IRS Requires Identity Verification for Taxpayers Filing Suspicious Returns
The IRS crackdown on extensive fraud involving key but obscure tax credits remains ongoing. Taxpayers who receive notices to verify their identity must pay close attention to the paperwork and complete the verification process if they hope to receive any tax refund.
Fraudulent Claims and Identity Verification
On Wednesday, the Internal Revenue Service updated an initial May 14 release to clarify that “taxpayers who improperly claimed these credits still need to authenticate their identity. Once the taxpayer’s identity has been verified, they may need to amend their tax return to remove the improperly claimed credit.” The IRS stressed that the amended return won’t be processed until after the taxpayer’s identity is authenticated.
Tax Scams and Social Media Misinformation
The IRS consumer alert highlights that a series of tax scams and inaccurate social media advice led “thousands of taxpayers to file inflated refund claims during the past tax season.” These scams focused on the Fuel Tax Credit, the Sick and Family Leave Credit, and household employment taxes. The IRS warned taxpayers to avoid falling for these scams.
Changing Guidelines for Verification
Recently, the IRS changed its guidelines on what needs to be verified. Previously, the IRS stated that taxpayers who wrongly claimed key credits, including a fuel-related credit, did not need to visit a Taxpayer Assistance Center to verify their identity. This advice coincided with no-appointment-needed Saturday hours on May 18 in several cities, including Detroit. Despite this, an estimated crowd of less than 1,000 people lined up for hours at the IRS office in downtown Detroit.
Currently, no more walk-in hours are scheduled for Saturdays. The IRS now states that verifying your ID is necessary before amending any return with improperly claimed credits. Typically, IRS taxpayer assistance centers are open from 8:30 a.m. to 4:30 p.m. Monday through Friday and operate by appointment only. To make an appointment, call 844-545-5640.
IRS Notice 3176c and Amended Returns
Taxpayers in this situation may have received letters from the IRS — called IRS Notice 3176c — which apply to potentially frivolous tax returns, including incorrect claims for fuel and sick and family leave credits, and household employment taxes. To avoid penalties and potential follow-up action, the IRS advises taxpayers who incorrectly filed for these claims to promptly submit an accurate tax return without the claims. Taxpayers can use the IRS.gov tool “Should I file an amended return?” to determine whether they need to amend their return. They must still verify their identity before amending. Seeking advice from a trusted tax professional is also recommended.
Processing Errors and Identity Verification
The IRS often corrects errors during processing. However, in situations involving improperly claimed credits, the taxpayer must file an amended return to correct the error or make other changes. Many people in the long line on Saturday were unaware why they needed to verify their IDs, not believing they wrongly claimed any credits. Others may have needed to verify their IDs for various reasons, such as being first-time filers or verifying the identity of dependents.
When the IRS suspects a fraudulent return, it will not process the refund until the person’s identity is verified to ensure the return was filed by the legitimate filer and not a fraudster using stolen ID information. Verification letters are sent even if no improper credits are claimed, if the IRS suspects identity theft or fraud.
Challenges and Delays in ID Verification
Clearing one’s ID with the IRS can be a complicated process, often delaying tax refunds. The IRS has faced criticism for taking too long to issue refunds to victims of identity theft. Nearly 500,000 people had pending cases with the IRS’s Identity Theft Victims Assistance unit at the end of 2023, with an average wait time of 19 months, according to National Taxpayer Advocate Erin Collins’ 2023 Annual Report to Congress.
Addressing Identity Theft Delays
According to a Bloomberg Tax report, Collins stated that the IRS is taking 22 months to process and send refunds to victims of tax-related identity theft. This delay applies when a taxpayer is unable to file their federal income tax return because a fraudster already filed using their ID. The legitimate taxpayer’s return is rejected, and the victim must clear up the issue.
However, the delays are shorter when the IRS flags a return for discrepancies and requests ID verification before issuing a refund. Taxpayers who trusted unreliable tax preparers and filed inflated returns are now facing a mess, needing to verify their ID and amend returns before receiving any federal income tax refund.
Final Notes on IRS Procedures
“The entire refund amount is frozen on returns with these bad claims,” the IRS stated. “Taxpayers will not receive any portion of their refund, even if they also claimed legitimate credits.” Taxpayers must complete the necessary steps to verify their identity and correct their returns to resolve these issues and receive their refunds.
