They keep saying IRS has to deal with that and IRS keep telling me to go to the police. I'm confused
You need to file an Affidavit with IRS lodging your complaint for starters. See attached link to the Form you need to complete: http://www.irs.gov/pub/irs-pdf/f14157.pdf
My answer is not intended to be giving legal advice and this topic can be a complex area where the advice of a licensed attorney in your State should be obtained.
They're both right. The theft is actually a state crime which should be handled by the local police department. However, since the theft involves money paid by the federal government, it becomes a federal issue.
You do need to file the affidavit suggested by my colleague. I would then go back to the police.
This answer does not establish an attorney-client relationship, Moreover, this attorney is Licensed to practiced law ONLY in LOUISIANA and answers to questions from other jurisdictions or states are meant to provide only general information. Users should contact a local attorney in their jurisdiction or state.
In addition to what my colleagues have indicated, you should also consider contacting the FBI - they are the national "police" for things like this.
Evan A. Nielsen is licensed to practice law in California and handles federal tax matters throughout the U.S. The information provided here is for educational purposes only and is not intended as legal advice for a particular matter. This response does not create any attorney-client relationship with the author. For specific advice about your particular situation, please consult an attorney.