The IRS and state tax agencies are warning small businesses about a growing wave of identity theft attempts against employers. Small business identity theft is big business for identity thieves. When businesses and their employees have their identities stolen, their sensitive information can be used to open credit card accounts or file fraudulent tax returns for bogus refunds.
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 and the applicable partnership returns.
Identity thieves use stolen Employer Identification Numbers (EINs) to create fake Forms W-2 that they file with fraudulent individual tax returns. They also used EINs to open new lines of credit or obtain credit cards.
As with fraudulent individual returns, there are certain signs that may indicate 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;
‒ 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.
If you’re a small businesses looking to enhance your security, the National Institute of Standards and Technology (NIST) produced Small Business Information Security: The Fundamentals. NIST is the branch of the U.S. Commerce Department that sets information security frameworks followed by federal agencies.