Perhaps because it is a long and painful process to prove it and then get your money.

This is absolutely the case. My parents' personal data was dumped when one of the major health providers got hacked a few years ago, and somebody started submitting junk returns with their info. Each season it takes them easily 20+ hours on the phone, and usually the IRS won't believe their identity over the phone (understandable enough) so they need to show up in person at the nearest IRS office (which isn't very near, and requires an appointment - another 3-4hrs on hold to schedule, and they never take you on time when you get there). It's a nightmare, and if you choose not to resolve it, you're just setting yourself up to get audited.

> The IRS is liable for losses due to fraud, so why would I care about fraud?

Because, ultimately, you and I wind up paying for it.

You have to prove they're liable first. It's unlikely they'd admit it, and even more unlikely that you'd get a prosecutor to take your case.

Actually, it is incredibly likely that they'll admit it, and that you won't have to go to court over it.

That's not to say that it will won't be a huge pain in the neck.