The Treasury Inspector General for Tax Administration released two audits of Internal Revenue Service operations, identifying a significant backlog in identity theft case processing and excess capacity at a paper distribution center.
The first audit examined the IRS's Identity Theft Victim Assistance function. The agency aims to resolve identity theft claims within 120 days, but taxpayers currently wait an average of 20 months. In Fiscal Year 2023, 114 cases took nearly two years on average to process, according to the report.
The delays have financial consequences. The IRS paid approximately $124.2 million in refund interest on identity theft cases closed in recent years, the audit said. Additionally, more than 50,000 taxpayers did not receive status updates about their cases.
Most of the wait time stems from case backlogs. Identity theft case receipts nearly quadrupled in 2021, creating a backlog that persisted into 2025. Cases are worked on a first-in, first-out basis and remain unassigned until an IRS representative is available. The IRS has increased trained staff to address the backlog, though the audit noted more improvements are needed.
A second audit examined the IRS's National Distribution Center, which manages the storage and distribution of paper tax forms, instructions, publications, and other documents. Orders for paper products declined more than 20 percent from 2021 through 2025.
The center faced significant excess inventory costs. In Fiscal Year 2025, the National Distribution Center disposed of approximately 1.6 million obsolete products, incurring more than $1 million in disposal costs. The center's total operating costs reached approximately $15 million in Fiscal Year 2025. The Inspector General recommended the IRS reevaluate the center's size and scope given the declining demand.