Heed Some Tips to Combat Fraudulent Tax Filing

fighting fraud

The IRS, state tax agencies and tax professionals nationwide have joined forces to warn small businesses of a notable increase in fraudulent tax filings.

Known as the Security Summit, the three groups have spotlighted fraud in Forms 1120, 1120S and 1041, and Schedule K-1. The fraud pertains to partnerships, and estate and trust forms.

According to a statement on the IRS’s website, “identity thieves are displaying a sophisticated knowledge of the tax code and industry filing practices as they attempt to obtain valuable data to help file fraudulent returns.”

While the fraudulent use of Employer Identification Numbers (EINs) to create bogus Forms W-2, file fake individual tax returns or open credit accounts aren’t new tactics, the fraudsters now are using company names and EINs to file fraudulent returns.

The following are warning signs of identity theft:

  • Filing extensions are rejected because a tax return with the EIN or Social Security number already is on file.
  • An electronically filed return is rejected because a duplicate EIN or Social Security number already is on file.
  • A tax filer gets an unexpected receipt of a tax transcript or IRS notice that doesn’t pertain to anything the filer submitted.
  • A tax filer fails to receive expected correspondence from the IRS because a crook already changed the address.

So, how do you fight the fraud?

The summit partners will share data from returns that help pinpoint a bogus filing. The states and IRS also ask that businesses and tax professionals provide additional information to verify that the tax return is legitimate.

For the 2018 tax season, “know your customer” procedures will include the following questions:

  • The name and Social Security Number of the executive authorized to sign the corporate tax return. Is this person authorized to sign the return?
  • Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?
  • Is there a parent company? If yes, what is it?
  • Additional information based on deductions claimed.
  • Has the business filed Form(s) 940, 941 or other business-related tax forms?

Sole proprietorships that file Schedule C forms and partnerships filing Schedule K-1 with Form 1040 also will be asked for additional information, such as a driver’s license number.

Further information can be found at the National Institute of Standards and Technology, which is a branch of the U.S. Commerce Department; the U.S. Computer Emergency Readiness Team, and many secretaries of state that provide help against business-related identity theft.

About Terry Sheridan

Terry Sheridan

Terry Sheridan is an award-winning journalist who has covered real estate, mortgage finance, health care, insurance, personal finance, and accounting and taxation issues for newspapers, magazines, and websites. A Chicago native and former South Florida resident, she now lives in New England.


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