Business Identity Theft Costs The US Treasury Billions

December 5, 2013

Identity theft is not just a concern for individuals.   Your business can be a victim of identity theft too.    The Treasury Inspector General has just completed a report showing that billions of dollars of fraudulent refunds were issued because of stolen Employment Identification Numbers (EIN).    Here is how it is done:

1)   The identity thief uses the stolen EIN to report false withholding taxes.  These taxes were never actually paid.    The thief has created a phantom account containing phantom taxes withheld from phantom employees.

2)  The next step in the fraud is to file an individual tax return for a phantom employee claiming a refund of this phantom money.

3)  The IRS pays out the refund without the realization that there were never any deposits to begin with.

The report suggests that the IRS develop better procedures to detect this fraud, including the development of third party verification of W-2 information.

In 2011, 277,624 were stolen EINs used to report false income and withholding on 752,656 tax returns with potentially fraudulent refunds issued totaling more than $2.2 billion.