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IRS Proposes Delaying Tax Refunds to Combat Identity Theft

Identity theft is an increasing problem for state and federal law enforcement and taxpayers have become a popular target for this costly crime. Earlier this month, Treasury Inspector General J. Russell George suggested that identity theft could cause the Internal Revenue Service to issue $26 billion in fraudulently filed returns over the next five years. In an effort to combat the growing trend of identity theft, lawmakers are proposing a new measure which would delay the issuing of tax refund checks until summer, allowing the IRS more time to detect cases of possible identity theft.

Identifying the Problem

Reportedly, one of the biggest problems with tax refund identity theft is identifying fraudulent tax returns before the refunds are issued. This has been attributed to both the stealth with which some identity thieves are able to operate and federal privacy laws, which can make it difficult for federal and state agencies to work together in detecting and preventing identity theft.

At a congressional hearing in March, the IRS claimed that it was catching some instances of fraud but that it lacked the funding and staffing to keep up with the growing number of identity theft cases. The IRS said it had stopped refunds from being issued for approximately 215,000 fraudulent returns but that there were still several hundred thousand more taxpayers potentially affected by an identity theft scam. For those taxpayers whose returns were stopped, getting in touch with an IRS representative proved to be a struggle, with telephone wait times reportedly as long as an hour. Lawmakers expressed their frustration, calling the long wait times “unconscionable”.

Implications of Delaying Tax Refunds

The proposed delay of tax refunds has received support from both lawmakers and national taxpayer advocacy groups, however, it may have serious implications for taxpayers who look forward to getting their refund each year.

While delaying tax refund checks until the summer would allow the IRS more time to review tax returns and detect possible cases of theft, it could also create a financial hardship for those depend on receiving their refund shortly after they file. One alternative to delaying tax refunds is to increase funding for identity theft investigations, a subject that is still under discussion between Congress and the IRS.

Protecting Yourself from Tax Refund Identity Theft

The IRS offers taxpayers a number of tips to help protect themselves against identity theft. The following list includes some of the things you can do to keep your personal information out of the hands of identity thieves.

  • Do not respond to emails claiming to be from the IRS asking for personal information. The IRS never solicits personal information through an email and any suspicious communications should be reported to the IRS immediately.
  • Be aware of potential tax scams, specifically those that promise to get you a bigger return. Do not provide any personal information to anyone who contacts you via email, telephone or letter advertising these types of tax preparation services or promoting an offer that appears too good to be true.
  • If you are filing online tax returns, use a strong password to protect your information. Do not share your password with anyone.
  • If you e-file, save a copy of your tax return to a CD or flash driver and store it in a secure place. Once you’ve saved a hard copy of your tax return, delete your tax return information from your hard driver.
  • Contact the IRS immediately if you believe you may be the victim of tax return identity theft.

For more information and tips on how you can safeguard yourself against identity theft, visit the IRS website at IRS.gov.