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National Tax Security Awareness Week No. 5: Small Businesses: Be Alert to Identity Theft

The IRS, state tax agencies and the nation’s tax industry joined together to warn small businesses to be on-guard against a growing wave of identity theft against employers.

Small business identity theft is a big business for identity thieves. Just like individuals, businesses may have their identities stolen and their sensitive information used to open credit card accounts or used to file fraudulent tax refunds for bogus refunds.

The Internal Revenue Service, state tax agencies and the private-sector tax community — partners in the Security Summit — are marking “National Tax Security Awareness Week” with a series of reminders to taxpayers and tax professionals. The week concludes with warnings about small business identity theft.

In the past year, the Internal Revenue Service 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. Security Summit partners have expanded efforts to better protect business filers and to better identify suspected identity theft returns.

Identity thieves have long made use of stolen Employer Identification Numbers (EINs) to create fake Forms W-2 that they would file with fraudulent individual tax returns. Fraudsters also used EINs to open new lines of credit or obtain credit cards. Now, they are using company names and EINs to file fraudulent returns.

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 of 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.

New Procedures to Protect Business in 2018

The IRS, state tax agency and software providers also share certain data points from returns, including business returns, that help identify a suspicious filing. The IRS and states also are asking that business and tax practitioners provide additional information that will help verify the legitimacy of the tax return.

For 2018, these “know your customer” procedures are being put in place that include the following questions:

  • 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, who?
  • Additional information based on deductions claimed
  • Filing history – Has the business filed Form(s) 940, 941 or other business-related tax forms?

Sole proprietorships that file Schedule C and partnerships filing Schedule K-1 with Form 1040 also will be asked to provide additional information items, such as a driver’s license number. Providing this information will help the IRS and states identify suspicious business-related returns.

For small businesses looking for a place to start on 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.

The United States Computer Emergency Readiness Team (US-CERT) has Resources for Small and Midsize Businesses. Many secretaries of state also provide resources on business-related identity theft as well.

The IRS, state tax agencies and the tax industry are working together to fight against tax-related identity theft and to protect business and individual taxpayers. Everyone can help. Take steps recommended by cyber experts and visit the Identity Protection: Prevention, Detection and Victim Assistance for information about business-related identity theft.

Source: https://www.irs.gov/newsroom/national-tax-security-awareness-week-no-5-small-businesses-be-alert-to-identity-theft

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National Tax Security Awareness Week No. 3: Victims of Data Breaches Should Consider These Steps

The number of data breaches was already on a record pace for 2017 before the reported theft of nearly 145 million Americans’ names, addresses and Social Security numbers brought the issue to the forefront.

Every day, data thefts large and small put people’s personal and financial information at risk. There are steps that data theft victims may take to protect their financial accounts and their identities once cybercriminals have their names and other sensitive information.

The Internal Revenue Service, state tax agencies and the tax community — partners in the Security Summit — are marking “National Tax Security Awareness Week” with a series of reminders to taxpayers and tax professionals. Today, the topic is data breaches.

In the first half of 2017, the number of data breaches increased by 29 percent, to a record 791 incidents, according to Identity Theft Resource Center (ITRC) and CyberScout, which sponsored the report. For the past five years, ITRC has tracked data breaches in five key sectors.

Generally, thieves want to take advantage of the stolen data as quickly as possible. That may mean selling the data on the Dark Web for use by other criminals. It may mean the crook tries to access financial accounts for withdrawals or credit cards for charges. It may also mean a thief quickly files a fraudulent tax return in victims’ names for a refund.

Those Who’re Victims Should Consider These Steps:

  • If possible, learn what information was compromised. Was it emails and passwords or more sensitive data such as name and Social Security number?
  • Take advantage of any credit monitoring offers made by the company that was breached.
  • Place a freeze on credit accounts to prevent access to credit records. There may be a fee for requesting one. This varies by state. At a minimum, place a fraud alert on credit accounts by contacting one of the three major credit bureaus. A fraud alert on credit records is not as secure as a freeze, but a fraud alert is free.
  • Reset passwords on online accounts, especially financial, email and social media accounts. Experts recommend at least 10-digit passwords, mixing letters, numbers and special characters. Use different passwords for each account. Use a password manager, if necessary.
  • Use two-factor authentication wherever it is offered on financial, email and social media accounts. Two-factor authentication requires entry of a username and password and then a security code, generally sent via text to a mobile phone you’ve pre-registered.

The scale of the credit bureau breach, which was reported this summer, has prompted many questions, especially about how a victim’s taxes may be affected. Because of the work by the Security Summit, more protections are in place to protect taxpayers from tax-related identity theft. Thieves will need more than a name, address, birth data and SSN to file a fraudulent tax return.

Tips for the 2018 Tax Season; Will Filing Early Help?

The IRS reminds taxpayers that they should file their tax return as early as they can, but not before they are sure they have all the proper information and supporting Forms W-2 and 1099. Taxpayers should always file an accurate tax return. Filing before all information is received puts taxpayers at risk of needing to file an amended tax return, paying interest or penalties or even receiving an IRS notice or audit.

The IRS and states have put many new defenses in place to help protect taxpayers from identity theft. The new IRS protections have worked well to protect taxpayers, and some key indicators of identity theft on tax returns have dropped by around two-thirds since 2015.

These protections are especially helpful if criminals only have names, addresses and SSNs – which was the information stolen in recent incidents. However, there are continuing concerns that cybercriminals will try to build on this basic information by trying to obtain more specific financial details from taxpayers and tax professionals to help them file fraudulent tax returns.

In addition, no one yet knows what thieves may do with information from the data breaches. The Summit partners believe cybercriminals will increasingly look to steal more detailed information from taxpayers, tax professionals and businesses to help file a fraudulent tax return. The volume of victims means everyone – the tax agencies, tax professionals and taxpayers – must be vigilant going into the 2018 tax filing season and be alert to any unusual activity.

Here Are a Few Signs of Tax-Related Identity Theft:

  • An electronically filed tax return rejects because a return with the taxpayer’s SSN already has been filed;
  • Taxpayers receive a letter from the IRS asking them to confirm whether they submitted a tax return being held for review;
  • Taxpayers receive a notice from the IRS indicating that they owe additional tax, have a refund offset or have a collection action for a year in which they did not file a tax return;
  • Taxpayers receive a notice from the IRS that they received wages from an employer for whom the taxpayer did not work.

Taxpayers should file a Form 14039, Identity Theft Affidavit, only if their return rejects because a return using their SSN already has been filed or if told to do so by the IRS. This form is how taxpayers report that they are an identity-theft victim.

The IRS stops the vast majority of fraudulent returns. Each year, the IRS stops returns it deems suspicious and asks the filer to verify whether they filed the return. The IRS will send a notice asking taxpayers to confirm whether they filed the return.

The IRS, state tax agencies and the tax industry are working together to fight against tax-related identity theft and to protect taxpayers. Everyone can help. Visit the “Taxes. Security. Together.” awareness campaign or review IRS Publication 4524, Security Awareness for Taxpayers, to learn more.

Source: https://www.irs.gov/newsroom/national-tax-security-awareness-week-no-3-victims-of-data-breaches-should-consider-these-steps

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