How to Protect Your Business from Tax Identity Theft

How to Protect Your Business from Tax Identity Theft

According to the IRS, businesses are increasingly becoming targets of tax identity theft. And as reported by the U.S. Small Business Administration, identity theft costs businesses around the world approximately $221 billion annually. To make matters worse, identity thieves are becoming increasingly sophisticated, adept with filing practices, tax code, and efficient methods for obtaining valuable data.

Business identity theft happens when a thief uses the identifying information of a business to acquire tax benefits or to implement individual tax identity theft schemes. Below are some prevention tips for protecting your business’s information as well as that of your employees.

Provide Training

Employees in accounting and human resources departments should be educated on the latest tax fraud schemes and identifying phishing emails.

Reduce Stored Information and Destruct Data

Only information that is critical to conduct business should be stored. This might include names and addresses, for example, but birth dates probably aren’t necessary. Likewise, information that was once needed but is no longer relevant should be eliminated. This includes destroying hard drives after replacing computers.

Implement Data Encryption

Keep sensitive information secure when it leaves your company by enabling a data encryption system, which uses an algorithm to convert normal text into indecipherable ciphertext, preventing hackers from being able to read it.

Utilize Password Protection

Simple passwords are easy to hack so it’s best to require that passwords are at least eight characters long with a combination of letters, numbers, and symbols. Platforms that automatically log out an employee after a certain amount of inactive time are helpful in the event that an employee would forget to log out.

Protect Documents

In order to prevent unauthorized access to paper documents, secure them in a safe in a discreet location. Once the documents are no longer needed, they should be shredded. Too, use secure methods to send W-2 forms to employees.

How can you tell if your business information has been compromised by identity theft? Some red flags include:

  • Expected or routine mailings from the IRS never arrive
  • Your business receives an IRS notice for something that doesn’t relate to anything your business submitted
  • Your business receives an IRS notice pertaining to a non-functioning, closed, or inactive business wherein all account balances have been paid
  • The IRS rejects an e-filed return or an extension-to-file request, citing that it already has a return with that Employer Identification Number (EIN) – or the IRS accepts it as an amended return
  • Your business receives an IRS letter warning that more than one tax return has been filed in your business’s name
  • Your business receives a letter from the IRS declaring that you have a balance due when you have yet to file a return

 

While some of these could always be the result of an error, it’s best to contact the IRS if your business receives letters or notices that you believe are indicative of someone fraudulently using your Employer Identification Number.

If you have any questions about how to protect your business from identity theft, please feel free to contact me at brian@brammerandyeend.com.