In an alarming revelation, millions of taxpayers have been found to be disregarding letters flagged by the Internal Revenue Service (IRS) as potential fraud or ID theft cases. This ignorance, or perhaps fear, of addressing these letters has left taxpayers in limbo, with their tax refunds withheld until they can authenticate their identities. The National Taxpayer Advocate’s recent blog post indicates that as of the end of the previous year, over 2.5 million federal income tax returns remained in suspension due to unverified taxpayer identities.
The crux of the issue lies in the convoluted and often intimidating communication process between the IRS and taxpayers. The IRS, as part of its duty to prevent fraudulent tax returns, sends out letters asking for identity confirmation when a return shows signs of potential identity theft. However, these letters, often filled with IRS jargon and complex directions, are left unopened or misunderstood by recipients. The problem is exacerbated when legitimate tax filers have their returns wrongly flagged, leading to unnecessary delays and complications in receiving their refunds.
Ignoring IRS Letters? You Could Be Delaying Your Tax Refund
Last year, millions of US taxpayers disregarded letters from the Internal Revenue Service (IRS) requesting identity verification, leading to the suspension of their federal income tax refunds. The National Taxpayer Advocate revealed that over 2.5 million federal income tax returns remained suspended at the end of last year due to unverified identities.
Suspected ID Theft Behind Refund Delays
Ignoring IRS letters could be the reason behind your delayed tax refund. The IRS letters, which are sent out when there’s a suspicion of ID theft, are an essential step in getting the process started. National Taxpayer Advocate Erin Collins is urging taxpayers to respond to these ID-theft related letters, sent in the previous year or in 2021.
Collins also called for a simplification of the process and clarity in the IRS letters. The IRS needs to assist taxpayers in reducing the burden of those who have properly filed tax returns, Collins advised.
IRS’s Role in Preventing Fraud
The IRS has the responsibility of preventing fraudulent tax filings. As part of the initial ID theft screening process, the IRS reviews tax returns for signs of potential fraud. IRS spokesperson, Luis Garcia, stated that while the IRS is committed to ensuring taxpayers receive their due refunds, they must also protect taxpayers from identity theft.
Understanding IRS Letters & Authentication Process
The IRS sends out various letters, which may be difficult to understand due to assorted IRS jargon. Despite this, it’s crucial for taxpayers to respond to these letters to authenticate their identities and receive their refunds. The authentication process can be lengthy and challenging, requiring access to an internet connection, necessary documentation, and patience.
Cecily Welch, a member of the IRS Advocacy Relations Committee for the American Institute of CPAs, advised that the IRS has made significant improvements in dealing with the verification process, despite it not being immediately obvious. Welch also highlighted that tax professionals can now assist in the authentication process with power of attorney.
Failure to Respond to IRS Letters
In 2021, the IRS stopped processing 4.8 million tax returns due to potential ID theft concerns. Of these, only 2 million taxpayers responded to letters to authenticate their identities. Nearly 255,000 returns were confirmed as fraudulent attempts by criminals to steal refund cash through identity theft.
The lack of response could be due to various reasons, including the taxpayer never receiving the letter, moving, not understanding the letter, or being unable to get through on the IRS’s phone line. Collins stated that many taxpayers, particularly those for whom English is a second language, find the IRS letters and verification process complex and confusing.
Urgent Need for Process Improvement
It’s clear that more needs to be done to streamline the process. While ID theft isn’t going away, legitimate taxpayers shouldn’t face so many obstacles. The IRS’s "Where’s My Refund?" tool needs to address ID theft-related issues. The IRS has agreed to make changes but has not yet implemented them.
One way to combat identity theft is to request an IP PIN — or Identity Protection PIN — from the IRS. This confidential six-digit number can prevent someone from using your Social Security number to file a fake tax return.
Takeaways
Ignoring IRS letters can delay your tax refund, especially when there’s a suspicion of ID theft. It’s crucial to respond to these letters to authenticate your identity and ensure your refund isn’t held up. While the process can be complex and confusing, improvements are being made, and there are resources available to help. Moreover, requesting an IP PIN from the IRS can provide an added layer of protection against tax-related identity theft.
