A swelling wave of identity theft attempts against employers has the IRS pretty concerned. So much so, it is offering advice about how business owners can be on the defense to protect their businesses.
As tax pros, we all know identity theft has been around a long time and if someone falls prey, it takes a tremendous amount of work to repair the damage. In some cases it’s impossible.
Identity theft itself is nothing new. Stolen Employer Identification Numbers (EINs) have allowed identity thieves to create fake W-2 Forms and file fraudulent individual tax returns. They’ve also used EINs to obtain credit cards or open new lines of credit.
But some of the ID theft methods have become more sophisticated. Be sure your clients are aware that thieves have other tricks up their sleeves. More of them are also using company names and EINs to file fraudulent returns.
Sharp Increase in Fraudulent Filings
In the past two years alone, the IRS has noted the number of fraudulent filings is increasing. Forms 1120, 1120S and 1041, as well as Schedule K-1, are being targeted. Oh, and it’s not just 1040s and single-owner businesses at risk, but the fraudulent filings also apply to partnerships as well as estate and trust forms.
If identity theft is suspected, advise your business, partnerships and estate and trust filers to contact the IRS. In some cases you may want to act as liaison and contact the IRS on their behalf.
If clients encounter any of the following red flag issues, take steps immediately:
- If a client receives 5263C or 6042C letters
- If an extension to file request is rejected because a return with the EIN or Social Security number (SSN) is already on file
- When an e-filed return is rejected because a duplicate EIN/SSN is already on file
- If an unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything the legitimate filer submitted
- Failure to receive expected and routine correspondence from the IRS because the thief has changed the real taxpayer address
Advise clients to be aware. Awareness is their second line of defense in protecting themselves. (Read to the end of this article for the first line of defense.)
The IRS and members of the general tax industry are also on the front line, banding together to fight identity theft. They compare specific data points from individual and business tax returns to identify suspicious filings. The IRS and states ask for additional information to help verify the legitimacy of tax returns.
As a tax professional who represents business clients you are encouraged to know your customers. Remind them of the importance of doing a password review. Offer advice on how to assign and store passwords. Even before awareness, THIS is the first line of defense.