The Federal government provided a vast amount of funds to the States to help address the unemployment impact from the pandemic shut down. The States administer the program and were quickly overwhelmed with the number of claims for benefits. The Federal government also “enhanced” the normal benefits early on in the pandemic by $600 per week. Enter the fraudsters.
As the States begin to send out 1099-G’s associated with the payment of unemployment benefits, which are taxable as ordinary income, people who never received any benefits are receiving 1099s. They are confronted for the first time with the fact that their identity was stolen by the fraudsters and used to claim unemployment benefits. The State of California has been in the news as of late for the magnitude of the unemployment benefit fraud that has been identified as $10 BILLION so far.
A taxpayer receiving one of these 1099-Gs will need to address not only the tax filing issue but also the damage from the identity theft.
The Tax Issue
The IRS will match information reporting documents received from third parties against your filed tax return. It is therefore important to contact the agency issuing the 1099-G and request an amended 1099-G if you receive one with incorrect information. The States are being inundated with these requests so you will need to be patient while they investigate the issue and then issue an amended form. You may be ready to file your return long before you receive the new document. You can file without the revised document, however, you should maintain copies of your communications with the State because they will be necessary later should you receive a notice from the IRS.
The larger issue of course is the identity theft. You need to take immediate and proactive steps to stop any further damage. There are a number of steps you should take.
- Obtain a copy of your credit report and review it for credit that has been applied for in your name.
- Notify the credit reporting agencies to put a Fraud alert on your social security number.
- If you notice additional instances of identity theft contact law enforcement.
- Review the FTC’s page on identity theft https://www.identitytheft.gov/ for additional steps.
The IRS has been fighting identity theft for some time. Fraudsters file tax returns in the name of their victims to claim refunds. Anyone who has been a victim of tax-related identity theft should contact the IRS and complete Form 14039 (https://www.irs.gov/pub/irs-pdf/f14039.pdf) to alert the IRS so it can assign a PIN for use when filing future tax returns.
Beginning with the 2020 tax filing season the IRS will provide an identity Protection Pin (IP-PIN) to taxpayers regardless of whether they have been a victim of identity theft. Taxpayers can visit the IRS web portal to sign up on an annual basis. See https://www.withum.com/resources/expansion-of-identity-protection-pin-program-for-all-taxpayers/
available to assist taxpayers who have had their identities compromised.
Tax Dispute and Litigation Services