Identity theft victims face long tax delays
Pending cases average 19 months for nearly 500K
DETROIT – Victims of tax-related identity theft can face extraordinary delays, waiting more than a year and a half for the IRS to fix the issue, according to the National Taxpayer Advocate’s latest report.
Taxpayers, particularly those with low-paying jobs, face true financial hardship by such delays. A working family cannot receive legitimate tax refunds, including money from key tax credits designed to help those with low or middle incomes, until the taxpayer’s ID theft claim is resolved.
“Many taxpayers depend on their tax refunds to meet their living expenses, particularly low-income taxpayers who receive earned income tax credit benefits that (approached) $7,000 for tax year 2022,” National Taxpayer Advocate Erin Collins stated in her 2023 Annual Report to Congress issued Wednesday, which outlined a variety of ongoing challenges at the Internal Revenue Service.
Nearly 500,000 people who had cases still pending with the IRS’s Identity Theft Victims Assistance unit at the end of 2023 found themselves waiting an average of 19 months for the IRS to resolve their problems, according to the report.
A family raising young children, juggling the bills and living paycheck to paycheck on low wage jobs cannot sit around waiting 19 months on average for a tax refund of several thousand dollars. No one wants to wait that long.
Collins called the delays “unconscionable.” She said the Internal Revenue Service needs to place a higher priority on quickly resolving ID-theft related cases for victims.
By law, the National Taxpayer Advocate’s report identifies the 10 most serious problems that taxpayers run up against with the IRS. The report makes administrative and legislative recommendations to address those problems.
IRS Commissioner Danny Werfel issued a statement Wednesday saying that many of the issues identified in the National Taxpayer Advocate’s report “ultimately depend on adequate IRS resources. This is another reason why the Inflation Reduction Act funding and our annual appropriations are so critical to making transformational changes to the IRS to help taxpayers and the nation.”
The IRS, he said, continues to hire additional staff to help improve taxpayer service, add technology, improve compliance efforts, and focus on paperless processing.
Werfel also stated: “We appreciate the Taxpayer Advocate’s acknowledgment that the IRS made improvements in 2023, and we are committed to continue this momentum during the 2024 tax season and beyond.”
This year’s report gave a shoutout to the success that the IRS has achieved in improving many services, including virtually eliminating the IRS backlog of unprocessed original 1040 income tax returns filed by individuals and substantially improving telephone service.
Collins described 2023 as a year of “extraordinary transition for the IRS and therefore for taxpayers.”
“Despair has turned to cautious optimism,” Collins wrote in her report.
Because of the COVID-19 pandemic, she said, the three preceding years ended up being the most challenging years the IRS and most taxpayers had ever experienced.
“The IRS shut its offices and stopped processing paper-filed tax returns and correspondence for several months after the onset of the pandemic in 2020,” Collins stated in her report, “and it then reopened those functions only partially for several months to comply with social distancing requirements. Tax returns and taxpayer correspondence sat unopened in trailers for months on end.”
The IRS has serious problems, though, dealing with processing amended tax returns for individuals and businesses, and addressing taxpayer correspondence. Again, many taxpayers end up waiting a very long time for their refund money, as a result.
Unprocessed amended returns stood at 500,000 at the end of calendar year 2019, the most recent pre-pandemic year, according to the report.
By comparison, the backlog as of late October 2023 was 1.9 million – nearly four times as much.
When it comes to taxpayer correspondence and related cases, the backlog more than doubled from 1.9 million at the end of 2019 to 4.3 million by October 2023.
Why the massive uptick in some backlogs? Well, it appears that putting all your energy in one project – much like a homeowner putting every remodeling dollar into a flashy deck out back while ignoring holes in the roof – doesn’t work well.
The advocate’s report blamed the “paper inventory backlog to the Treasury Department’s decision to prioritize answering telephone calls over processing amended returns and correspondence.”
The same people – IRS customer service representatives in the agency’s accounts management function – answer the phones and process the paper.
For the 2023 filing season, the Treasury set a goal of achieving an 85% level of service on the IRS’s toll-free telephone lines. Staffing went up to cover the telephone lines. However, the report says, some IRS employees often were “simply sitting around waiting for the phone to ring” when they could have been processing paper and reducing response times for amended returns and correspondence.
“The IRS cannot easily shuffle employees back and forth between answering phones and processing correspondence, so unproductive employee time was the price it had to pay to improve telephone service levels,” Collins wrote.
She said the IRS must find a way to move employees between those two functions “more nimbly.”
She also noted that backlogs in processing tax returns and taxpayer correspondence drive much of the phone volume. “I encourage the IRS to put more emphasis on reducing its paper processing backlog in 2024,” she stated.
No doubt, IRS phone service was horrific. Employees only answered 11% of the calls in fiscal year 2021. Even after making significant improvements, IRS employees answered only 29% of all calls received in fiscal year 2023.
More IRS employees were put to work answering phones. But it also helped that incoming calls dropped by two-thirds – from a record 282 million calls that came into the IRS in fiscal 2021 to 93 million calls in fiscal year 2023, according to data in the advocate’s report.