During the pandemic, the news and newspapers have reported billions of dollars stolen through unemployment fraud and identity theft.

Axios reported, “Unemployment fraud during the pandemic could easily reach $400 billion, according to some estimates, and the bulk of the money likely ended in the hands of foreign crime syndicates—making this not just theft, but a matter of national security.”  This would be around 50% of the monies paid out according to a Forbes article.

Other sources estimate around $200 billions (article from Yahoo! money), which states “… More than $200 billion of unemployment benefits distributed in the pandemic may have been pocketed by thieves, according to ID.me, a computer security service that 19 states — accounting for 75% of the national population — use to verify worker identities. That’s more than triple the official government estimate of $63 billion based on the 10% pre-pandemic fraud rate.

Another article from Bloomberg makes reference to the $63billion originally reported by the U.S. Department of Labor (Recently, the U.S. Department of Labor’s Inspector General estimated approximately $89 billion in unemployment compensation was lost in 2020 due to fraud as stated in the IRS Newswire IR-2021-163) but the real number should be much higher, considering that only California’s Employment Development Department has determined that more than $11 billion in benefits were paid on fraudulent claims, and there are an additional $19 billion in suspicious claims under investigation (See LA Times’ article).

As a result, the IRS is releasing an effort to urge tax professionals called “Boost Security Immunity: Fight Against Identity Theft” to try harder to secure their systems and protect client data during the pandemic and its aftermath.

Here are a few steps recommended by the IRS to tax professionals should take to assist clients who are victims of the unemployment compensation fraud scheme:

  1. File a Form 14039, Identity Theft Affidavit PDF, only if an e-filed tax return rejects because the client’s Social Security number has already been used. Do not file the IRS Form 14039 to report unemployment compensation fraud to the IRS.
  2. Report the fraud to state workforce agencies, and request a corrected Form 1099-G. Each state has its own process for reporting unemployment compensation fraud. The U.S. Department of Labor has created an information page with all state contacts and other information at DOL.gov/fraud.
  3. File a tax return reporting only the actual income received. State workforce agencies may not be able to timely issue a corrected Form 1099-G. Even if the client has not received a corrected Form 1099-G, report only wages and income received and exclude any fraudulent claims.
  4. Consider an IRS Identity Protection PIN. Clients receiving Forms 1099-G are identity theft victims whose personal information could be used for additional criminal activities, such as filing fraudulent tax returns. All taxpayers who can verify their identities can now obtain an Identity Protection PIN to protect their SSNs. Read more about IP PINs at IRS.gov/ippin.
  5. Follow Federal Trade Commission recommendations for identity theft victims. Taxpayers should consider steps to protect their credit and other actions outlined by the FTC. The DOL also includes this information on its DOL.gov/fraud page.
  6. Finally, tax professionals’ business clients can also assist in fighting unemployment compensation fraud by responding quickly to state notices about employees filing jobless claims, especially when it has no record of those employees.

Additionally, the IRS is providing more information on the IP PIN:

  • It’s a six-digit number known only to the taxpayer and the IRS.
  • The opt-in program is voluntary.
  • The IP PIN should be entered onto the electronic tax return when prompted by the software product or onto a paper return next to the signature line.
  • The IP PIN is valid for one calendar year.
  • For security reasons, enrolled participants get a new IP PIN each year
  • Spouses and dependents are eligible for an IP PIN if they can verify their identities
  • IP PIN users should never share their number with anyone but the IRS and their trusted tax preparation provider. The IRS will never call, email or text a request for the IP PIN.