Diggs-Costen said it took a couple weeks after the break-in for her to understand what was going on, but then the first of her clients' returns were rejected by the IRS because someone else had already filed under their Social Security numbers—which clearly had come from Diggs-Costen's stolen computer.
Stolen identity tax refund fraud was a $5 billion problem last year according to the U.S. Treasury Inspector General for Tax Administration. That is the amount of fraudulent tax refunds the IRS paid out. The IRS and law enforcement have made the issue a top priority, but Diggs-Costen thought she was presenting them a golden opportunity to catch a crime before it occurred.
She contacted the IRS identity theft unit.
"I asked them, I said, hey, look, these returns are being filed. Can I give you a list of my clients to flag those accounts? And they said no."
She also alerted her clients about the breach. Vincent and Darlene, who asked us not to use their last names to protect what is left of their privacy, jumped into action as well. Or at least they tried.
"I called the IRS and was really trying to encourage them to close the gate, the barn door is open, they're going to do this, close the gate," she said. "They said I'm sorry, we can't do anything until they file a false return."
Nothing I could tell them could convince them to issue any kind of PIN, flag our account in any way, no matter how many times I told them my tax accountant's computer was stolen and that it was probably going to happen to many other people, they just seem to not care."
(Read More: How Identity Thieves Snatch Billions in Phony Tax Refunds)
An IRS spokesperson insists the agency does care.
"Our hearts go out to the victims of this terrible crime," she said.
But the IRS employees appear to have followed proper procedures, even though an enrolled agent and her clients were alerting them to what seemed to be a clear and imminent threat—complete with a police report to document the crime. That is because identity thieves have become so sophisticated, some have been known to contact the IRS themselves posing as victims, to buy more time to get their fraudulent returns in first.
The IRS has guidelines for taxpayers on a special web site. Taxpayers who suspect they were victims of identity theft are told to contact the agency's Identity Protection Unit at 1-800-908-4490. Typically, they will be told to file Form 14039, the Identity Theft Affidavit, which will help expedite their case if a fraudulent return is filed.
Diggs-Costen said she did all of that after receiving powers-of-attorney from her clients, but nearly all of them subsequently had fraudulent returns filed under their Social Security numbers.
"Every person that I've spoken to in the IRS identity theft unit gives me the spiel about ' you need to fill out this form or you need to this.' I already know what you need to do. What I'm trying to do is prevent more of the refunds from being issued," she said.
The IRS spokesperson said just because identity thieves filed a fraudulent return does not mean a refund was issued, because of "filters" designed to catch the fraud. Still, the legitimate taxpayer still might have to wait months—or longer—before they get their refund.
The IRS also issues special personal identification numbers to victims of identity theft, but those PINs are only issued once a year—in December—too soon to do the Georgia victims any good.
Why not issue every taxpayer a PIN?
The IRS said that would not be practical. With only about one percent of the nation's 140 million tax filers affected by identity theft, the spokesperson said the PINs would be an "unnecessary burden" for most taxpayers. Presumably for the IRS too, since many taxpayers lose their PINs and have to contact the IRS for a new one.
Nonetheless, the IRS says some 770,000 filers received PINs this year, the program's third year of operation. That is up from just 25,000 in the first year.
Victims of identity theft often find their federal return is just the start of their tax problems.
"I didn't even think of our Georgia state return," Darlene said.
(Read More: Five Smart Moves If You Can't Pay Your Tax Bill)