IRS considering delaying tax refunds until summer to deal with growing crime of identity theft

CLEVELAND - Tax season might be over, but there could be big changes to it. Instead of waiting a few weeks for a refund, you could wait a few months. That's one proposal being discussed on Capitol Hill as Congress debates how to fix a massive problem that's hurting innocent taxpayers.

IRS identity theft is rampant, and already impacted 460,000 taxpayers, including Katie Angle. She did her taxes with TurboTax, but filed her taxes on paper to avoid any fees. Angle expected it might take longer since she didn't file electronically. She waited two months, and still no refund. Finally, she called TurboTax.

"She said have you ever lived in Georgia? My heart sunk, and I said no I haven't," Angle explained.

Without the information from TurboTax, Angle wouldn't know anything. Angle said the IRS never even contacted her about the compromised return.

"They're treating me like the criminal instead of the victim," Angle said.

When you're a victim, it can take up to a year to get your money, even though the thief made out with money. Angle said she was told the alleged thief got off with more than six times more money than her typical refund. So, how does this happen without the IRS noticing the inflated refund?

The IRS told Congress in March it's catching "some" of the fraud, but it simply can't stop all identity theft. The agency is doing what it can with the current staffing and funding, which some note needs to be dramatically increased. As of early March, the IRS said 215,000 questionable returns were stopped. However, only one in seven of those taxpayers who had their return stopped could actually get through to the IRS. Those who did, waited on hold for over an hour.

One Congressional leader at the hearing called the hour wait "unconscionable." Congressional representatives are the only ones who can really help victims. We contacted Congresswoman Betty Sutton's office on behalf of Angle. Your representative can help get answers on your return that nobody else can due to privacy issues.

Angle doesn't think enough is being done to help victims.

"It's insane how many hours I spent on the phone, and I just get no answers," Angle said. There are privacy issues, too, which are being worked out to share data with victims and law enforcement .

"It should be noted that the existing rules for protecting taxpayer privacy often make it difficult for us to provide easy access to information that may be useful for local law enforcement. We are, however, developing a procedure by which we will be able to share falsified returns with local law enforcement by way of obtaining a privacy waiver from the innocent taxpayer," IRS Deputy Commissioner Steven Miller told a Congressional committee.

There have been indictments for IRS related identity theft, but it's a time consuming problem and many victims never seen someone prosecuted. In fiscal year 2011, the IRS Criminal Investigation team spent 225,000 hours looking into identity theft. This year, that is expected to double.

Proposal: Delay tax refunds until summer

One solution discussed on Capitol Hill is to delay refunds until summer so the IRS can compare returns and more easily spot fraud.

"Such a shift would allow the IRS sufficient time to review every suspicious return. More importantly, the IRS would have at its disposal the full arsenal of information reporting databases- including complete data on wages and withholding, interest income, dividends, capital gains and partnership income - and could better detect and resolve discrepancies and questionable returns," said National Taxpayer Advocate Nina E. Olson.

The advocate noted such a change would be a big cultural shift and could financially hurt millions of taxpayers who depend on a refund soon after they file.

"Alternatively, if we prefer not to delay the processing of refunds for six months but still insist on greater fraud detection than the IRS is currently able to manage, then Congress would need to authorize significantly more funding for the IRS," Olson said. "It is unrealistic to expect the IRS to keep up with its increasing workload without either allocating a corresponding increase in resources or extending the timeframe in which to conduct the necessary wage and withholding verification."

It's a delicate balance the IRS and Congress are trying to figure out. Identity theft is a complicated problem, and it's unclear why so many taxpayers are becoming victims.

During testimony in congress it was noted that ID theft is now part of organized crime.

Protect yourself

Keep tabs on your credit. Check it at least every year or throughout the year for free with Annual Credit Report . It's the only government approved free site that allows you to check your credit without a fee from the bureaus. To keep tabs on your name year round, check one bureau every four months. For example, go to Annual Credit report in January and check your TransUnion report. Go back in May, and check your Equifax report. Finally, go

back to Annual Credit Report in September and check your Experian report. That way you always keep track of your credit.

Opt out of pre-approved credit and insurance card offers. These can be used by a thief to potentially open a credit card in your name. Call 1-888-5-OPTOUT. You will have to give your social security number to opt out as that's directly linked to your credit report.

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