Part 2 - What can a criminal due with EIN

What can a criminal do with your stolen business’ EIN number?

| Business Briefs, Business Miscellaneous

(Part 2 of 3 in the Business identity theft series)

A great deal!  How would you respond to receiving an $800,000 notice of deficiency requiring immediate payment for unpaid payroll taxes for 100 employees who never even worked for your company? This scenario is exactly what happened to a Captain D’s Seafood franchisee in Georgia. Thieves stole his Employer Identification Number (EIN) and used it in a tax refund scheme reporting more than $4 million in fictional salaries to the IRS and state tax agencies.

An EIN is a business form of a Social Security number.  It is commonly required and used to uniquely identify each business.  EINs are readily available in public documents such as business filings and business credit reports.

For the tax refund scheme to work, the fraudulent wages and withholding on the phony W-2 must appear to come from a legitimate employer, requiring an employer’s business name, address and EIN.  With the increase of e-filing and electronic tax filing software, an actual W-2 document is not even required.  The criminal simply enters the information into the form, electronically submits the fraudulent return, then waits to collect the refund check.

The IRS does have an employee/employer matching process in place to reduce this type of fraud; however, it doesn’t begin until after the January 31 deadline for W-2 distribution to employees.  Criminals file these fraudulent returns as early as possible, allowing them to receive the refunds before the matching process even begins.

In 2013, the Treasury Inspector General for Tax Administration (TIGTA) estimated that the IRS may have issued nearly $2.3 billion each year in potentially fraudulent tax refunds based on stolen EINs and estimates $11.4 billion over the next five years.  In 2011 alone, 277,624 EINS used were stolen from legitimate businesses. What is your personal risk for this theft?

Other ways your stolen EIN can be used:

  • Establish fraudulent corporate credit cards accounts.
  • Establish fraudulent business banking accounts.
  • Establish fraudulent personal credit.
  • Employees can fraudulently use it to purchase tax-free wholesale goods.  If your business is audited by the IRS, you can’t account for these goods or for not paying taxes on them.

Part 1 of our business identity theft series identified what businesses are typically targeted and described the perpetrators.  Our third and final segment will focus on what preventative measures you should take to minimize your vulnerability to becoming a victim.

To find out how to protect your business from tax identity fraud, contact Alerding CPA Group at 317-569-4181 or visit our website:  www.alerdingcpagroup.com.

 

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