The Internal Revenue Service (IRS) is under scrutiny for significant delays in assisting taxpayers who are victims of identity theft. According to recent reports, these delays are leaving many individuals waiting for their tax refunds for as long as nearly two years, causing severe financial hardships.
Growing Problem: Excruciating Delays in Refunds
Recent findings from the National Taxpayer Advocate highlight a disturbing trend: taxpayers affected by identity theft are enduring prolonged waits to receive their federal income tax refunds. This issue has become increasingly pronounced, with delays stretching beyond 22 months in some cases.
Such delays jeopardize the financial stability of affected individuals and families, impacting their ability to meet essential expenses like rent, groceries, and car repairs.
IRS Response: Challenges in Resolving ID Theft Cases
When the IRS identifies multiple tax returns filed under a single taxpayer’s Social Security number, it automatically flags and freezes the legitimate return for investigation. While this process aims to protect taxpayers from fraudulent activities, it also results in significant delays in refund processing.
The IRS’s midyear report indicates that the average time to resolve identity theft cases has worsened, now surpassing 22 months. This delay has particularly severe consequences for lower-income families who heavily rely on timely tax refunds, including credits like the Earned Income Tax Credit (EITC), which can be substantial, up to $7,000.
Impact on Families: Financial Limbo
The prolonged delays disproportionately affect vulnerable demographics, particularly those with incomes at or below 250% of the federal poverty level. For these families, tax refunds are crucial for maintaining basic living standards. As of April, the IRS reported approximately 500,000 unresolved identity theft cases, indicating a widespread issue that continues to grow.
Criticism and Calls for Action
National Taxpayer Advocate Erin Collins has strongly criticized the IRS’s handling of identity theft cases, describing the delays as “unconscionable.” Collins emphasizes the urgent need for the IRS to prioritize resolving these cases promptly, especially for those most financially vulnerable.
The criticism underscores the critical nature of timely refunds, which are essential for maintaining stability and preventing further economic hardship among affected taxpayers.
IRS Initiatives: Efforts to Address Backlog
Acknowledging the severity of the issue, the IRS has taken steps to improve its processes. Initiatives include enhanced training for personnel tasked with handling identity theft cases and increased allocation of resources to expedite resolution times.
Additionally, the agency has collaborated with external stakeholders to implement measures aimed at preventing identity theft and improving detection methods. Funding from the Inflation Reduction Act has enabled the IRS to triple its closure rate of identity theft cases since 2020, signaling some progress in addressing the backlog.
Improvements in Service: Mixed Results
While the IRS has made strides in improving its phone service, challenges persist. Recent data shows an increase in the percentage of calls answered by IRS representatives, yet many taxpayers still face prolonged wait times, particularly when seeking assistance with identity theft-related issues and refund delays.
The ongoing struggle to balance thorough reviews with timely taxpayer assistance remains a focal point for criticism.
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Employee Retention Credit: Another Layer of Complexity
In addition to identity theft-related delays, the handling of the Employee Retention Credit (ERC) has added another layer of complexity. The IRS temporarily paused processing ERC claims due to widespread fraud concerns, resulting in delays for legitimate businesses awaiting their credits.
While efforts are underway to resume processing lower-risk claims and prevent improper payments, the process highlights the IRS’s ongoing challenges in safeguarding taxpayer funds while ensuring timely disbursements to eligible recipients.