Taxpayers who lose their refunds to identity theft must wait an average of 675 days to get the money that is rightfully owed to them, according to a taxpayer advocacy group. (Till Lauer/The New York Times)
Federal income tax refunds usually appear in bank accounts less than three weeks after the government accepts a return — unless you’re the victim of tax return identity theft. In that case, it often takes about two years.
That’s right. If a thief files a fraudulent return using your tax information and pilfers your refund, you’ll have to wait an average of 675 days to get the money rightfully owed to you, according to the Taxpayer Advocate Service, a group within the IRS that works on behalf of taxpayers.
“That period of time is just ridiculous,” Erin M. Collins, who leads the service, said in an interview.
For reasons not yet clear, Collins noted, many of those affected are lower-income tax filers, who often depend on tax refunds to cover basic living costs. Those filers often qualify for tax breaks for working families, like the earned-income tax credit, that can result in significant refunds.
“These are true victims,” Collins said. “The IRS should be helping these people.”
About 500,000 tax returns are in limbo at the IRS because of identity theft fraud, a Taxpayer Advocate Service spokesperson said.
Here’s how tax identity fraud works: Criminals use a tax filer’s personal information, including the filer’s Social Security number, to file a fraudulent return and ask that a refund be sent to their own bank account. The thieves usually file early in the tax season, often before the legitimate filer has submitted a return.
When the unknowing taxpayer eventually submits an electronic return, the IRS system rejects it as a duplicate and alerts the taxpayer to the problem. Filers must then submit a special identity theft affidavit and file a paper return by mail.
Then they wait.
“Taxpayers should brace themselves for delays,” Collins wrote in a recent blog post. She added, “At the risk of vast understatement, 22 months is unacceptable.”
In an emailed statement, the IRS said that “although taxpayers continued to see major improvements from the IRS during the 2024 tax season, the IRS recognizes that the backlog of identity theft cases remains one of the most significant ongoing service gaps.”
The agency said that while such cases were often complex, it was working to provide faster service to victims. Because of increased funding from the Inflation Reduction Act, the agency added, it “is now in a better position to resolve cases in a timelier manner.”
Collins flagged the snail-like processing pace in January in her annual report to Congress for 2023. Last fall, she said, the average wait was 19 months. But the problem worsened during this year’s tax filing season.
Because replacement returns are filed on paper, she said, they take longer to review. The problem began when IRS offices shut down during the pandemic. And although the IRS has hired more people in the past year, personnel were redeployed during tax season to answer customer service phone lines. So review of identity theft returns lagged behind.
The lengthy processing time for identity theft returns can cause other problems, Collins said in the blog post, like difficulty applying for a mortgage. When taxpayers are flagged for identity theft, she said, the IRS won’t send tax transcripts — a record of filers’ income and tax information — directly to lenders. So taxpayers have to request the transcripts themselves and give them to the lender. The red tape delays the completion of their home loan applications.
Tom O’Saben, director of tax content and government relations for the National Association of Tax Professionals and a tax preparer in Illinois, said he had clients this year who were unable to file a return electronically claiming their daughter as a dependent because the IRS had flagged her Social Security number for possible identity theft.
Here are some questions and answers about tax refund fraud:
How can I protect myself against tax refund fraud?
Both Collins and O’Saben recommended applying to the IRS for an “identity protection PIN,” or IP PIN, a six-digit number that blocks someone from filing a tax return using your Social Security number. (If the return doesn’t have the filer’s PIN on it, the IRS won’t accept it.) Originally, the PINs were reserved for victims of identity theft, but anyone can now request one as a preventive step. Once you have a number, the IRS issues you a new one each year.
If you are already a victim of tax return identity theft, the IRS automatically issues an IP PIN once it resolves your case. (But you don’t have to wait, the advocate’s office said. You can apply for one while your case is in progress.)
Melanie Lauridsen, vice president for tax policy and advocacy with the American Institute of Certified Public Accountants, advised working with a reputable tax preparer and having your tax information well organized so you can file early in the season, reducing the odds that a fraudulent return will be filed first. “Give it to the preparer in a timely manner,” she said.
Putting a fraud alert or security freeze on your credit report can also help protect sensitive information that can be used in identity theft.
How do criminals get personal information to use in tax return fraud?
Data breaches or leaks, which have become numbingly common, can expose sensitive information to identity criminals. In 2023, there were 3,205 publicly reported data compromises — at health care providers, cable and cellphone companies, mortgage lenders and other businesses — affecting more than 353 million people, a 78% increase from 2022, according to the Identity Theft Resource Center, a nonprofit group that tracks breaches and assists victims. “They are the fuel for fraud,” said Eva Velasquez, the group’s CEO.
In some cases, criminal networks are behind the data compromises. In a case filed in Texas last year, federal authorities charged seven people with fraudulently registering with the IRS as taxpayer representatives and obtaining personal information on filers, which they then used to submit hundreds of fraudulent tax returns and obtain illegal refunds. All seven have pleaded guilty to the charges.
c.2024 The New York Times Company. This article originally appeared in The New York Times.
