Business Identity Theft: EIN Tax Fraud

With Tax season in full bloom, criminals are turning their focus toward financial crime. With the IRS refunding money to millions of people, criminal types are eager to get their illegal piece of the pie. Tax fraud is safer than breaking and entering or other traditional and this “white collar” crime is actually more profitable. Individuals and businesses alike need to be on high alert to guard against financial fraud and the identity theft which usually enables it.

EIN is a Business’ Version of a Social Security Number

Business Identity Theft, TJ Woods Insurance Agency, Worcester, MA

The EIN acts as a sort of social security number for a business. One big difference is that the IRS and other Government agencies work hard to keep your SSN private, whereas EIN’s are relatively easy to obtain. As covered in the Depositors Forgery Insurance blog, consumers are not the only ones at risk of identity theft. When a business is impersonated, identity theft is taking place.

How Criminals are Using EIN for Tax Fraud

In order to commit tax refund fraud, criminals will report false earnings and tax withholdings to make them seem eligible for a tax refund. Since tax credit is based on reported income, the more wages and withholdings the criminal reports the higher refund they are likely to receive. The only way this scam can gain traction is if the filing looks official. This requires using the employer’s correct information, including the business EIN. Electronic tax filing has facilitated the growth of this scam as physical W-2s are not needed. Additionally, any information the criminal needs regarding the business can usually be found in business credit reports or in filings.

Criminals Looking for Financial Fraud Opportunities

Many groups of criminals including gangs are turning to identity theft and financial fraud as new sources of income. A recent news report describes officers finding laptops during gang busts with which gang members were filing fraudulent taxes. The same officers reported that a team of gang members could make 40,000 or 50,000 dollars in one night of successfully tax filing. That’s much more appealing than moving drugs on the street corner.

The Business Perspective

Try to keep your EIN from being common knowledge as much as possible, although this will be impossible to completely conceal, thieves are likely to target business whose information is easily available. In addition, make sure to conduct thorough background checks when hiring as criminals will often use and inside member to gain access to confidential business information which will help criminals in their refund scam. Finally, make sure you are insured against fraud and tax fraud activates.

Steps Being Taken to Prevent EIN Theft

The IRS is taking steps to prevent criminals from using EIN for tax fraud. One of these is a little known program where the IRS solicits information from large corporations (the most susceptible to fraud) in order to confirm identities of employees who are filing for refunds. Another valuable source is the National Directory of New Hires, which if the IRS had access too, they could theoretically use to sort between real employees and frauds.

While the IRS is still searching for the right preventative measures to guard businesses against identity theft through EINs, the system is still one which can be broken down by criminals. Taking this under advisement, businesses should take their own preventative measures. Making sure hiring codes and insurance policies are on par with the dangers faced this tax season is essential for best business practices. If you have any questions about business identity theft, contact the TJ Woods Insurance Agency, in Worcester, MA to speak with our team of experienced professionals about how to protect your business from identity fraud.