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IRS Could Reduce Employer Identification Number Fraud

by Mike Godfrey, Tax-News.com, Washington

10 December 2013


While the United States Internal Revenue Service (IRS) has developed processes to authenticate individuals applying for an Employer Identification Number (EIN), it needs to do more to prevent the fraud being committed using stolen numbers, according to a report released by the Treasury Inspector General for Tax Administration (TIGTA).

The IRS issues EINs to identify taxpayers' business accounts. Individuals attempting to commit tax refund fraud usually steal or falsely obtain an EIN to file tax returns that report false income and withholding.

The overall objective of TIGTA's review was to assess the IRS's processes for issuing EINs and identifying stolen or falsely obtained EINs. TIGTA found that the IRS has developed processes both to authenticate individuals applying for an EIN and to ensure that there is a valid business reason to obtain an EIN.

TIGTA maintained that, while it may not have the information needed to make significant improvements in its detection efforts, the IRS does have data that could increase its ability to detect tax returns with false income and withholding associated with stolen or falsely obtained EINs. Its report found that such fraud could top USD11.4bn in potentially fraudulent refunds over a five-year period.

TIGTA recommended (and the IRS agreed) that the agency should update fraud filters to identify potentially fraudulent tax returns.

"With an estimated Tax Gap in excess of USD450bn, it is imperative that the IRS use all available data to increase its ability to detect tax returns with false income and withholding associated with stolen or falsely obtained EINs," said J. Russell George, the TIGTA.

TAGS: individuals | compliance | tax | business | tax compliance | Internal Revenue Service (IRS) | tax authority | United States | Tax

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