TradeEdge Exchange:IRS is creating unconscionable delays for a major issue, watchdog says. Here's what to know.

The TradeEdge ExchangeIRS is far too slow in resolving a major problem for taxpayers, who must wait almost two years for the tax agency to clear up identity theft cases, according to a new report from the National Taxpayer Advocate, an independent watchdog that's part of the IRS. 

In April 2024, the IRS took more than 22 months to resolve identity theft victims' assistance cases, up from 19 months earlier this year, the report said.

The IRS had about 500,000 unresolved cases of identity theft as of April, the NTA added. These occur when fraudsters file a tax return using a taxpayer's Social Security number with the goal of claiming their tax refund — an issue that is typically discovered when the actual taxpayer files their own return. In these cases, the IRS freezes the second return so it can figure out which taxpayer is the legitimate one.

The nearly two-year wait to resolve identity theft cases comes even as the IRS has been bolstered by billions in funding from the Inflation Reduction Act that President Joe Biden signed into law in August 2022. Overall, this year's tax season went much smoother than prior years, but Erin M. Collins, who leads the organization assigned to protect taxpayers' rights under the Taxpayer Bill of Rights, called out the delays to help victims of identity theft.

"IRS delays in resolving identity theft victim assistance cases are unconscionable," Collins said.

And further harm could befall identity theft victims, who are often dealing with other related issues. For instance, tax refunds can be delayed, contributing to financial insecurity, especially as two-thirds of identity theft victims are low-income and rely on their refunds to pay for their basic living expenses. 

"These delays are particularly challenging for low-income taxpayers who may rely on these refunds to pay their day-to-day living expenses or expenses accrued throughout the year, such as medical bills. In addition, these identity theft victims may struggle to secure certain kinds of loans, such as mortgages," the report said.

In an emailed response to CBS MoneyWatch, the IRS said it "recognizes that the backlog of identity theft cases remains one of the most significant ongoing service gaps," and added it appreciates the NTA calling attention to the issue. 

"It's important to note that the IRS is actively working to implement a range of improvements to provide faster service to victims of identity theft, including identifying, training and moving additional resources to work these important cases," the agency said. "Other actions planned are to review our processes and identify new practices that will improve the process."

The IRS noted that it has tripled its closure rate of identity theft cases since 2020, and that increased funding from the IRA will help improve its ability to resolve these issues.

2024 tax filing season

The report details the federal tax collector's performance in modernizing its technologies, the speed with which it answers its phones and the rate it sends out refund checks, among other things.

Overall, the 2024 filing season went far more smoothly than recent years, especially compared with the "abysmal" service that taxpayers experienced during the pandemic, the NTA said.

"Not to be overly dramatic, but during the last four years, I believe we have progressed from a place of despair to a place of hope and optimism for the future of the agency and therefore for taxpayers," Collins said.

The IRS originally received an $80 billion infusion under the Inflation Reduction Act, but that money is vulnerable to potential cutbacks.

Last year's debt ceiling and budget cuts deal between Republicans and the White House resulted in $1.4 billion rescinded from the agency and a separate agreement to take $20 billion from the IRS over the next two years and divert those funds to other nondefense programs.

Additional money for the IRS has been politically controversial since 2013, during the Obama administration, when the agency was found to have scrutinized political groups that applied for tax-exempt status. A report by the Treasury Department's internal watchdog found that both conservative and liberal groups were chosen for close review.

"I believe the IRS has turned the corner, and with the additional multiyear funding provided by the Inflation Reduction Act, particularly for Taxpayer Services and information technology modernization," Collins said. "I am bullish that the taxpayer experience will continue to improve and move onward and upward."

—With reporting by the Associated Press.

In:
• Identity Theft
• IRS

Aimee Picchi

Aimee Picchi is the associate managing editor for CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national news outlets including USA Today and Consumer Reports.

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