Small Businesses Warned About Risk of Identity Theft

The IRS, state taxing agencies and members of the nation’s tax industry in IRS News Release IR-2018-111 described a rising problem with identity theft aimed at small businesses and steps that are being taken to combat it.

The release begins by noting that the problem has been increasing recently:

In the past two years, the Internal Revenue Service has noted a sharp increase in the number of fraudulent filings of Forms 1120, 1120S and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms.

Unfortunately, the release provides no statistics on how widespread the problem is, though if it affects your organization you may not care much about how many other organizations are also in the same predicament.

The release notes that ID thieves have moved beyond merely using purloined EINs to create fraudulent W‑2s, and now are using the EIN and company names for other purposes, including filing fraudulent business returns.

The IRS outlines the following indicators a business should be aware of that may indicate business identity theft:

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 is already on file;
  • An e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS;
  • Received 5263C or 6042C Letters;
  • 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 news release goes on to state that the IRS and states are going to ask for additional information to help verify business returns.  The release states:

Respond to the “know your customer” questions when prompted by software:

  • Who signed the return — including name and SSN
  • Tax payment history of the company
  • Parent company information
  • Additional information based on deductions claimed
  • Tax filing history of the company

As well, the release goes on to describe other additional information to be requested:

Sole proprietorships that file Schedule C and partnerships filing Schedule K-1 with Form 1040 also will be asked to provide additional information items, such as a driver's license number. Providing this information will help the IRS and states identify suspicious business-related tax returns.