Small Businesses Be Aware Of Identity Theft

Identity theft is a topic no one likes to discuss, but here at MD Bookkeeping and Internet Services LLC, we take your business seriously. We want to help you be informed so that you can protect your business.

Did you know that small businesses can have their identities stolen?

Identity theft for small businesses is become a big business for identity thieves. Your sensitive business information can be stolen and the information can be used to open credit card accounts as well as to file fraudulent tax returns for bogus refunds. As a small business owner, it is important that you be on guard against a growing wave of identity theft against employers.


In the past year, the Internal Revenue Service has noted a sharp increase in the number of fraudulent Forms 1120, 1120S, 1041 and Schedule K-1. These fraudulent filings apply to partnerships and estate and trust forms. .

Security Summit partners (IRS, state tax agencies, and the private-sector tax community) have expanded efforts to protect business filers better and identify suspected identity theft returns.

These identity thieves use a sophisticated knowledge of the tax code and industry filing practices and have long made use of stolen Employer Identification Numbers (EINs), which they use to create fake W-2 forms. They then use these fraudulent W-2 forms to file fraudulent individual tax returns.

These thieves are also using the EINs to open new lines of credit, obtain credit cards, but until recently were only targeting individuals. Now they are using company names and EINs to file fraudulent returns. This means that you now have two jobs protecting yourself and now your company’s information.

What Should You Watch Out For?

There are certain indications that you can look for to help you identify business identity theft. Business, partners, estate and trust filers should be alert to potential identity theft and contact the IRS immediately if they experience any of these.

  • Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file;
  • An e-filed return is rejected because of a duplicate EIN/SSN is already on file with the IRS;
  • An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer.
  • Failure to receive expected and routine correspondence from the IRS because the thief has changed the address.

New Procedures Are Going Into Place to Protect Businesses in 2018

The IRS, state tax agency, and software providers share certain data points from returns, including business returns, which help identify a suspicious filing. These two entities are asking that businesses and tax practitioners provide additional information that will help identify the legitimacy of the return.

For 2018, there will be some new procedures to help the practitioner “know your customer” and include the following questions:

  • The name and SSN of the company executive authorized to sign the corporate tax return. Is this person authorized to sign the return?
  • Payment history. Were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?
  • Parent company information. Is there a parent company? If yes, who?
  • Additional information based on deductions claimed
  • Filing history. Has the business filed Form(s) 940, 941 or other business-related tax forms?

Sole proprietorships-  Sole proprietorships that file a Schedule C and partnerships filing Schedule K-1 with a Form 1040 will also be asked to provide additional information such as a driver’s license number. Providing this information will help the IRS and the state to identify suspicious business-related returns.

  • For small businesses looking for a place to start on security, the National Institute of Standards and Technology (NIST) produced the publication: Small Business Information Security: The Fundamentals. NIST is the branch of the U.S. Commerce Department that sets information security frameworks followed by federal agencies.

We are so glad you took the time to learn about identity theft. Our Tax Pros here at MD Bookkeeping and Internet Services LLC understand that you and your business are vital to our community. So stay informed and protect your business.