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Identity theft victims and tax refunds: IRS still warning of delays

Identity theft that leads to tax refund fraud has been a significant problem for quite some time. The IRS says it is working on the issue. In our December 3 post we wrote about the agency's intention to use new software filters to do a better job at flagging fraudulent tax returns that are the product of identity theft.

In that post, we expressed the reasonable hope that these efforts by the IRS would not unduly delay tax refunds for legitimate taxpayers. But for those whose identities have been stolen in the past, the IRS is still warning a lengthy process before returns can be processed.

Last year, the IRS told taxpayers who had been the victims of identity theft that they should expect to wait 180 days for their returns to be processed. Obviously that is rather a long time - nearly six months.

Waiting that long for a tax refund can especially be a burden for taxpayers who have had to deal with identity theft. After all, there are often significant costs associated with repairing credit after experiencing identity theft. The $3,000 from an average tax refund can help a lot when people are dealing with costs like that.

Unfortunately, this year does not promise to be much better, in terms of timeliness of processing tax returns for victims of identity theft. In fact, it could be worse.

The National Taxpayer Advocate, Nina Olson, says this is unacceptable. In her role as taxpayer watchdog, Olson questions whether the IRS really does need to wait so long to give refunds to taxpayers who have been victimized by identity theft.

Accordingly, the Taxpayer Advocate Service (TAS) believes that identity theft victims should get their refunds as soon as the IRS can verify their real identities. Those victims shouldn't have to wait until the IRS does all sorts of internal paperwork for bureaucratic purposes.

Source: "Victim of identity theft? Expect a long wait for your tax refund," CNN Money, Blake Ellis, 1-10-13

Our firm handles situations similar to those discussed in this post in California. To learn more about our practice, please visit our tax fraud page.

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