A great deal of attention is paid to individual tax identity theft — when a taxpayer’s personal information – including their Social Security number – is used to fraudulently obtain a refund or commit other crimes. But businesses can also be victims of tax identity theft.

Significant consequences of tax identity theft

Business tax identity theft occurs when a criminal uses the identifying information of a business, without permission, to obtain tax benefits or to enable individual identity theft schemes. For example, a thief could use an Employer Identification Number (EIN) and file a fraudulent business tax return to claim a refund or refundable tax credits. Or a fraudster may report income and withholding for fake employees on false W-2 forms. Then, he or she can file fraudulent individual tax returns for the “employees” to claim refunds.

In many cases, businesses don’t even know their information has been stolen until they’re contacted by the Internal Revenue Service. The consequences of business tax identity theft can include significant dollar amounts, lost time sorting out the mess and damage to your reputation.

Signs your business could be a victim

There are some red flags that indicate possible tax identity theft. For example, your business’s identity may have been compromised if you receive:

  • A notice from the IRS about fictitious employees.
  • An IRS letter stating that more than one tax return has been filed in your business name.
  • A notice from the IRS that you have a balance due when you haven’t yet filed a return.

The Bottom Line

If you receive a letter or notice from the IRS that leads you to believe someone fraudulently has used your business Employer Identification Number, respond immediately to the contact information provided. Contact us for more information about how to proceed.

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This blog post is designed to provide information about complex areas of tax law. The information contained in this blog post may change as a result of new tax legislation, Treasury Department regulations, Internal Revenue Service interpretations, or Judicial interpretations of existing tax law. This blog post is not intended to provide legal, accounting, or other professional services, and is provided with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional services.

This blog post should not be used as a substitute for professional advice. If legal advice or other expert assistance is required, the services of a competent tax advisor should be sought.