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IRS Cracks Down on Unemployment Fraud

 

After a year of economic upheaval, when lockdowns shuttered entire industries and forced career changes en masse, it's hardly surprising that the nation's unemployment insurance program had a wild year. In fact, unemployment claims reached an all-time high in April 2020. But while the vast majority of these claims were from job seekers left unemployed by pandemic closures, some were fraudulent. Now, the IRS has placed unemployment fraud on its "Dirty Dozen" list, the annual list of tax scams on its radar. So what does unemployment fraud look like in practice?

Some common unemployment scams:

  • Identity-related fraud: Filers submit applications for unemployment payments using stolen or fake identification information to perpetrate an account takeover.
  • Employer-employee collusion fraud: The employee receives unemployment insurance payments while the employer continues to pay the employee reduced, unreported wages.
  • Misrepresentation of income fraud: An individual returns to work and fails to report the income in order to continue receiving unemployment insurance payments or, in an effort to receive higher unemployment payments, applicants claim higher wages than they actually earned.
  • Fictitious employer-employee fraud: Filers falsely claim they work for a legitimate company or create a fictitious company and supply fictitious employee and wage records to apply for unemployment insurance payments.
  • Insider fraud: State employees use credentials to inappropriately access or change unemployment claims, resulting in the approval of unqualified applications, improper payment amounts or movement of unemployment funds to accounts that are not on the application.

So how does the IRS spot fraudsters?

Unemployment scam red flags:

  • Unemployment payments are coming from a state other than the state in which the fraudster reportedly resides or has previously worked.
  • Multiple state unemployment payments are made within the same disbursement time frame.
  • Unemployment payments are made in the name of a person other than the account holder or in the names of multiple unemployment payment recipients.
  • Numerous deposits or electronic fund transfers (EFTs) are made that indicate they are unemployment payments from one or more states to people other than the account holder(s).
  • A higher number of unemployment payments is seen in the same time frame compared to payments to similar people and the amounts they received.

The vast majority of unemployment claims come from taxpayers who have paid into the system. But when fraudsters target unemployment insurance, it's those same taxpayers who are harmed. That's why the IRS is stepping up and taking unemployment fraud seriously.

 
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