Rampant Identity Theft Is Taxing the I.R.S.

Rampant identity theft has overwhelmed the Internal Revenue Service, resulting in a backlog of 500,000 unresolved fraud cases, leaving taxpayers without refunds and credits that they are due, the agency’s watchdog wrote in a report to Congress on Wednesday.

The report by the National Taxpayer Advocate described the slow pace of addressing the identity theft cases as a “blemish” on the performance of the I.R.S., which is in the midst of a sweeping modernization campaign that aims to improve taxpayer services. While the I.R.S. was criticized by the watchdog for identify theft delays last year, the backlog has gotten only worse.

The I.R.S. is taking nearly two years to resolve identity theft victims’ assistance cases and has an inventory of approximately 500,000 cases, up from 484,000 cases in September.

“I.R.S. delays in resolving identity theft victim assistance cases are unconscionable,” Erin Collins, the taxpayer advocate, wrote in the report.

Calling on the agency to prioritize assistance for victims, she added: “Delays of nearly two years make a mockery of the right to quality service in the Taxpayer Bill of Rights.” The backlog of cases is likely to give congressional Republicans more fodder to criticize the I.R.S. and to call for cleaving back more of the $80 billion in funding that the agency received through the Inflation Reduction Act of 2022. Critics of the agency have been arguing that it is bloated and failing to put that money to good use.

Identity theft has long been a problem for the I.R.S. Criminals often steal taxpayers’ identifying information and file paperwork to fraudulently claim their refund. Taxpayers realize this only when they try to claim their refund, leading to a laborious process in which they have to submit an identity theft affidavit and a paper tax return before the agency will open a case to investigate the matter.