No matter how vigilant you are in checking I-9 documents, that call can still come. The caller claims that your employee is using his or her identity and you need to fix it.
The first step is to confirm the veracity of the caller's information. A legitimate caller will be happy to send copies of photo ID and other information to substantiate the claim. In return, the caller may request a letter confirming that he or she has not worked for you. This will assist him or her in addressing any IRS claim for additional taxes.
The second step is to confront your employee. Depending on the facts, this may result in termination. However, sometimes a person has gained legal status and is afraid to come forward. If the employee claims to have legal status to work, the best course is to complete a new I-9 and keep it with the old I-9 with appropriate explanation.
Finally, according to Chris James of the Davis Brown Tax Department, while the IRS has not given any specific direction on this issue, it is best practice to file a W-2c for all years in which an erroneous W-2 has been filed. If you filed a W-3 for any tax year for which a W-2c needs to be filed, you should file a W-3c as well. A statement explaining the reason for the corrected forms should be attached to amended returns filed with the IRS, SSA, or state department of revenue.
If these calls are more frequent than you would like, consider an I-9 training so that you can more readily assess the validity of work authorization documents.