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Businesses: Beware of Tax Fraud

January 13, 2014

While most individuals have to wait until the end of January to begin filing their 2013 tax returns, businesses can start filing electronic or paper returns starting today. 

And while many businesses and individuals may choose to wait until the April 15 deadline to file, they may want to think twice about delaying given the uptick in tax fraud committed by identity thieves. That's because fraudulent returns are often filed early in the tax season, before the real taxpayer files. 

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A common scam that affects consumers is when identity thieves steal someone’s Social Security number and file a fraudulent tax form to claim a refund.

Not as well publicized is a scheme in which businesses are the victims.

Using a business' Employer Identification Number, thieves can create bogus W-2 forms that report fictitious income and tax withholding to the Internal Revenue Service. The criminals and their accomplices then pose as employees in order to file fraudulent federal income tax returns, claiming that the withholding was too high in order to receive tax refunds, according to BusinessIDTheft.org.

The fictitious tax withholding means the amounts paid by the employer for its legitimate employees don't match what the IRS and state tax agencies calculate should have been paid, leaving a deficiency seemingly owed by the unsuspecting business. Such businesses can be subject to investigations and payment demands from the IRS and state tax agencies, and the business sometimes must attempt to prove that a fraud has occurred.

Today's start date does not apply to Form 1041, the return filed by estates and trusts, or to unincorporated small businesses that report  income on Form 1040. Those returns, and all personal ones, may be filed beginning Jan. 31, 2014, according to the IRS website.

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