The IRS has implemented new fraud detection measures, but TIGTA found that institutional procedures were undermining those efforts. For example, taxpayers can begin filing returns in mid-January, but third parties that have information linked to those tax returns do not have to file until March 31.

Although limited third-party information may be available, "the IRS has not developed processes to obtain and use this third-party information," TIGTA said.

The IRS is contacting some taxpayers to verify their identity. That simple measure stopped the issuance of $1.3 billion in potentially fraudulent tax returns as of April 19, TIGTA said.

The agency is also placing a "unique identity theft indicator" on the accounts of those who are deceased, TIGTA said. As of March, more than 164,000 tax accounts were locked, preventing $1.8 million in fraud, the audit said.