Republican lawmakers are asking the Biden administration to help taxpayers who are receiving tax forms for unemployment benefits claimed by identity thieves.
GOP members of the tax-writing House and Ways Means Committee sent a
Identity thieves have been exploiting the expanded unemployment benefits offered last year and this year under the CARES Act to people suffering from the economic fallout of the COVID-19 pandemic. In some cases, criminals have been filing for unemployment benefits with states using identification information stolen from unsuspecting people during data breaches. Taxpayers have only been learning about the unemployment claims filed on their behalf, and the unemployment benefits paid out to the cybercriminals, this year now that states have started sending a Form 1099-G to them reporting the amount of benefits they should have received, along with the taxes they owe. The IRS recently began telling taxpayers who find themselves in this position to contact their state to correct the problem (
“While this will already be an unprecedented filing season due to the economic recovery measures enacted throughout 2020, the added burden of receiving a Form 1099-G for unemployment compensation a taxpayer may not have claimed places undue stress on our constituents at a time when many can least afford it,” said the letter from Rep. Brad Wenstrup, R-Ohio, and Steve Stivers, R-Ohio, and other colleagues on the Ways and Means Committee. “While we understand that Forms 1099-G are issued by the states and appreciate the guidance the IRS has issued to states and taxpayers regarding identity theft and fraudulent unemployment benefits, we believe the guidance stops short of meaningfully alleviating burdens placed on the taxpayer and underestimates the scope of unemployment fraud in 2020.”
They noted that the Labor Department’s Inspector General warned that fraudulent benefits could amount to more than $63 billion. California’s state workforce agency recently said that about 10 percent of unemployment benefits paid were fraudulent, valued at more than $11 billion, and are under investigation. Ohio, reported that tens of thousands of unemployment claims were filed fraudulently last year, and estimated that “at least 166,000 claims were filed for unemployment insurance in 2020 without the supposed claimant knowing.”
To avoid having to pay taxes on the unemployment benefits, taxpayers who have had their identities stolen will need to contact the state to report the fraud and correct the form. In cases where a fraudulent claim was filed using the wrong address, the IRS could potentially flag it as unreported income in their auditing process, after the unknowing taxpayer has already filed their taxes, the lawmakers noted.
Wenstrup and Stivers asked the Treasury and the Labor Department to extend the deadline for states to submit Forms 1099-G for those flagged by taxpayers and under review for fraudulent activity. That will give states more time to investigate alleged fraud incidents and ensure only accurate forms are being submitted to the IRS.
They also asked the IRS to implement a process for taxpayers who were victims of identity theft or unemployment fraud so they won’t be punished if they were victims of a scam or identity theft. They said the IRS and Labor Department should work with the public and private sectors to educate taxpayers about potential issues of identity theft and fraud relating to their unemployment benefits while working with states to streamline the process of having a taxpayer receive help if they were a target of identity theft. Taxpayers who file their taxes online may not be aware of the potential problems until they file.
“We ask that the IRS partner with the DOL and those in the tax preparation community to help educate the public on the issue of identity theft involving unemployment benefits and to work with states to normalize procedures for identifying and verifying fraudulent cases,” said the lawmakers. “Millions of Americans who file taxes electronically, often doing so without direct assistance from a tax professional, may not be aware of this known problem, and we believe the IRS is well-situated to work with those companies and individuals in the industry to help raise awareness more broadly.”
They also asked the IRS and the Labor Department to track and report to the public the amount of unemployment benefits that are removed due to fraud. That would help policymakers determine the full amount of fraud in the program and where CARES Act funds went to ensure only the taxpayers who needed the benefits the most actually received them.
