The Internal Revenue Service (IRS) has its hands full this year. The recent report by the Taxpayer Advocate Service shows the tax collection agency has increasing responsibilities to meet with fewer resources.
The report expressed concern that taxpayers who call the IRS for help, or walk in to IRS offices, are faced with long wait times.
“The requirement to pay taxes is generally the most significant burden a government imposes on its citizens,” the report said. “The National Taxpayer Advocate believes the government has a practical and moral obligation to make compliance as simple and painless as possible.”
Money is part of the problem. Added responsibilities is another. Because government subsidies under the Affordable Care Act are awarded in the form of tax credits, the IRS is deeply involved in the implementation of this very complex law.
Taxpayer identity theft
What hasn't gotten as much attention, however, is the amount of time and effort the tax agency has to devote to dealing with fraud – in particular, identity theft. Last month, when the IRS issued its “Dirty Dozen” tax scams for 2014, identity theft was at the top of the list.
While identity theft is nothing new, criminals are increasingly targeting the IRS because it is so easy. All they have to do is steal someone's name and Social Security number. They file a bogus tax return, showing a large refund. By the time the real taxpayer gets around to filing, the IRS has already sent out a check to the impostor.
In Fiscal Year 2010 the IRS reported just 147 identity theft prosecutions. By Fiscal Year 2012 the number had grown to 544. In the first half of Fiscal Year 2013 there were 441.
The IRS says its work on identity theft and related refund fraud now touches nearly every part of the agency. To combat the problem the IRS has had to devote more of its resources to identity potential fraud and try to stop it before it occurs.
In some cases this may slow down your direct deposit refund. Banks have also been enlisted to help prevent fraudulent refunds from being sent out. Stephanie, of Queens, N.Y., encountered a delay when she tried to have her tax refund direct deposited to her RushCard.
“I got a message from RushCard asking for my 1040 form and without the form they cannot release my tax refund that is due to me,” she wrote in a ConsumerAffairs post.
Banks are sometimes freezing refunds like Stephanie's if the return is even suspected of being bogus. Since pre-paid cards are a favorite tool of tax identity thieves, the verification burden can be even greater. It results in placing a burden on the taxpayer, who understandably wants to get their hands on their refund as soon as possible.
Things are worse, of course, for taxpayers who actually have had their identity stolen. The IRS has had to devote resources to trying to help these people, as well as trying to prevent future identity theft.
All of this not only slows the bureaucracy but costs money. As Taxpayer Advocate Nina Olson noted in her January report, last year's sequestration substantially cut the IRS’s funding. Calling IRS funding “inadequate,” she says cuts designed to reduce the budget deficit can have the opposite effect when applied to the revenue collection agency.