EIN Refund Fraud

Tax Refund Fraud.  We’ve seen this happening across the nation in a variety of communities.  The fraudster demographic is also quite diverse: some perpetrators are operating from within experienced fraud rings, some are regular street criminals (or inmates), some are even IRS insiders.

Most people are probably aware of individual refund fraud, which involves the filing of a false tax return using a stolen Social Security Number in hopes of obtaining a refund.  Many of these schemes are built upon the idea that the IRS doesn’t bat an eye if the requested refund is small enough.  And fraudsters can get pretty rich if they file in bulk.

But did you know that the same thing is happening with EIN numbers?  An Employer Identification Number is used to identify business accounts.  People steal them and obtain them fraudulently just like they do with social security numbers.  The statistics are staggering: “277,624 stolen EINs used to report false income and withholding on 752,656 tax returns with potentially fraudulent refunds issued totaling more than $2.2 billion” (2011 numbers).  The Treasury Inspector General for Tax Administration (TIGTA) released a report this week asking the IRS to do more to prevent EIN refund fraud.

Do I Need an EIN?

Most people, including some IRS personnel, call it an EIN number.  But the “N” in the acronym stands for “Number,” so it should be referred to simply as an “EIN,” unless you mean to say “Employer Identification Number Number,” which is just silly.

The EIN is a federal tax identification number used by the IRS to identify most businesses.  An EIN number is generally tied to a social security number so that if a tax debt is incurred, the IRS can track down a “responsible party” for payment.  If your business is not considered a separate entity for tax purposes and you will only be required to file an individual 1040 tax return, such as in the case of a sole proprietorship, you do not need an EIN.  However, if any of the following factors apply to you, then an EIN is needed:

  • You have employees
  • Your business is a partnership or corporation
  • You are required to file employment tax returns
  • You are required to file excise tax returns
  • You are required to file alcohol, tobacco and firearms returns
  • You withhold taxes on income, other than wages, paid to a non-resident alien
  • You have a Keogh plan
  • You are involved with any type of organization listed here

You do not need a tax attorney to help you apply for an EIN — it is easy and free.  The best way to obtain an EIN is to apply online.  But you may also apply by fax, phone, or mail if you insist on doing it the hard way.