Small #Businesses Face #Increasing Risk of #Tax #Fraud

It’s the time of year when news headlines are filled with warnings to protect yourself against holiday scrooges bent on stealing your identity. Experts also highlight effective steps to being vigilant against credit card fraud or personal tax filings snafus. This year, however, businesses are specifically being called on to guard their most sensitive information.

A recent coalition of tax professionals, state agencies, and the Internal Revenue Service (dubbed the “Security Summit”) determined that small businesses were especially prone to being victims of fraudulent tax filings. The IRS website issued a security alert to companies, reminding them that several commonly filed tax forms have shown a surge in fraudulent activity. These include:

  • Form 1120
  • Form 1120S
  • Form 1041
  • Schedule K-1

Businesses set up as partnerships are most vulnerable; estate and trust forms are also at risk.  

Bad Guys are Getting Better

As fraudsters become more sophisticated in their knowledge of the tax code, and how forms are being processed, their methods are providing a better return for them. Exploiting industry filing practices to file false business returns isn’t a new con, but it’s proving to be very profitable for scammers. How do they do it? In addition to the classic scheme of stealing EIN’s (Employer Identification Number) to create phony W-2s and open new lines of credit, they have expanded their operations to include filing fraudulent returns on behalf of companies. This much more ambitious layer of deceit can get thieves access to greater tax benefits.

Be on Alert for These

While companies can regularly check their small business credit score and other reports to ensure their information hasn’t been compromised, tax fraud is often not caught until it’s time to file a real return. Owners should be on the lookout for the following signs of fraud:

  • Rejection of a request for a filing extension
  • Rejected return due to duplicate EIN/SSN on file with the IRS
  • Receipt of a tax transcript you didn’t request
  • Lack of tax notices or mailings that you normally get without issue

Any of the above may be the result of a thief filing a return before you get the chance, changing your contact info, or requesting tax info on your behalf (and then intercepting it.) You should alert the IRS to any suspicious activity regarding your taxes.

2018 Safeguards May Help

In addition to asking that business owners be vigilant about reporting suspicious activity, the IRS is taking extra steps to ensure filings are done by the rightful owner. Companies may be asked to verify certain types of information with next year’s returns, including:

  • Personal information for authorized tax preparers, including SSN and name
  • Filing history
  • Payment history
  • Name and address of parent company (if any)
  • Driver’s license number (for sole proprietorships and those filing on a schedule C)

Most businesses have traditionally been left with only reactive measures to protect their returns, however, these new safeguards will go a long way to preventing the fraud in the first place. Keeping an eye on your data through regular credit checks is a valid defense, as well. While thieves continue to brainstorm new ways to steal info (and tax returns), it’s imperative to continue adjusting your businesses practices to keep your information safe.


Leave a Reply

Your email address will not be published. Required fields are marked *