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Refunds for victims of preparer fraud: Will the IRS give you one?

Today is Tax Day. If you haven't filed your federal income tax return yet, read our March 31 post for timely information about getting an automatic extension.

If you have already filed your annual return, it is quite possible that you used a professional tax preparer to assist you. About 3 out of 5 Americans do this, while others rely on tax preparation software.

Most tax preparers do excellent work. But what happens if a preparer uses your personal information to steal your tax refund? In this post, we will address that question.

In theory, the IRS should be able to provide a refund if you can show that you were the victim of identity theft on the part of your tax preparer. But as ABC News reported today, the National Taxpayer Advocate is concerned that the IRS does not have the procedures in place to issue these refunds consistently.

More than a year ago, in March 2014, the IRS commissioner clarified the agency's position on issuing refunds to taxpayers whose identities were stolen by their tax preparers. If you submit a police report regarding the theft, the IRS is supposed to provide any tax refund you had coming to you.

This, at least, is the IRS's stated policy. In practice, however, the IRS has still not taken action to implement it. Indeed, the Taxpayer Advocate says the agency has not even shared draft procedures concerning these refunds for review and comment.

The IRS says that addressing the issue of tax preparer fraud is very much on its radar. The larger problem appears to be the difficulty that the IRS's resource limitations place on its ability to follow through on actions that are necessary to improve the system.

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