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Tax identity theft: Yes, your business can be a target too

When most people hear “identity theft,” they think about stolen Social Security numbers or personal tax refunds. But small businesses are targets too.

Cybercriminals can use your business’s Employer Identification Number (EIN), payroll information, or tax filings to commit fraud. And unfortunately, many business owners do not realize something is wrong until the IRS rejects a tax return or sends an unexpected notice.

The good news is there are practical steps you can take to protect your business.

How business tax identity theft happens

Business tax identity theft can happen in several ways. Criminals may:

• File fake tax returns using your EIN
• Pretend to be a business owner or executive to steal employee W-2s
• Use fake IRS documents to scam your business
• Open accounts or apply for credit using stolen business information
• Combine stolen data from data breaches to create fake businesses

These scams can impact businesses of all sizes, including sole proprietors, partnerships, LLCs, and corporations.

Signs something may be wrong

Many businesses discover tax identity theft only after a problem occurs. Some common warning signs include:

• Your tax return gets rejected because a return was already filed
• The IRS sends notices about activity you do not recognize
• You receive unexpected IRS transcripts in the mail
• Your extension request is rejected
• IRS mail suddenly stops arriving

You may also receive IRS notices like Letter 5263C or 6042C requesting additional verification.

Do not panic if this happens. Sometimes the issue is as simple as a typo or mismatch on a return. But it is important to respond quickly and work with your tax professional to determine whether fraud may be involved.

In some situations, the IRS may ask you to complete Form 14039-B, the Business Identity Theft Affidavit.

Why this matters for small businesses

Tax identity theft can create more than just paperwork headaches.

It can lead to:

• Delayed tax refunds
• Unauthorized payroll filings
• Time-consuming IRS disputes
• Damage to your business credit
• Exposure of employee or customer information
• Loss of trust from clients or customers

For small business owners already juggling daily operations, resolving identity theft can become a major distraction.

7 ways to help protect your business

1. Make cybersecurity a priority

Every business should have a basic cybersecurity plan in place. Even simple procedures can make a big difference.

Your plan should outline:

• How sensitive information is protected
• What to do if a breach happens
• Who is responsible for responding to suspicious activity

Review your plan regularly as your business grows and technology changes.

2. Protect sensitive information

Keep employee records, tax returns, payroll data, and financial documents secure.

A few good habits include:

• Limiting who has access to sensitive records
• Shredding unnecessary paperwork
• Using secure portals for document sharing
• Verifying requests before sending confidential information

Also make sure your EIN information on file with the IRS is current.

3. Strengthen passwords and logins

Weak passwords create easy opportunities for hackers.

Use:

• Strong, unique passwords
• Password managers when possible
• Multi-factor authentication on important accounts

Avoid storing all passwords in one easily accessible document or spreadsheet.

4. Keep your technology updated

Basic cybersecurity tools still matter.

Your business should use:

• Antivirus and antimalware software
• Firewalls
• Spam filters
• Encryption tools
• Secure data backups

And remember: if an email, link, or attachment looks suspicious, do not click it.

5. Train your employees

Employees are often the first line of defense.

Regular training can help your team recognize:

• Phishing emails
• Fake invoice scams
• Requests for sensitive information
• Suspicious links or attachments

It is also important for employees to know that the IRS does not contact taxpayers by text, social media, or email asking for sensitive information.

6. Monitor your business credit

Checking your business credit reports regularly can help you catch fraud early.

Watch for:

• Unauthorized accounts
• Unexpected credit inquiries
• Changes you do not recognize

Monitoring services and alerts from business credit bureaus can help flag suspicious activity quickly.

7. Work securely with your tax professional

Use secure portals when sharing tax documents and financial records.

If you receive an IRS notice, rejected filing, or anything unusual tied to your EIN, address it right away instead of waiting until tax season gets busier.

The earlier you catch it, the better

No system is perfect, and even businesses with strong security practices can become targets.

But early detection can make a huge difference in limiting the damage and resolving issues faster.

If you have questions about protecting your business information, tax filings, or payroll data, contact your local Padgett office. Your Padgett advisor can help you review your current processes, identify potential risks, and respond quickly if something does not look right.

The post Tax identity theft: Yes, your business can be a target too appeared first on Padgett.