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TIGTA reports EIN fraud is bad and getting worse

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in Office Management,Payroll Management

The Treasury Inspector General for Tax Administration (TIGTA) has reported that during the 2011 tax year, 285,670 Employer Identification Numbers (EINs) were stolen or fraudulently used to claim income tax refunds totaling more than $2.25 billion. 2011 is the latest year for which data are available.

TIGTA also estimated that the IRS could issue $11.4 billion in tax refunds over the next five years due to EIN fraud. TIGTA concluded that, while the IRS does have controls in place to deal with EIN fraud, it could do more.

EIN fraud is your problem, too. EIN fraud isn’t just a problem for the IRS. Stolen EINs are used to create phony W-2s on which taxpayers claim hefty tax refunds. Those bogus W-2s and tax refunds create disparities in your tax accounts once the IRS matches the fake W-2s to your legitimate 941s.

You can unravel these discrepancies with the IRS, but it takes time and effort to do so.

The IRS admits that it doesn’t have many weapons to combat EIN fraud. TIGTA noted that the IRS already validates information individuals provide when they apply for EINs, obtains income and withholding information from certain businesses during tax filing season and has created the Business Master File Identity Theft Team.

Nevertheless, TIGTA recommended that the IRS beef up its controls of EINs by taking the following new steps, which the IRS has agreed to do:

  • Update fraud filters to better detect individuals who create fake business entities for the purpose of obtaining EINs
  • Update fraud filters to weed out tax returns falsely claiming tax refunds
  • Establish an Entity Fabrication Team, which will evaluate EINs listed on W-2s that are associated with fraudulent tax refunds.

Help the IRS. Beginning this year, federal regulations require you to notify the IRS when your corporate officers or other responsible parties change. You will do this on revised Form 8822-B. In addition, you can ensure that your EIN is safe by erasing all traces of it from nontax materials, such as proxy statements, Web pages, etc.

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