How to Navigate IRS Identity Theft with a Smile (or at least a resigned smirk)
As of April 2024, it's taking the IRS over 22 months to resolve identity theft cases, with approximately 500,000 cases unresolved.
According to the latest National Taxpayer Advocate report to Congress, ”Recent reports reveal that these delays are not just inconvenient—they're downright "unconscionable."
Yikes.
Introduction:
IRS identity theft issues are creating a big problem for taxpayers.
The IRS will not release your refund until the problem is resolved...which apparently will take 22 months or be relegated to the 500k cases sitting unresolved. But the 22 month wait time and 500k back log is not just a statistic—it's a critical issue affecting real people who are counting on their annual refund to cover rent, groceries, or medical bills especially true for taxpayers struggling with lower socioeconomic status.
Each taxpayer’s experience with IRS identify theft will vary, and depends on whether they tell the IRS they may be a tax-related identity theft victim, or the IRS tells them they have a suspicious tax return.
The "We Found Something Suspicious" Scenario: The IRS decides to play detective and thinks your tax return looks fishy.
What to expect:
You Get a Letter from the IRS: You’ll receive a letter from the IRS (taxpayers love these) asking them to verify their identity. In other words, "prove you are who you say you are".
Letter 5071C: Offers an online tool to verify your identity. Quick and easy, like ordering a pizza online.
Letter 4883C: Gives you a toll-free number to call. Slightly more old-school but still gets the job done.
Letter 5747C: Requires you to make an appointment at a local Taxpayer Assistance Center. Yep, an in-person visit. Not always easy to get.
Prove You’re Not a Fraudster:
You’ll need the following:
The letter you got from the IRS in the mail.
A copy of your last year’s tax return.
The specific Form 1040 series return mentioned in the letter.
When You're Identity is Verified:
If You Didn’t File the Return: The IRS will erase it from their records. Easy peasy.
If You Did File: They’ll process it (finally) and issue your refund, assuming no other hiccups.
2. The "Uh-oh, My Return Got Rejected" Scenario: This time, you’re the one waving the red flag because your e-filed return was rejected.
Here’s the scoop:
Paperwork Galore: File a paper tax return if e-filing isn’t working. Attach a Form 14039, Identity Theft Affidavit, to the back of your tax return and mail it to the IRS.
The Waiting Game: Your case gets handed over to the IRS’s Identity Theft Victim Assistance (IDTVA) organization.
This elite team will:
Assess the extent of the theft (spoiler alert: it might affect multiple years).
Dig through the fraudulent return to identify other potential victims.
Authenticate all the details to ensure accuracy.
Process your legitimate return and release any due refunds.
Mark your account with an identity theft indicator for future protection.
Patience is a Virtue: The process is taking 650 days.
Yes, that’s almost two years.
Stay Put: Don’t submit duplicate Forms 14039 or bombard the IRS with status inquiries. It only slows things down. Instead, check the Processing Status for Tax Forms dashboard for updates.
Post-Resolution: Once the IRS finally resolves your case, they’ll notify you. All confirmed victims will be enrolled in the Identity Protection PIN Program, receiving a shiny new six-digit IP PIN every year to prevent future shenanigans.
3. Stay Proactive
Tax professionals (me included) are well aware of the problems the IRS is having with identity theft.
We have frustrated clients and we’re putting in extra time and resources to do what we can to push the IRS investigation as quickly as possible.
The investigation delay is a ripple effect that impacts everyone involved.
If you have taxpayer clients with identity theft issues, provide the following advice:
Prompt Communication: If you suspect identity theft, notify the IRS immediately. It sounds obvious enough but taxpayers are slow to do this due to overwhelm and despair. The faster you get the identify theft issue into the system, the faster it gets resolved.
Documentation: Keep records of all communications with the IRS, including letters, forms, and notes from phone calls.
Utilize IRS Resources: Look into the IRS Taxpayer Protection Program and the Identity Theft Victim Assistance organization for help. I don’t know for sure how much of a difference they make but this is what they’re there for. Take advantage.
Follow IRS procedures: Don’t stray off course. Follow the prompts from IRS letters discussed in paragraph 1 and 2 above.
It's taking 22 months for these identify theft investigations to conclude. Strongly suggest your clients follow your advice so the ordeal doesn’t end up taking even longer.
TL;DR: Tax related identity theft issues are taking 22 months to get resolved, but knowing and following the procedures can help ease the frustration. Advise clients to move quickly, stay organized, utilize IRS organizations, and remember, filing next year’s return should be easier once the taxpayer receives their annual identity pin.
At least it should be...
PS: How have you or your tax clients dealt with tax-related identity theft?
If so, what was the outcome of the IRS investigation?
How long did it take?
Let us know in the comments!
Thank you for taking an interest in this week's edition of Resolving Tax Debt.
I look forward to writing it every week and your support means so much.
