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Guarding Against Tax Identity Theft

 
 

Tax identity theft is a growing risk for American businesses. This form of identity theft happens when thieves steal a business’ Employer Identification Number (EIN) and other tax information so they can submit a fraudulent tax return and claim tax benefits on behalf of their victim. Thieves may also use a business’ EIN to file W-2s for fictitious employees, then claim fraudulent tax refunds for each “employee.” As a business owner, it’s important to understand how this crime can affect you and what to do if it happens to your business.

 

Consequences

Tax identity theft can be a major headache for businesses. Repairing the damage of tax identity theft is a time-consuming process that involves a thorough IRS investigation. In addition to interfering with your productivity, tax identity theft can also cause significant financial losses or damage to your business’s reputation.

 

Warning Signs

Unfortunately, it’s difficult for businesses to spot this type of identity theft before the damage has been done. But quickly recognizing the signs of potential tax identity theft can help you address this problem right away. If tax identity theft has occurred, you may receive IRS notices saying one or more of these things:

  • You have reported fictitious employees.
  • You have a balance due – even though you haven’t yet filed a return.
  • The IRS has received more than one tax return – though you sent only one.
  • Your business is defunct, closed, or dormant – even though you’re current on your tax payments.

 

It’s possible that these notices may result from processing or filing errors, not theft, but it’s always best to check. Contact the IRS right away if you receive one of these notices.

 

Resolution

If you believe your business is the victim of tax identity theft, you should take the following steps right away:

  • Respond immediately to any of the IRS notices listed above, explaining that you suspect your EIN was used fraudulently.
  • Work closely with the IRS to figure out what happened, and provide any information or documents required for its investigation.
  • File a police report with your local police department.

 

Prevention

As with other forms of identity theft, fraudulent activity may not be confined to a single incident. Follow these tips to monitor and protect your business’s financial identity:

  • Carefully review your business account statements as soon as you receive them.
  • Regularly review your business registration information online.
  • Monitor your credit reports for suspicious activity.
  • Place a fraud alert on your credit files with major credit reporting agencies.
  • Keep your business account and tax information secure.

 

Identity Theft Resources

If you suspect that your business has been the victim of account fraud or identity theft, it’s important to respond right away. Visit our Identity Theft page to learn more and access important resources for businesses affected by identity theft.   


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The information contained herein is for general informational purposes only and does not constitute tax, legal, or business advice.