A new report to Congress has some harsh words for how the IRS is handling the identity theft and tax refund fraud problem that's already cost billions of dollars.
The report is from the Taxpayer Advocate Service, an independent organization within the IRS that sends an annual document to Congress with assessments of how the agency is performing.
In this year's report, the Taxpayer Advocate Service, run by Nina Olson, spent about 25 pages on tax refund fraud and says the IRS "has not responded with the urgency that the identity theft crisis demands."
The crime, which has exploded in the Tampa Bay area, involves stealing identities and filing fake tax returns to get big refunds. Thieves have been successful in getting these fake returns through the system and claiming refunds that often amount to $9,000 each.
"In our view, the IRS still does not understand the full scope of the problem and is developing procedures that will continue to harm identity theft victims," the report said in its final comments. "The National Taxpayer Advocate does not want to be in the situation, several years from now, of saying 'I told you so'."
The report says it's taking too long for the IRS to resolve individual identity theft victim cases, holding up those taxpayers' real refunds. It also says the IRS is moving backward by "decentralizing" the process for victims and creating "specialized units within each of its 21 individual departments." The report says this increases the risk that identity theft victims "may fall through the cracks."
In comments submitted with the report, the IRS disagreed with some of the critiques, including the "decentralization" issue.
"Specialization not only provides a single point of contact for the taxpayer, but it also affords the taxpayer with the expertise needed to handle all aspects of their case," the IRS said in its comments.
The IRS also said it has made progress on the identity theft issue and that efforts in the 2012 filing season "provide a solid foundation upon which we will continue to build and improve."
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