IRS identity-theft delays highlight data timing risks for KPMG clients

KPMG tax teams are being pulled into a timing problem the IRS still has not solved: fraud detection works best when information arrives early, but some of the riskiest forms of third-party data still land too late. A Treasury Inspector General for Tax Administration report said the IRS stopped $7 billion in fraudulent refunds in calendar years 2024 and 2025, yet it also selected about 7.5 million returns through identity-theft filters, a volume that turns fraud prevention into a daily client-service grind.

For firms that handle filings, withholding, information-return compliance and dispute resolution, the operational lesson is simple. Intake has to start earlier, document handling has to be tighter, and staff have to be trained to spot mismatches before a return gets caught in the filter. TIGTA said some information returns are already due by January 31, but W-2G and 1099-R filings still are not due until March 31, leaving a gap that can limit the IRS’s ability to flag suspicious activity before refunds go out. That gap matters for front-line KPMG teams because a late or inconsistent form can trigger extra verification work, slow a filing season response, and force practitioners into harder conversations with clients who want speed and certainty.

The tension is visible in the IRS’s own numbers. TIGTA said legitimate returns made up 55 percent of identity-theft-filter selections in processing year 2023 and 52 percent in processing year 2024, a modest improvement that still leaves millions of taxpayers in the screening net. The IRS also resolved 955,000 identity-theft-filter selections in calendar years 2024 and 2025 without even sending a notice to the taxpayer, a reminder that the agency is trying to cut burden while preventing refunds from being issued until a return is authenticated.

That burden is not abstract. The National Taxpayer Advocate said the IRS had about 387,000 identity theft victim assistance cases in inventory at the end of the 2025 filing season, and those cases were taking an average of about 20 months to resolve. The office also said 69 percent of affected taxpayers in fiscal year 2023 had adjusted gross incomes at or below 250 percent of the federal poverty level, which means the delays hit lower-income taxpayers hardest.

IRS guidance says tax-related identity theft happens when someone uses another person’s identifying information, most often a Social Security number, to file a fraudulent return. The agency works with state tax agencies, financial services companies and tax industry officials through the Information Security Analysis Center to share fraud schemes and leads in real time, but the latest figures show why KPMG clients cannot treat data governance as a back-office issue. In tax, speed and accuracy are now part of fraud defense.