Identity theft is not a problem limited to individuals. Businesses are also at risk for misuse of identifying information with regard to tax returns. The IRS defines business ID theft as “creating, using, or attempting to use businesses’ identifying information without authority to obtain tax benefits.” In most cases, an ID thief files a business tax return using an Employer Identification Number (EIN) of an active or inactive business without permission to obtain a fraudulent refund, often claiming extensive refundable tax credits.
On September 9, 2015, the Treasury Inspector General for Tax Administration (TIGTA) published a report titled “Processes Are Being Established to Detect Business Identity Theft; However, Additional Actions Can Help Improve Detection.” The report examined the current state of business identity theft and proposed certain undertakings to the IRS to help detect and prevent ID theft. The report found that during 2014, 233 tax returns were filed using suspicious EIN’s claiming refunds totaling over $2.5 million.
TIGTA offered many recommendations to reduce the ever-evolving ID theft schemes going forward. TIGTA suggested the IRS utilize processing tools to identify potentially fraudulent returns before issuing a refund, including returns that are included on the IRS’ list of suspicious EIN’s. TIGTA also recommended the IRS promote further awareness of business identity theft and provide guidance on how a business may protect its identifying information. Lastly, TIGTA recommended that the IRS expand its information sharing agreements with state revenue departments.
The study found that only 19 states are actively sharing information with the IRS as it relates to identifying potential fraudulent returns on the state level. Further, the states that are sharing information with the IRS share only potential cases of individual ID theft, and not business ID theft. Therefore, TIGTA has called on the IRS to expand information sharing agreements to more states and to include business ID theft information in such agreements.
While identity thieves continue to evolve in developing schemes to obtain fraudulent tax returns, TIGTA’s recommendations to the IRS are a strong step in the right direction to help protect businesses and taxpayers alike.