The IRS is facing mounting challenges in detecting fraudulent tax returns, as staffing shortages and system strain slow its capacity for fraud screening. Between January and May 2025, the agency’s workforce dropped by nearly 25%, prompting watchdog warnings that hundreds of millions of dollars in fraudulent refunds could go undetected, according to new reports from TIGTA and the National Taxpayer Advocate.
The Treasury Inspector General for Tax Administration (TIGTA) reported that the IRS workforce fell from 103,000 to 77,000 employees in five months. The Return Integrity and Compliance Services division, responsible for identifying and blocking fraudulent returns, lost 18% of its personnel. The agency’s IT department also experienced a 25% reduction, which weakened systems used to verify tax filings and detect fraud.
TIGTA estimates that as much as $360 million in fraudulent refunds could go unflagged next filing season if staffing and funding levels remain low. In prior years, the IRS stopped 99% of detected fraudulent returns, preventing more than $2 billion in improper payments. Those success rates are expected to drop sharply as limited staff are forced to prioritize fewer audits and case reviews.
“The IRS’s ability to detect refund fraud depends heavily on skilled analysts and stable technology systems,” said a TIGTA spokesperson in its October 2025 report. “Any reduction in either area creates vulnerabilities that criminals can exploit.” The Treasury Department is reviewing budget requests to restore positions and enhance fraud prevention ahead of the next tax season.
The National Taxpayer Advocate warned that victims of tax-related identity theft now wait an average of 602 days—nearly 20 months—for their cases to be resolved. As of the close of the 2025 filing season, more than 387,000 unresolved identity theft cases remained open, leaving many taxpayers unable to claim refunds or submit new returns until verification is completed.
Criminals often file fraudulent tax returns using stolen Social Security Numbers to claim refunds before legitimate taxpayers have a chance to file. Once flagged, it can take months or even years for the IRS to verify the correct filer and reissue the refund. Reduced staff and slower data processing have intensified the backlog, creating hardship for victims waiting to access their money.
“The IRS is making progress, but the current pace is unacceptable for victims who rely on timely refunds,” said the National Taxpayer Advocate in its midyear report. Taxpayers are encouraged to monitor refund status through the “Where’s My Refund?” tool on IRS.gov and to use secure online accounts to verify personal or financial information.
Taxpayers who discover that someone has filed a fraudulent return in their name should immediately submit Form 14039, Identity Theft Affidavit, online or by mail. The form allows the IRS to verify identity and prevent further misuse. Victims are also advised to report incidents to the Federal Trade Commission and notify their financial institutions if their accounts or credit information appear to be compromised.
The IRS urges taxpayers to avoid responding to suspicious phone calls, texts, or emails claiming to be from government agencies. “We never ask for personal or financial information through email or social media,” said IRS Commissioner Danny Werfel. “Scammers are becoming more sophisticated, and taxpayers should be aware of the warning signs.” The agency reminds the public to look for the locked padlock icon when visiting official government websites to ensure a secure connection.
Taxpayers can also request an Identity Protection PIN (IP PIN), a six-digit code that prevents others from filing returns under their Social Security Number. The PIN can be obtained through an IRS Online Account.
Taxpayers should watch for warning signs such as rejected e-file submissions, unrecognized refund deposits, or IRS notices about accounts they did not open. A letter requesting identity verification is often the first indication that a fraudulent return has been filed. The IRS recommends responding promptly and reporting any suspicious communications to the Treasury Inspector General for Tax Administration at 800-366-4484.
The Federal Trade Commission advises checking credit reports and bank statements regularly to detect unauthorized activity. If unusual transactions appear, taxpayers should act quickly to place a fraud alert or credit freeze with major credit bureaus. These actions can prevent further damage and help authorities track down fraudulent activity.
“Taxpayers can prevent much of the damage caused by identity theft by acting fast,” said a Treasury Department spokesperson. “Early reporting gives investigators a better chance to stop scammers and protect future refunds.”
Protecting your Social Security Number remains the most effective defense against identity theft. The IRS advises taxpayers to store their Social Security card securely, avoid sharing the number unless absolutely required, and verify annual earnings statements with the Social Security Administration to confirm no one else is using the information.
Filing taxes early each year is another proactive step to reduce risk. Early filers make it harder for criminals to submit fraudulent claims using the same Social Security Number. The IRS also recommends using security software with firewalls and antivirus tools, updating system patches, and using unique passwords for online financial accounts.
Taxpayers should remain skeptical of any messages, phone calls, or letters demanding immediate payment or threatening legal action. The IRS and Treasury Department remind individuals that official contact never begins through email or text message. Suspicious correspondence should be forwarded to phishing@irs.gov or reported through the TIGTA fraud reporting page.
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