Taxpayers who are victims of identity theft are experiencing excruciating delays in receiving their federal income tax refunds. According to a recent report from the National Taxpayer Advocate, some are waiting nearly two years. This issue is becoming more pronounced, leaving many struggling to meet essential expenses like rent, groceries, and car repairs while waiting for their refunds.
Despite efforts to improve, the IRS is facing increasing difficulties in resolving ID theft cases promptly. For many lower-income families who depend on key tax credits, the delay can be devastating. These taxpayers, often victims of fraudulent returns filed using their personal information, find themselves in financial limbo.
When the IRS receives multiple returns for a single taxpayer, it rejects the legitimate return and freezes it to investigate. This process is necessary to identify the rightful taxpayer but results in significant delays. The IRS’s midyear report highlights that these delays have worsened, now taking more than 22 months on average to resolve such cases.
Impact on Families
The delays disproportionately affect low-income families. Many of these taxpayers rely on refunds from credits like the Earned Income Tax Credit (EITC), which can be as high as $7,000. Without timely refunds, these families struggle to cover basic living expenses. As of April, around 500,000 unresolved identity theft cases were pending at the IRS.
Criticism and Calls for Action
National Taxpayer Advocate Erin Collins has criticized the delays as “unconscionable,” emphasizing the need for the IRS to prioritize resolving these cases. Collins pointed out that a significant portion of affected taxpayers have incomes at or below 250% of the federal poverty level, making timely refunds crucial for their financial stability.
The IRS has acknowledged the backlog and is working to improve its processes. Efforts include increased training and allocating more resources to handle ID theft cases. The agency is also collaborating with stakeholders to prevent identity theft. Thanks to funding from the Inflation Reduction Act, the IRS has tripled its closure rate of identity theft cases since 2020.
Phone Service Improvements
The IRS has made strides in improving its phone service, with employees answering a higher percentage of calls compared to previous years. However, the service still falls short, with many taxpayers experiencing long wait times, especially for issues related to ID theft and tax refund delays.
Employee Retention Credit
Another significant issue is the handling of the Employee Retention Credit (ERC). The IRS paused processing ERC claims due to widespread fraud. While the agency is now resuming processing for lower-risk claims, legitimate businesses are experiencing delays. The IRS aims to deny billions of dollars in improper claims while ensuring eligible taxpayers receive their payments.
Despite these efforts, the IRS continues to face criticism for its slow response times and the complexity of its processes. The agency is striving to balance the need for thorough reviews with the necessity of timely payments to taxpayers.
The ongoing delays in tax refund processing due to identity theft are a severe issue affecting many taxpayers. While the IRS is taking steps to address the problem, much work remains to be done to ensure timely and efficient service.
FAQs
Why are tax refunds delayed for ID theft victims?
The IRS freezes returns to investigate and identify the rightful taxpayer.
How long are the current delays for tax refunds?
Delays can exceed 22 months.
Who is most affected by these delays?
Lower-income families relying on tax credits are most impacted.
What is the IRS doing to fix the issue?
The IRS is increasing training, resources, and collaboration to resolve cases faster.
Has the IRS improved its phone service?
Yes, but many taxpayers still face long wait times, especially for specific issues.
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A tax law expert with a knack for breaking down complex regulations into digestible insights. Ehsteem's articles on the tax news blog offer invaluable guidance to readers navigating changes in tax legislation.
