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The Internal Revenue Service (IRS) is facing a significant challenge with a backlog of around 500,000 unresolved identity theft cases.
This issue has grown worse over the past year, preventing many low-income taxpayers from receiving their federal tax refunds. A recent report by the National Taxpayer Advocate highlights these issues and suggests steps to improve the situation.
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The backlog is a serious issue because it affects thousands of taxpayers, especially those with low incomes. These taxpayers rely on their tax refunds, and the delay in processing identity theft cases leaves them without much-needed funds.
The National Taxpayer Advocate, Erin Collins, has been vocal about this issue, noting that while there have been improvements, the IRS still faces significant challenges.
Erin Collins has observed a shift in the IRS from a crisis mode to a more hopeful and optimistic outlook. She acknowledges that while the agency has made progress, there are still hurdles to overcome, particularly in modernizing its technology systems and business processes. Collins remains hopeful that these changes will lead to better outcomes for taxpayers.
Identity theft in tax filings occurs when someone uses a taxpayer’s personal information to file a fraudulent tax return. When this happens, the IRS must freeze the return to determine which filing is legitimate. Unfortunately, this process can take a long time—currently over 22 months—leaving the victim unable to collect their return.
In 2023, a significant percentage of taxpayers affected by identity theft had incomes at or below 250% of the federal poverty level. This demographic is particularly vulnerable, as they often rely on their tax refunds for essential expenses. The delay in resolving these cases adds financial strain to already struggling households.
During the 2024 filing season, IRS employees only answered 31% of the calls they received. This low response rate is due to several factors, including automated responses, calls being routed to different lines, or taxpayers hanging up before being placed in a queue. Despite these challenges, IRS employees spent 1.1 million hours, or 29% of their time, just waiting to receive calls.
The IRS has received a substantial funding boost through the Inflation Reduction Act, which allocated $58 billion to the agency. This includes $3.2 billion for taxpayer services and $4.8 billion for system modernization.
Collins is optimistic that these funds will help the IRS address its current issues, but she also suggests that Congress should either provide additional funding or allow the IRS to reallocate existing funds to where they are most needed.
Collins recommends that the IRS allocate resources more effectively to tackle the identity theft backlog. By improving resource allocation, the IRS can process filings within normal timeframes, reducing the wait time for taxpayers to receive their refunds.
The IRS faces significant challenges in resolving its identity theft backlog, which has serious implications for many low-income taxpayers. While there have been improvements, much work remains to be done. With better resource allocation and continued modernization, there is hope that the IRS will be able to provide timely and effective service to all taxpayers.
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Elena is a seasoned tax consultant with a decade of expertise in income tax management. Graduating with top honors in Finance, she embarked on a career journey focused on simplifying tax complexities. Elena's insightful articles on thecsc.org provide practical guidance to taxpayers.
