Lawmakers request help for taxpayers victimized by unemployment fraud

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 letter Saturday to Treasury Secretary Janet Yellen and Acting Secretary of Labor Al Stewart asking them to give states more time to fix the problem with the incorrect tax forms they are sending innocent taxpayers. They also want the Internal Revenue Service and the Treasury Department to work with tax professionals to educate the public about unemployment fraud and identity theft and help them address the problem.

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 (see story).

“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.”