Each filing season, tens of thousands of taxpayers experience the unfortunate circumstance of having their refunds stolen by bad actors. Some thieves divert taxpayer refunds into their own bank accounts, while others physically steal taxpayers’ paper checks from the mail. As if this wasn’t frustrating enough, the IRS’s process for resolving this issue can be slow and cumbersome, with taxpayers often waiting months to receive their replacement checks. The Treasury Department’s Bureau of the Fiscal Service (BFS) may have to issue the replacement check in paper format.

Reissuing a refund via a paper check increases the risk of it being stolen again, which revictimizes the taxpayer and results in an additional burden on the government.

What to Do if Your Refund Is Stolen

If taxpayer’s refunds are stolen, there are steps they can take to address the issue. First, taxpayers will need to contact the IRS to request a refund trace, but will have to wait for a certain period of time after the IRS has issued the refund before making this request:

• Those who elected to receive the refund by direct deposit but their funds were improperly diverted will need to wait 26 days from the date the IRS received the taxpayer’s return.
• Those expecting a paper refund check will need to wait six weeks from the date the IRS issued the refund.

Once the appropriate time has passed, taxpayers can request a refund trace by submitting IRS Form 3911, Taxpayer Statement Regarding Refund. The process for submitting this Form varies depending on the taxpayer’s filing status.

Individual Taxpayers

Taxpayers who elected single, married filing separate, or head of household filing status can submit Form 3911 by mail, online, or by calling a toll-free number and either following the prompts or speaking to a live customer service representative.

Taxpayers who elected married filing jointly status can submit Form 3911 in the same manner as above, with the exception of calling the IRS, in which case they must speak directly with a live customer service representative.

Business Taxpayers

Business taxpayers can only submit Form 3911 through the mail, as there is currently no online option available for them.

While the IRS has different submission methods based on filing status, TAS recommends that taxpayers are all given the same options by which they can submit Form 3911 regardless of their filing status. Providing consistent submission options for all taxpayers would streamline the process and make it easier for everyone involved.

IRS System Limitations and the Challenges of Reissuing Refunds

Once the taxpayer requests a refund trace, the IRS sends the taxpayer’s file for that specific tax year to BFS, which generally handles the process of issuing replacement checks. However, BFS faces significant limitations in how it can reissue refunds. If the taxpayer provided direct deposit information with their tax return, BFS may be able to reissue the refund electronically. But if the taxpayer opted for a paper check, or the tax form did not provide a space to enter direct deposit information (e.g., Form 941-X), BFS can only issue a paper check, even if the direct deposit details were available in previous years. Additionally, Form 3911 doesn’t provide taxpayers a place to enter their direct deposit information.

Because of these limitations, some taxpayers have been revictimized by bad actors stealing the replacement check. BFS’s reliance on issuing replacement checks through the mail is not only frustrating for taxpayers whose checks were stolen by bad actors, but represents a loss for the public fisc. BFS will have to once again reissue the replacement check, meaning in some circumstances, the government may issue the refund multiple times. BFS’s reliance on paper checks, rather than direct deposit, can create a vicious cycle of delays, theft, and frustration.

Lengthy Delays and Ongoing Investigations

Once BFS receives the taxpayer information from the IRS, it begins an investigation to determine if someone attempted to cash – or succeeded in cashing – the missing check. BFS will then send the taxpayer a claim package that must be completed and returned to BFS. This investigation process can take a significant amount of time to resolve, adding even more delays to an already lengthy process. In Tax Year 2023:

• About 154,000 individual taxpayers submitted Form 3911, and BFS issued replacement refunds to about 90,000 of these taxpayers.
• For the 90,000 individual taxpayers, their replacement refunds were issued on average about 51 days after they filed their first Form 3911.
• Out of the 154,000 individual taxpayers who submitted a Form 3911 requesting a replacement refund, nearly 17,000 of them had to submit the form multiple times, presumably because they never received the replacement check.
• Of those 17,000 taxpayers, about 9,200 had the replacement check reissued by BFS, indicating that either the replacement check was lost, or a bad actor intercepted the replacement check in the mail.
• These nearly 9,200 taxpayers had to wait for their check about 95 days from the time the IRS received the taxpayer’s second Form 3911.

The Need for Change

The current system places a heavy burden on taxpayers whose refunds are stolen. They face long wait times for replacement refunds, and are often forced to rely on paper checks that are easily targeted by criminals. This system also creates additional work for the IRS and BFS, which must repeatedly conduct investigations and issue replacement checks.

To Improve the Process, the IRS Should:

• Allow taxpayers to choose direct deposit for replacement refunds on Form 3911, regardless of their filing status or type;
• Update its systems and forms to make the direct deposit option available to all taxpayers at all stages of the refund process; and
• Prioritize the modernization of IRS and BFS systems to provide faster, more secure methods of reissuing refunds.

Additionally, TAS strongly encourages taxpayers to elect direct deposit whenever possible to minimize the risk of their refund being stolen. Direct deposit offers a faster, safer way to receive a refund, reducing the chances of theft and speeding up the process overall.

Conclusion

Unfortunately, taxpayers may have to wait months for BFS to issue replacement checks. Further, due to IRS’s system limitations, BFS can only issue these replacement checks on paper, leaving taxpayers vulnerable to further theft. IRS and BFS must update their current systems to allow refunds to be reissued electronically while streamlining the process. In the meantime, taxpayers should opt for direct deposit whenever possible to protect themselves from the risk of refund theft and delays.