The unparalleled amount of unemployment insurance fraud seen in 2020 has not diminished, although news coverage on the issue has largely been shifted from the front pages to other events. But the problem with ID theft comes up again: countless Americans will soon receive notices from state regulators saying they owe thousands of dollars in taxes on benefits they never received last year.
The experience of one state provides a window into the potential scope of the problem. Hackers, identity thieves and overseas criminals stole more than $ 11 billion in unemployment benefits from California last year, or about 10 percent of all claims the state paid out in 2020, the state’s Secretary of Labor told reporters this week. Another 17 percent of claims – nearly $ 20 billion more – are suspected to be fraudulent.
California’s experience is being followed in dozens of other states on a somewhat smaller scale, where chronically underfunded and technologically obsolete unemployment insurance systems have been plagued by an avalanche of fraudulent claims. The scammers usually use stolen identity data to claim benefits, and then the funds are credited to an online account they control.
States must send out 1099-G forms by January 31 in which they report taxable income, and according to federal law, unemployment benefits are considered taxable income. Unfortunately, many states have not reconciled their forms with the confirmed incidents of fraudulent unemployment insurance claims, which means many people are said to be paying far more taxes than they actually do.
In a notice posted on January 28, the U.S. Internal Revenue Service taxpayers receiving Forms 1099-G for unemployment benefits they did not receive due to ID theft requested to contact their appropriate government agency and request a corrected form.
But the IRS’s advice ignores two rather inconvenient realities. The first is that the same 1099-G forms that states send to their citizens are also reported to the IRS – usually the notices are sent to residents at the same time. The other is that many government agencies are currently completely overwhelmed.
Karl Fava, a certified public accountant in Michigan, told KrebsOnSecurity two of his clients had received 1099-G forms from Michigan in respect of thousands of dollars in unemployment payments they had not requested or received.
According to Fava, Michigan recently set up a website where victims of unemployment insurance fraud who received incorrect 1099-Gs can report it, but he is not confident the state will issue live notices before the April 15 deadline.
“In both cases, the recipients contacted the state but could not get any help,” Fava said. ‘We do not get much traction to solve the problem. The fact that they have now created a website where people can enter information about receiving it, says that they need to know how common it is. “
Fava has tentatively said that it advises its clients dealing with this issue to recognize the amount of fraudulent income on their federal tax returns, but also to deduct an equal amount on the return and note that the revenue generated by the state was reported as a result of fraud. .
“In this way, things can match what the IRS already knows,” Fava said. “Not acknowledging an issue like this with a federal return is just asking for a notice from the IRS.”
The taxpayers’ advocacy service, an independent office of the U.S. Internal Revenue Service (IRS) that is a proponent of taxpayers, said it has recently become aware that some taxpayers receive 1099-Gs that include reported income due to unemployment insurance theft. The office said they hear about many such issues in Ohio in particular, but that the problem occurs nationally.
Another perennial (though not directly related) identity theft farm that includes taxes annually is repayment fraud. Tax refund fraud involves the use of identity information and often stolen or incorrect W-2 forms to electronically file an unauthorized tax return claiming a refund in the name of a taxpayer.
Victims are usually only informed of the crime after their proceeds have been rejected because scammers have beaten them for it. Even those who do not have to file a return can be the victims of repayment fraud, just like those who have not actually been reimbursed by the IRS.
The best way to avoid tax refunds is to file your taxes as early as possible. This year the date is February 12th. One way the IRS wants to stem the flow of false tax refund applications is to issue the IP PIN, which is a six-digit number assigned to taxpayers, which helps keep their Social Security number on a fraudulent income tax return. Each PIN is only good for the tax year for which it was issued.
Until recently, the IRS restricted who could apply for an IP PIN, but the program has since been opened to all taxpayers. If you have not already done so, you must plant your flag with the IRS by going through the agency’s “secure access verification” process.
To create an account, you need to provide a lot of personal data; the information that will be requested is listed here.
The sign-up process requires someone to verify ownership of a cell phone number in their name, and it will reject any Voice-over-IP-based numbers, such as those connected to Skype or Google Voice. If the process fails at this point, the site should offer to send an activation code by mail to your file address.
Once you have an account with the IRS and are logged in, you can request an IP PIN by visiting this link and following the directions. The website will then display a six-digit PIN that must be included with your federal return before it can be accepted. Make sure you print out a copy and keep it in a safe place.
Tags: 1099-G, Karl Fava, Taxpayers Advocacy, U.S. Revenue Service
This entry was posted on Friday, January 29th, 2021 at 1:56 pm and is filed under the latest alerts, tax refund fraud, The Coming Storm. You can follow any comments on this entry through the RSS 2.0 feed. You can go to the end and leave a comment. Ping is currently not allowed.