The Internal Revenue Service (IRS) recently issued a News Release (IR 2017-198) to heighten awareness of identity theft toward small businesses. In the past year, the IRS has noted a sharp increase in the number of fraudulent Forms 1120, 1120S and 1041 as well as Schedule K-1. The fraudulent filings apply to partnerships as well as estate and trust forms. 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. Stolen Employer Identification Numbers (EINs) are being used to file such returns, open lines of credit and obtain credit cards.
Businesses should be alert for potential identity theft and contact the IRS if they experience any of the following:
Extension to file requests are rejected because a return with the EIN or Social Security number (SSN) 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; or
Failure to receive expected correspondence from the IRS because the company address has been changed.
To help verify the legitimacy of tax return filings, the IRS will be asking for additional information from businesses and tax return preparers in 2018. The following questions will be added for tax return filings in 2018:
The name and SSN of the company executive authorized to sign the corporate tax return. Is this person authorized to sign the return?
Payment history - Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?
Parent company information - Is there a parent company? If yes, identify it.
Additional information based on deductions claimed
Filing history - Has the business filed Form(s) 940, 941 or other business-related tax forms?
As another tax filing season kicks off in a month or so, small businesses should be aware of identity theft signs and be vigilant in protecting company EINs and other sensitive company data.
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Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.