The Process To Resolve Identity Theft Cases Is Long, Costly, and Frustrating for Taxpayers
Why did we do this audit?The Identity Theft Victim Assistance function evaluates taxpayers’ identity theft (IDT) claims and potential IDT cases identified by the IRS. The IRS aims to resolve IDT claims within 120 days. However, case receipts nearly quadrupled in 2021, creating a backlog that persisted into 2025. What did we find?In recent year, taxpayers have waited 20 months on average for the IRS to process their IDT case. These lengthy delays can frustrate and burden taxpayers while they wait to receive their refunds. Further, the delays cause the IRS to pay interest on the delayed refunds. IRS management increased the number of trained staff to address the identity theft case backlog, but more improvements are needed. For example, identity theft cases are generally worked on a first in, first out bases and remain unassigned until an IRS assister is available. We found that 114 cases closed in Fiscal Year 2023 took nearly two years on average to process. Most of this time, however, was spent waiting for an assistor to be available to work the case. These delays are costly. We calculated that the IRS paid approximately $124.2 million in refund interest on IDT cases closed in recent years. We also estimate that over 50,000 taxpayers did not receive status updates
about their IDT cases. In Fiscal Year 2024, the IRS revised its policies to
discontinue sending acknowledgment letters for taxpayer-initiated cases due to the potential for fraud and does not send acknowledgment letters to taxpayers if the IRS identifies the potential IDT. In these IRS identified cases, the taxpayer may not know that their return has been flagged for potential IDT. In either case, this means that some taxpayers do not hear anything about the status of their IDT case while they experience lengthy wait times for the IRS to resolve their case.
The IRS’s National Distribution Center Continues to Face Declining Demand
Why did we do this audit?The National Distribution Center (NDC) provides planning and order fulfillment of IRS products to help taxpayers meet their tax obligations and to support internal IRS operations. The NDC stores paper products, including forms, instructions, general notices, publications, posters, signage, and other documents. What did we find?We found that orders for IRS paper products declined more than 20 percent from 2021 through 2025. Given declining demand and other IRS initiatives to reduce paper, the IRS should reevaluate the NDC’s size and scope. This effort may also reduce the operating costs of the NDC. For example, the IRS spent approximately $15 million in Fiscal Year 2025 to operate the NDC. We also identified opportunities to improve inventory management. In Fiscal Year 2025, the NDC disposed of approximately 1.6 million obsolete products that resulted in more than $1 million in disposal costs. Some of the factors contributing to excess obsolete inventory are beyond the IRS’s control (e.g., executive orders). However, other contributing factors (e.g., inaccurate information) are within the IRS’s control.
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