Tax ID Theft: Is the IRS Doing Enough to Help Victims?

Tax-related identity theft was the most common complaint consumers filed with the Federal Trade Commission in 2014, as it has been in previous years, and the number of complaints increased more than 2,300% — no, that figure isn’t missing decimal points.

Those complaints cover all sorts of things, from reports of callers impersonating the Internal Revenue Service to people whose Social Security numbers were used to file fraudulent tax returns. The latter is a particularly frustrating experience for consumers, who then have to worry about the fact that their Social Security numbers have been compromised, not to mention the time and money it may take to straighten out their taxes and get any refund they rightfully deserve.

In 2012, the IRS started a program to help consumers and law enforcement investigate matters of tax-related identity theft, and in 2013 it expanded from its pilot status in Florida to a nationwide effort, the IRS Law Enforcement Assistance Program (LEAP). The Treasury Inspector General for Tax Administration (TIGTA) audited it and recently released a report on the program.

Spoiler alert: The IRS isn’t doing a great job with it.

Here’s a quick overview of the program, before we get into the problems the IRS has had executing it: Law enforcement officers use Form 8821-A, IRS Disclosure Authorization for Victims of Identity Theft, to get victims’ permission to request their tax information from the IRS. That information is used by law enforcement to track down scammers and resolve identity theft cases. The audit investigated the speed, accuracy and security with which those forms were processed by the IRS.

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Between Jan. 3 and Sept. 27, 2013, the IRS processed 2,481 of these forms. TIGTA audited a statistically representative sample of them (194 to be exact) to see how LEAP was working.

The audit found significant delays and inaccuracies in this process, which is supposed to help law enforcement officers prosecute identity theft cases. Here are the highlights of the audit:

Thirty-nine requests were rejected, but eight should not have been. That’s a 21% error rate.
Seven percent “were invalid or incomplete and should not have been processed due to the risk of unauthorized disclosure.” That’s a security issue.
Fifty-eight percent of the accepted requests were not processed within 10 business days, as required.
The IRS did not maintain records of the information furnished to law enforcement in 72% of the sample cases.

In short — not a great job, IRS. Granted, the agency isn’t exactly firing on all cylinders and continues to suffer from budget cuts, even as demand for tax-related identity theft detection and resolution rises. TIGTA made recommendations to the IRS for ways it can improve this program, as it will likely see increasing volume, but the directive is pretty simple: Execute this program in a timely, accurate and secure manner.

The IRS responded to the report, saying it plans to incorporate the recommendations.

“As the threat of identity theft and its impact on victims has continued to grow, we recognize the importance of ensuring the LEAP services requests by law enforcement officials are processed in a timely, accurate and secure manner,” wrote Debra Holland, commissioner of the IRS’s Wage and Investment Division, in the official management response. “We are also addressing report findings that some requests were not processed within established timeframes and accuracy guidelines by evaluating our quality review procedures, enhancing procedural guidance, and improving instructions to employees and managers that reinforce the importance of timely and accurate service delivery.”

Tax-related identity theft can happen in conjunction with other types of identity theft like new-account fraud, since fraudsters can use information like your Social Security number to kill two birds with one stone. You can monitor your credit for signs of fraudulent accounts that may have been opened in your name. You can check your credit scores for free every month on Credit.com; any unexpected changes to your scores could signal identity theft and you should pull your credit reports to confirm (you get free credit reports once a year under federal law).