IRS Outlines Steps to Be Taken to Battle Increase in Business Related Tax Identity Theft

The IRS has issued a news release (IR-2017-123) updating what is happening with both individual and business related identity theft, as well as a fact sheet (FS-2017-10) outlining steps to be taken to combat an increase the agency has noted in identity theft from businesses and estates.

The good news is that the IRS has had a dramatic drop in reported individual tax related identity theft cases.  As the news release notes:

So far for 2017, individuals reporting identity theft have declined sharply compared to the same time in 2016 and 2015. In the first five months of 2017, about 107,000 taxpayers reported being victims of identity theft, compared to the same period in 2016, when 204,000 filed victim reports. That’s about 97,000 fewer victims – representing a drop of 47 percent.  For comparison, there were nearly 297,000 identity theft victims during the first five months of 2015.

However, as is often the case, when it becomes more difficult to commit fraud in one area, criminals shift their focus and the IRS has noticed a significant increase in business related identity theft.  

As the release continues:

So far for 2017, the IRS has identified approximately 10,000 business returns as potential identity theft through June 1, compared to about 4,000 for calendar year 2016 and 350 for calendar year 2015. While the number of businesses affected was relatively low, the potential dollar amounts were significant: $137 million for 2017, $268 million for 2016 and $122 million for 2015.

The affected returns included corporate returns (Forms 1120 and 1120S) and estate and trust returns (Form 1041). There also was an increase in identity theft related to the Schedule K-1 filings made by partnerships.

The fact sheet issued by the IRS outlines indicators of potential business related identity theft that business taxpayers (including decedent’s estates) should be aware of.  The fact sheet notes:

Business, partnerships and estate and trust filers should be alert to potential identity theft and contact the IRS if they experience any of these issues:

  • Extension to file requests are rejected because a return with the Employer Identification Number or Social Security Number already on file;

  • An e-filed return is rejected because of a duplicate EIN/SSN is already on file with the IRS;

  • An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer;

  • Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.

The fact sheet also has information that those preparing business returns (including estates and trusts) will need to be aware of for the upcoming filing season.  The fact sheet notes:

Also for 2018, the IRS will ask those tax professionals preparing business-related returns to step up the “know your customer” procedures. Tax preparation software for business-related returns will ask the following questions:

  • The name and SSN of the company executive authorized to sign the corporate tax return. Is this person authorized to sign the return?

  • Payment history — Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?

  • Parent company information — Is there a parent company? If yes, who?

  • Additional information based on deductions claimed

  • Filing history — Has the business filed Form(s) 940, 941 or other business-related tax forms?

These questions also will help identify suspicious returns.