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Report: IRS leaves out 500k ID theft victims

The IRS didn’t give more than half a million taxpayers that were victims of identity theft an identification number to smooth their filing process in 2013, according to an inspector general report released Tuesday.

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The tax agency has made battling identity theft a top priority, after paying out more than an estimated $5 billion in fraudulent refunds in 2013.

As part of that battle, the IRS gives identity protection personal identification numbers known as IP PINs to identity theft victims, allowing the agency to verify a taxpayer and more quickly process their return. The IRS issued 1.2 million of those identification numbers in 2014, up from 770,000 the year before and roughly 250,000 in the 2012 filing season.

But Treasury’s inspector general for tax administration said in the new report that 532,637 taxpayers eligible for an identification number in 2013 didn’t receive one, because the IRS wasn’t wholly confident that the agency had the taxpayers’ correct address. Almost 25,000 other taxpayers who had their personal information lost or stolen from the IRS didn’t get the opportunity to get an identification number, the report said.

“Tax-related identity theft continues to be one of the biggest challenges facing the Federal system of tax administration,” Russell George, the tax administration inspector general, said in a statement. “It is incumbent upon the Internal Revenue Service to fully utilize all available tools in the fight against this fraudulent activity.”

The report did find that taxpayers using the identification number had their returns processed in around the same amount of time as taxpayers that hadn’t been victims of identity theft.

The IRS generally agreed with the inspector general’s recommendations to ensure that victims consistently receive the identification numbers.

But the agency also defended its efforts so far, insisting that the roughly 530,000 taxpayers that didn't receive identification numbers had "potentially suspicious activity" on their accounts.

"The IRS recognized these accounts as possibly being victimized and notified the taxpayers of our concerns," the agency said in a statement. "However, we set very strict parameters to our accounts before an IP PIN can be issued in order to protect the integrity of the system."

Agency officials added that taxpayers who had their information compromised through the IRS are eligible for an identification number, though the inspector general noted that most taxpayers won’t be aware of that until next year. 

More broadly, the agency said its “cautious” approach of not sending an identification number to taxpayers unless it was sure of their address was key to battling identity theft fraud.

The IRS’s Debra Holland noted that returns from taxpayers eligible for an identification number would get extra scrutiny, no matter if those taxpayer received the PIN number or not.

“Sending an IP PIN to an address that is not verified as belonging to the legitimate taxpayer means that the individual committing the identity theft could now be in possession of the IP PIN,” Holland wrote. 

This post was updated at 4:43 p.m.