IRS Budget and Staff Cuts May Worsen Identity Theft Delays 126   Recently updated !

 in News  tagged Identity Theft by (updated 9 days ago)

Identity theft victims are facing significant delays in receiving their tax refunds, with average wait times stretching to almost two years. This problem, already severe, is likely to worsen due to recent staff and budget cuts at the IRS.

A Personal Struggle

Cathy Bonilla of Houston is a prime example of the hardship caused by these delays. A single mother of six, she has been waiting for her $7,000 to $8,000 refund since her tax preparer stole her identity in 2022. The lack of funds has left her and her children sleeping on air mattresses, and without a car, finding work is difficult. Her story is not unique; hundreds of thousands of taxpayers are in a similar position.

Processing Times and Service Gaps

According to National Taxpayer Advocate Erin Collins, the average time to resolve an identity theft case is 20 months, and it takes almost two years for victims to receive their refunds. Collins emphasizes that these delays “disproportionately affect vulnerable populations dependent on their refunds to meet basic living expenses.”

Former IRS Commissioner Daniel Werfel acknowledged that identity theft resolution was “the largest service gap in the IRS” during his tenure. He noted that the IRS had a limited number of trained staff for these cases and that heightened criminal activity during the COVID-19 pandemic increased the workload. The IRS website, as of June 11, states that it takes an average of 582 days to resolve identity theft cases, though it aims to reduce this to 120 days or less. However, some tax experts are skeptical this goal can be achieved with reduced staffing.

Skepticism Over IRS Goals

Sarah Lora of the Lewis & Clark Law School’s low-income taxpayer clinic and Mandi Matlock of the Center for Taxpayer Rights both expressed doubts about the IRS’s ability to meet its processing goals. Matlock questioned whether the agency could succeed with fewer employees than it had before, especially since identity theft cases cannot be resolved by automation or AI.

The impact on taxpayers is significant. Omeed Firouzi of Temple University Beasley School of Law stated that victims are waiting a long time for money they are owed, which could have been used for “rent, groceries, utilities, other basic needs.” For low-income taxpayers, their refund, boosted by credits like the Child Tax Credit and Earned Income Tax Credit, can represent almost 20% of their annual cash flow, according to Grace Allison of New Mexico Legal Aid.

Budget Cuts and Staff Reductions

Recent data suggests that the IRS’s ability to handle these cases is getting worse. An analysis of the IRS website by Mandi Matlock revealed that the agency has slowed or stopped providing regular updates on the processing of Form 14039, the Identity Theft Affidavit. In December 2024, the IRS was processing forms from August 2023, but by August 2025, it was still processing forms from October 2023.

Compounding this issue, IRS data obtained through a Freedom of Information Act request identified 43 employees in the identity theft/victim assistance field who were part of a deferred resignation program. This program allowed employees to resign and receive their full pay until September 30 as part of an effort to shrink the federal workforce.

Karyna Lopez of Lone Star Legal Aid notes that identity theft cases are becoming more complex as victims try and fail to resolve them on their own before seeking help. She often has to tell her clients that she doesn’t know when their case will be resolved. In Cathy Bonilla’s case, Lopez submitted her identity theft affidavit in March 2024, but it appears the IRS hasn’t even begun processing it.

Former Commissioner Werfel emphasized the need for more oversight of tax preparers, a profession that contributed to Bonilla’s situation. Her preparer e-filed a fraudulent return and stole her refund. Werfel has previously urged Congress to give the Treasury Secretary explicit authority to regulate all paid preparers.

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