successful in yielding a response from taxpayers. (For more information about the pilot program and the different versions of the letters, visit Understanding Your Letter 5071C or 6331C | Internal Revenue Service (irs.gov)).
While the IRS and TAS continue to work together to improve these letters, if you received one it is important that you respond quickly and authenticate your identity and tax return data so the processing of your tax return can be completed, and your refund issued. The letter contains the information you need to have available when you respond to the IRS. If you receive a letter and need assistance in working with the IRS to authenticate your identity and are eligible, you can reach out to an LITC, many of which work very closely with the IRS in getting these cases resolved. If you are required to authenticate your identity and lost your letter or didn’t receive one and as a result are still waiting for your 2021 or 2022 tax refund, contact the IRS to have the letter reissued. If you have attempted to authenticate your identity with the IRS but have been unsuccessful, contact TAS for assistance.
Eligible taxpayers can reach out to LITCs for assistance. LITCs are independent from the IRS and TAS. LITCs represent individuals whose income is below a certain level and who need to resolve tax problems with the IRS. LITCs can represent taxpayers in audits, appeals, and tax collection disputes before the IRS and in court, including the Tax Court. In addition, LITCs can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. LITC services are offered for free or a small fee. For more information or to find an LITC, visit www.taxpayeradvocate.irs.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List. This publication is also available online at www.irs.gov/forms-pubs or by calling the IRS toll-free at 800-TAX-FORM (800-829-3676).
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.