Essential Measures to Stop Fraudulent Filing

May 21st 2018
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IRS audit notice on smartphone

If identity theft isn’t scary enough already, the IRS is warning of fraudulent filing of Forms 1120, U.S. Corporation Income Tax Return; 1120S, U.S. Income Tax Return for an S Corporation; 1041, U.S. Income Tax Return for Estates and Trusts and Schedule K-1.

Even scarier, the fraudsters are increasingly sophisticated in their knowledge of the tax code and tax filing practices. To be sure, there’s nothing new about fraudsters using stolen Employer Identification Number (EIN) to create fake W-2 Forms to file bogus individual tax returns. EINs also have been used to open credit lines or obtain credit cards.

The twist here is that thieves now use company names and EINs to file fraudulent returns and get bogus refunds. Here are the warning signs that small businesses, partnerships and estate and trust filers should heed:

●    Rejection of extension requests because a return with the EIN or Social Security number is already on file.
●    An electronically-filed return is rejected because a duplicate EIN/Social Security number is already on file.
●    Receipt of 5263C or 6042C letters .
●    Unexpected receipt of a tax transcript or IRS notice unrelated to any submissions by the filer.
●    Failure to receive correspondence from the IRS, which may indicate that a fraudster has changed the address.

Businesses can take several safeguards to assure the IRS and state tax agencies all their information is legitimate. Here’s a few recommendations:

●    Answer questions about who signed the return, including the name and Social Security number; the tax payment history of the company, the parent company information, additional information based on claimed deductions, and the company’s tax filing history.
●    Sole proprietorships that file Schedule C and partnerships that file Schedule K-1 with Form 1040 should provide more information, such as a driver’s license number.
●    For enhanced security measures, small businesses should review Small Business Information Security: These Fundamentals are published by the National Institute of Standards and Technology, which is the branch of the U.S. Commerce Department that establishes information security frameworks for federal agencies.
●    The U.S. Computer Emergency Readiness Team offers Resources for Small and Midsize Businesses.
●    Numerous secretaries of state provide resources on business-related identity theft.
●    The IRS, state tax agencies and the tax profession – collectively known as the Security Summit – offer Identity Protection: Prevention, Detection and Victim Assistance, including tips for business protection in the “Businesses” subsection.

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