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Final IRS regs help combat growing problem of EIN theft

by on
in Office Management,Payroll Management

Employer Identification Number (EIN) theft is the poor stepchild to Social Security number theft—but it’s a growing problem. If it happens to you, EIN theft will cost time and money as you unravel the complications with the IRS.

Final regulations, which are applicable as of Jan. 1, 2014, begin to take aim at the problem. (78 F.R. 26244, 5-6-13)

What’s the nature of the problem?

Fraudsters can hijack your company’s EIN, create fake W-2s, file 1040s based on those W-2s and receive tax refunds. Meanwhile, a discrepancy in your tax accounts arises once the IRS matches those phony W-2s to your legitimate 941s. Penalties follow.

One way to prevent EIN theft is to limit the number of people inside and outside the company who are authorized to speak to the IRS on the company’s behalf. To do that, the regs permit the IRS to collect the names and Taxpayer Identification Numbers of a company’s responsible parties—principal officers, general partners, owners of disregarded entities or any person who directly or indirectly controls, manages or directs the business. The regs allow the IRS to eliminate nominees who are temporarily authorized to act on behalf of EIN applicants. The intent is to allow the IRS to contact a company’s responsible party so tax issues can be resolved expeditiously.

The regs require any person who is issued an EIN to provide updated information to the IRS in the manner and frequency required by tax forms, instructions and other guidance. This updated information will be provided on a new form.

STOP THIEF: The IRS admits that it doesn’t have many tools to fight EIN theft. Upshot: You must be vigilant in guarding your EIN. Suggestions: Limit the publication of your EIN in nontax materials, such as proxy statements, Web pages, etc. Keep close tabs on your third-party payroll provider by reviewing all tax forms prior to filing. Regularly request tax transcripts from the IRS.

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