Signs of Small Business Identity Theft, New Protection Methods by Joseph L. Saka, CPA/PFS
Posted on October 02, 2018 by Joseph Saka
Individual consumers are not the only victims of identity theft. According to the IRS, criminals are increasingly targeting small businesses and the confidential data they manage. Too often, businesses neither have the proper controls in place to prevent or detect frauds nor are they prepared to deal with the fallout that can occur after a breach, including loss of income and irreparable damage to their reputations. To minimize their risks and defend against these scams, businesses must have a strong offense.
One of the most common forms of small business identity theft involve scammers using a business, partnership, trust or estate’s legitimate Employer Identification Number (EINs) to apply for a line of credit or file a fraudulent tax return with the hope of receiving a bogus refund. To protect themselves from these schemes, businesses should take the time to verify the legitimacy of the tax returns they file by responding to the following “know your customer” requests from the IRS, state taxing agencies and/or their tax preparers:
- What is the name and Social Security number of the individual who signed the tax return?
- What are the company’s tax filing and tax payment history?
- Provide information about the business’s parent company.
- Provide additional information about the deductions the business claimed.
Sole proprietorships that file Schedule C and partnerships filing Schedule K-1 with Form 1040 may be asked to provide additional information, such as a driver’s license number, in order to help taxing authorities identify suspicious business-related tax returns.
It is equally important that businesses stay on alert and recognize these signs that may indicate that they have in fact become victims of identity theft:
- The IRS rejects a business’s e-filed tax return or extension to file request because it already has on file a duplicate Employer Identification Number or Social Security number or tax return with this information;
- Taxpayers receive from the IRS Letter 5263C or 6042C notifying them that their identities have been stolen;
- Taxpayers receive an unexpected receipt of a tax transcript or IRS notice that does not correspond to anything they submitted to taxing authorities;
- A business fails to receive expected and routine correspondence from the IRS, which could mean that a thief changed the business’s mailing address.
Small businesses looking to protect and secure their identity should speak with their accountants to help assess their existing security protocols and efforts to minimize risks, make recommendations to better protect information assets, and educate employees on how to spot and avoid falling victim cyberattacks.
About the author: Joseph L. Saka, CPA/PFS, is CEO of Berkowitz Pollack Brant, where he provides a full range of income and estate planning, tax and business consulting and compliance services, and financial planning expertise to entrepreneurs, high-net-worth families and family companies and business executives in the U.S. and abroad. He can be reached at the CPA firm’s Miami office at (305) 379-7000 or via e-mail at firstname.lastname@example.org.