Tax forms reveal unemployment fraud in US

SACRAMENTO, CALIFORNIA (AP) — Unemployment agencies across the United States (US) became lucrative targets for criminals when they were bombarded with claims last year as millions lost jobs due to coronavirus shutdowns.

Now, simple tax forms being sent to people who never collected unemployment benefits are revealing that their identity was likely stolen months ago and used to claim bogus benefits that have totalled billions of dollars nationwide.

Unemployment benefits are taxable, so government agencies send a 1099-G form to people who received them so they can report the income on their tax returns. States are mailing 1099-Gs in huge numbers this year after processing and paying a record number of claims.

In Ohio, Bernie Irwin was shocked two weeks ago when she opened the mail and found a 1099-G form saying her husband had claimed USD17,292 in unemployment benefits last year. The only problem: Jim Irwin, 83, hadn’t worked in 13 years.

Bernie Irwin, 86, said her daughter-in-law and a friend also received the tax forms. So did Republican Governor Mike DeWine, his wife, Fran, and Republican Lieutenant Governor Jon Husted, even though none of them had claimed unemployment benefits.

Nearly 26 million people requested unemployment aid in the initial months after states began ordering shutdowns. The unprecedented surge strained unemployment offices that are governed by federal rules but administered in patchwork fashion by state governments, with many relying on 1960s-era software to process applications and issue payments.

A person passes the office of the California Employment Development Department in Sacramento, California. PHOTO: AP

The federal government, as part of its USD2 trillion relief package approved in March, significantly expanded jobless aid, making it a richer target for fraud. By November, the US Department of Labour’s Office of Inspector General estimated states had paid as much as USD36 billion in improper benefits, with a significant portion of that blamed on fraud.

In California alone, officials said the fraud totalled at least USD11 billion, with USD810 million paid in the names of ineligible prisoners.

Now, overwhelmed unemployment agencies could face another onslaught — this time from people requesting corrected tax forms.A report from the California state auditor last week warned about the problem, and this week the state’s Republican congressional delegation and state GOP Senate caucus both sent letters to Democratic Governor Gavin Newsom’s administration raising concerns about the impact on taxpayers.

“It does open a can of worms,” said certified public accountant in Los Angeles and a member of the California Society of CPAs Rob Seltzer. “It really depends upon how fast the (state) is able to send out a corrected form.”

Ohio has set up a telephone hotline and created a website allowing residents to report identity theft. Once the state confirms fraud has been committed, taxpayers will receive a corrected 1099-G form. In the past two weeks, 62,000 people had filed a report, according to spokesman Thomas Betti.

“It’s really easy for somebody to be like, ‘This isn’t my problem. They sent me the form, I’ve never been to Ohio.’ Still, you need to take care of this,” Betti said. “Every unemployment system in the country is dealing with this massive amount of fraud.”

Last month, the IRS said it is likely that many victims won’t be able to get a corrected tax form in time to file their federal taxes.

In those instances, the IRS said taxpayers should ignore the 1099-G and file their taxes without reporting the fraudulent income.

Owner of BEM Financial Services Christina Elliot worries that process could delay tax refunds for people who are counting on them to make it through the pandemic. She has two clients — one in California and one in Georgia — who said they received incorrect forms showing they received as much as USD27,000 in unemployment benefits last year.

“They are literally going to have to investigate each one,” Elliot said about the IRS. “These people already had their identity stolen that they didn’t know about, here lies another problem where they will be waiting months just to get their (tax refunds) that are owed to them.”

The problem could be most acute in California, where officials mailed close to eight million tax forms last month — more than five times the number they send in a normal year.

The state’s Employment Development Department (EDD) said it has updated its website and hired an additional 300 agents for its call centre, training them on how to handle questions about the 1099-G forms.