The unprecedented volume of unemployment insurance fraud witnessed in 2020 has not diminished, although coverage of news on the subject has been largely removed from the front pages by other events. But the problem of identity theft is surfacing again: countless Americans will soon receive warnings from state regulators saying they owe thousands of dollars in tax on benefits they never received in the past year.
A state’s experience provides a window into the potential scope of the problem. Hackers, identity thieves and gangs of foreign criminals stole more than $ 11 billion in California’s unemployment benefits last year, or about 10% of all claims the state paid in 2020, the state labor secretary said. told reporters this week. Another 17 percent of complaints – almost $ 20 billion more – are suspected of fraud.
California’s experience is traced to a slightly smaller scale in dozens of other states, where chronically underfunded and technologically outdated unemployment insurance systems have been caught by surprise by an avalanche of fraudulent claims. Scammers typically use stolen identity data to claim benefits and then have the funds credited to an online account that they control.
States are required to submit 1099-G forms reporting taxable income by January 31 and, under federal law, unemployment benefits are considered taxable income. Unfortunately, many states have failed to reconcile their forms with the confirmed incidences of fraudulent unemployment insurance claims, which means that many people are being told they owe far more tax than they actually do.
In a notice published on January 28, the US Internal Revenue Service urged taxpayers who receive forms 1099-G for unemployment benefits they did not receive for identity theft to contact the appropriate state agency and request a corrected form.
But the IRS board ignores two rather inconvenient realities. The first is that the same 1099-G forms that states are sending to their citizens are also reported to the IRS – usually at the same time that notices are sent to residents. The other is that many state agencies are completely overwhelmed now.
Karl Fava, a certified public accountant in Michigan, told KrebsOnSecurity that two of his clients received Michigan 1099-G forms for thousands of dollars in unemployment payments that they had neither requested nor received.
Fava said Michigan recently raised a website where victims of unemployment insurance fraud who received incorrect 1099-Gs can report him, but said he is not confident that the state will issue corrected notifications before the April 15 deadline.
“In both cases, the recipients contacted the state, but they did not get any help,” said Fava. “We are not getting much strength to solve this problem. But the fact that they have now created a web page where people can enter information about how to receive them indicates that they need to know how common it is. “
Fava said that for now he is advising his clients who are dealing with this problem to recognize the amount of fraudulent revenue in their federal tax returns, but also to subtract an equal amount from the tax return and note that the revenue reported by the state was due to fraud .
“That way, things can be consistent with what the IRS already knows,” said Fava. “Not recognizing a problem like that in a federal statement is just asking for notice from the IRS.”
The Taxpayer Advocate Service, an independent office of the US Internal Revenue Service (IRS) that defends taxpayer advocacy issues, said it recently became aware that some taxpayers are receiving 1099-Gs that include declared income due to unemployment insurance identity theft. The office said it is hearing about many of these problems in Ohio, particularly, but that the problem is happening nationally.
Another perennial (though not directly related) scourge of identity theft involving taxes each year is reimbursement fraud. Tax refund fraud involves using identity information and often stolen or lost W-2 forms to electronically file an unauthorized tax return for the purpose of claiming a refund on behalf of a taxpayer.
Victims often learn of the crime after having their statements rejected because the scammers beat them. Even those who are not required to file a return can fall victim to refund fraud, as well as those who are not actually due to a refund from the IRS.
The best way to avoid tax refund fraud is to file your taxes as early as possible. This year, that date is February 12th. One way that the IRS has sought to stem the flow of false tax refund requests is by issuing the IP PIN, which is a six-digit number assigned to taxpayers that helps prevent the use of their Security Number in a tax return. fraudulent income. Each PIN is valid only for the fiscal year for which it was issued.
Until recently, the IRS restricted who could request an IP PIN, but the program has since been open to all taxpayers. To create one, if you have not already done so, you will need to stick your flag on the IRS, going through the agency’s “secure access authentication” process.
The creation of an account requires the supply of a large amount of personal data; the information that will be requested is listed here.
The application process requires that you validate ownership of a cell phone number in your name and will reject any voice-over-IP-based numbers, such as those linked to Skype or Google Voice. If the process fails at this point, the website must offer to send an activation code by mail to your registered address.
Once you have an IRS account and are logged in, you can request an IP PIN by visiting this link and following the instructions. The website will display a six-digit PIN that must be included in your federal return before it can be accepted. Make sure to print a copy and save it in a safe place.
Tags: 1099-G, Karl Fava, Taxpayer Advocate Service, US Internal Revenue Service
This entry was posted on Friday, January 29th, 2021 at 13:56 and is filed under Latest Notices, Tax Refund Fraud, The Coming Storm You can follow any comments on this entry through the RSS 2.0 feed. You can skip to the end and leave a comment. Pinging is currently not allowed.