Did the IRS Just Hang 500K Identity Theft Victims Out to Dry?

More than 530,000 taxpayers with identity theft indicators on their tax accounts were not issued identity protection personal identification numbers (IP PINs) for filing their 2013 taxes, according to a report from the Treasury Inspector General for Tax Administration (TIGTA). The IRS provides IP PINs to identity theft victims as a security measure aimed at stopping thieves from filing fraudulent tax returns. The IRS lost $5.2 billion to identity theft-related tax fraud last year.

Identity theft victims also face longer refund-processing times, but filing with an IP PIN allows the IRS to more quickly process the return and get refunds to taxpayers. Without IP PINs, those taxpayers with identity theft indicators on their accounts may have faced delays receiving their refunds.

The good news: The IRS sent more than 1.2 million IP PIN notices to taxpayers this year, up from 770,000 IP PIN notices sent in 2013. While it’s good to see the program expanding, it’s in part due to the rise in identity theft, which is not so good.

The report highlights other hiccups in the IP PIN program — unclear instructions, failure to deliver PINs in a timely manner — but it’s important to note the operation is fairly new: It started in fiscal year 2011. A statement from the IRS also highlighted budget cuts and staff reduction as obstacles to tackling identity theft. Here’s more from that statement, which an IRS spokesman emailed to Credit.com:

“It is important to clarify that while TIGTA highlights a group of roughly 530,000 taxpayers that did not receive IP PINS, those were taxpayers identified by the IRS as having potentially suspicious activity on their accounts, rather than taxpayers that self-reported to the IRS. The IRS recognized these accounts as possibly being victimized and notified the taxpayers of our concerns. However, we set very strict parameters to our accounts before an IP PIN can be issued in order to protect the integrity of the system.”

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The statement goes on to say such taxpayers will next year receive a letter inviting them to request an IP PIN through the IRS website. Another coming change will address an additional issue raised by the report: This year, more than 24,628 taxpayers whose personally identifiable information was lost by, breached or stolen from the IRS did not receive IP PINs. In the next filing season, such consumers will receive notices from the IRS saying they may be eligible for the IP PIN program.

Issues aside, the IRS stopped $50 billion in tax fraud in fiscal 2013, and combatting identity theft has increasingly been a priority for the agency. As a consumer, it can be extremely difficult to prevent identity-theft-related tax fraud, because you often don’t know someone has your Social Security number until you go to file your taxes and find out someone beat you to it. Still, watching out for signs of identity theft is crucial to protecting yourself from the cost of recovering from fraud, and it’s easy to do: Check your financial accounts for signs of unauthorized activity, request your free annual credit reports and regularly check your credit scores for any large, unexpected changes. You can get two of your credit scores for free with monthly updates on Credit.com.