Tax Identity Theft is a Growing Threat to Businesses

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The risk of tax identity theft for individuals is widely known, but a new concern is businesses becoming targets. Identity thieves are smarter than in the past: they often know filing practices, the tax codes, and the best ways to get valuable data.

How it works

Individual Tax identity theft usually consists of using a taxpayer’s identifying information (such as Social Security number) being used to commit crimes, like obtaining a refund fraudulently.  Business tax identity theft is similar. A business’s identifying information is used to obtain tax benefits or enable individual tax identity theft schemes.

For example:

An identity thief could use an Employer Identification Number (EIN) to file a fraudulent tax return and claim a refund.

Another method might be a fraudster fabricating employees and reporting income and withholding on false W-2 forms. Then, he or she can file fraudulent individual tax returns for the said “employees” and claim their refunds.

Damage to your reputation can be one of the most severe consequences for victims of business identity theft. Affected business will also likely incur a significant loss of time and money trying to sort out the theft.

Warning signs

Several warning signs might clue you in on possible identity theft. A few examples include:

  • Your business does not receive expected or routine mailings from the IRS
  • You receive an IRS notice that :
    • does not relate to anything your business has submitted
    • concerns fake employees
    • is related to a defunct, closed, or dormant business after all account balances have been paid
  • The IRS rejects an e-filed return, or an extension-to-file request, saying it has already received a return with that identification number – or the IRS accepts your submission as an amended return  
  • You receive a letter from the IRS stating that multiple tax returns have been filed in your business’s name
  • You receive a notice from the IRS stating that you have a balance due when you have not yet filed a return.

These situations do not always mean you are a victim of theft. They could be the result of a simple error. Still, you should contact the IRS immediately if you receive anything from the agency that might indicate fraudulent use of your Employer Identification Number.

Prevention

The best tactic for dealing with identity theft is to prevent it from happening. The following steps will help to protect a business and its employees:

  • Provide training to accounting, human resources, and other employees about the latest tax fraud schemes and how to spot phishing emails
  • Use secure methods to send W-2 forms to employees
  • Implement risk management strategies designed to flag suspicious communications

Contact us

There are many forms of identity theft to be aware of beyond tax identity theft, so it is important to have a comprehensive plan in place to protect your employees and business. If you have concerns about your business being victim to theft, or if you would like to discuss prevention Contact us at 818-334-8623 or click here, and we will contact you.

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