ID theft victims waiting longer to receive tax refunds

The amount of time that identity theft victims have to wait for tax refunds has increased as the Internal Revenue Service has shifted priorities, with some victims waiting nearly two years.

In a blog post Thursday, National Taxpayer Advocate Erin Collins noted the IRS is taking about 22 months, on average, to work on ID theft victim assistance cases. In her 2023 Annual Report to Congress, she found the agency’s processing time for resolving such cases as of the end of fiscal year 2023 was 556 days, or nearly 19 months. But more recently, as of April 2024, the processing time has jumped to 675 days.

Taxpayers first need to submit a Form 14039, “Identity Theft Affidavit,” before the IRS starts to work on the case. Collins suggested they 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. But then they have to wait — in many cases for years — to get the claims resolved. 

Collins noted that the IRS initially caused the increased processing time on ID theft cases 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% level of service on its general toll-free phone lines,” she wrote. “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.”

She acknowledged that the IRS is taking steps to try to cut those lengthy processing times, and seems to have increased the number of closed cases. But the increase in case closures hasn’t yet had an impact on processing times, as those have grown by about 119 days since the end of fiscal year 2023. 

Many ID theft victims count on those tax refunds to pay their bills. In FY 2023, about 69% of victims had an adjusted gross income at or below 250% of the federal poverty level, Collins noted, and taxpayers experienced economic burden in about 57% of the ID theft cases received by the Taxpayer Advocate Service that Collins leads. 

Victims also aren’t protected against further tax-related ID theft while the IRS works on their cases, Collins pointed out, as the service won’t automatically issue them an Identity Protection PIN until it resolves their case. However, taxpayers can opt into the IP PIN program by themselves at any time, including while the IRS is working their case.

Another problem is that when taxpayers have an ID 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 such situations, IRS assistors have to inform the taxpayer: “In cases of identity theft, the financial community has been made aware we will only release transcripts to the taxpayer.” That means taxpayers have to request the transcript themselves 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,” said Collins.

Taxpayers can also be subject to collection notices even as they’re trying to get their cases resolved. If they opt 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, the tax liability on the subsequent year will be unpaid, and the taxpayer will receive a collection notice. To address this situation, the IRS has told its customer service representatives that it was sending these notices out in error. Identity theft victims who live in the U.S. can call the agency toll-free at (800) 908-4490 to ask the IRS to put 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 phone charges may apply.

“Victims of identity theft are already experiencing a tremendous amount of stress,” said Collins. “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.”