WASHINGTON -- Taxpayers whose identities are stolen receive confusing and conflicting instructions from the Internal Revenue Service (IRS) and delays of sometimes longer than a year to resolve their tax problems, resulting in increased burden for the victims, according to a report released publicly today by the Treasury Inspector General for Tax Administration (TIGTA).

TIGTA conducted its review because of significant recent growth in tax-related identity theft cases and reports of problems that taxpayers are encountering with the IRS when attempting to resolve their cases. As of December 31, 2011, the IRS's Incident Tracking Statistics Report showed that 641,052 taxpayers have been affected by identity theft in Calendar Year 2011 (versus 270,518 in 2010). The growth in these cases has overwhelmed IRS resources and burdened taxpayers. Problems TIGTA found include:

• The IRS does not work identity theft cases timely and can take more than a year to resolve them.
• Communications between the IRS and victims are limited and confusing, and victims are asked multiple times to substantiate their identity.
• When taxpayers call the IRS to advise it that their electronic tax return was rejected because it appears another individual has already filed a tax return using their identity, the IRS instructs them to mail in a paper tax return with the Form 14039, Identity Theft Affidavit, attaching supporting identity documents. However, the IRS has been processing these tax returns using standard processing procedures and does not prioritize them.
• Identity theft guidelines and procedures are dispersed among 38 different Internal Revenue Manual sections. These guidelines are inconsistent and conflicting, and not all functions have guidelines on handling identity theft issues.
• The IRS makes little use of the data from the identity theft cases to identify any trends that could be used to detect or prevent future refund fraud.

"TIGTA found that the IRS's current methods for handling identity theft cases are insufficient and taxpayers deserve better," said J. Russell George, the Treasury Inspector General for Tax Administration. "As the Federal Trade Commission has reported that identity theft continued to be the number one consumer complaint last year, and the most common form of reported identity theft involves government documents, the IRS must make handling these cases a priority," he added. TIGTA recommended that the IRS: 1) establish accountability for the Identity Theft Program; 2) implement a process to ensure that IRS notices and correspondence are not sent to the address listed on the identity thief's tax return; 3) conduct an analysis of the letters sent to taxpayers regarding identity theft; 4) ensure taxpayers are notified when the IRS has received their identifying documents; 5) create a specialized unit in the Accounts Management function to exclusively work identity theft cases; 6) ensure all quality review systems used by IRS functions and offices working identity theft cases are revised to select a representative sample of identity theft cases; 7) revise procedures for the Correspondence Imaging System screening process; and 8) ensure that programming is adjusted so that identity theft issues can be tracked and analyzed for trends and patterns.

The IRS agreed with all of TIGTA's recommendations. It has established a governance structure to oversee its identity theft initiatives and plans to expand its identity theft indicator codes identifying claims of identity theft. The IRS further plans to review its suite of identity theft letters and to update its guidance instructing employees to notify taxpayers acknowledging receipt of documentation. The IRS currently has specialized units in the Accounts Management function working only identity theft cases. Finally, the IRS plans to create a specific quality review for identity theft cases and is currently evaluating options for enhancing its ability to track and analyze the fraudulent identity theft information removed from a taxpayer account.