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Report urges IRS to improve detection of fraudulent EIN use

| Feb 20, 2018 | tax crimes

Businesses in Maryland obtain their employer identification numbers from the Internal Revenue Service. A report prepared by the Treasury Inspector General for Tax Administration criticized the tax agency for its vulnerability to EIN abuse by fraudulent filers that steal existing numbers or gain numbers for fake business entities.

The report described programming errors within the IRS system that granted more than 227,000 EINs to sole proprietors who had numbers already or were dead. A statement from the inspector general admonished the IRS to create a better screening process to reduce business identity theft.

Among the 18 recommendations published within the report, the inspector general highlighted the need for improved software filters for detecting fraud. Tax agency software should deny numbers requested for sole proprietors known to be deceased. A filter that uses a list of suspicious accounts was called for as well. The IRS already possesses data about individuals and businesses with previous records of filing forms for fake businesses.

A tax return for a fictitious business filed for the purpose of collecting a refund could represent a criminal act. A person accused of tax crimes could face serious fines and even a prison sentence if convicted. An attorney who is knowledgeable about financial records and tax law may help protect a person’s rights during a tax fraud investigation. A person might gain an attorney’s advice prior to answering questions posed by investigators. If criminal charges are filed and an arrest ensues, an attorney may be able to explain the nature of the charges and develop a defense strategy. An attorney might challenge the strength of evidence and potentially get charges reduced as part of a plea deal. If a trial is necessary, then an attorney might strive to demonstrate that the tax agency made mistakes.