TAX FORMS REVEAL UNEMPLOYMENT FRAUD IN U.S.

INCREASE FOUND AFTER MILLIONS CLAIM JOB LOSSES

SACRAMENTO, CALIF. – Unemployment agencies across the U.S. 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 totaled billions of dollars nationwide. Unemployment benefits are taxable, so government agencies send a 1099G 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 $17,292 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 Gov.

Mike DeWine, his wife, Fran, and Republican Lt. Gov.

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.

The federal government, as part of its $2 trillion relief package approved in March, significantly expanded jobless aid, making it a richer target for fraud. By November, the U.S. Department of Labor’s

Office of Inspector General estimated states had paid as much as $36 billion in improper benefits, with a significant portion of that blamed on fraud.

In California alone, officials say the fraud totaled at least $11 billion, with $810 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 Gov. Gavin Newsom’s administration raising concerns about the impact on taxpayers.

“It does open a can of worms,” said Rob Seltzer, a certified public accountant in Los Angeles and a member of the California Society of CPAs. “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 says taxpayers should ignore the 1099-G and file their taxes without reporting the fraudulent income.

Rooting out fraud and identity theft has been a struggle for the agency. A state audit released last week showed that from April to October, it responded to less than 2% of fraud reports. By November, it had a backlog of more than 77,000 such reports.

Carol Williams, chief deputy director of operations for the California Employment Development Department, said people who get incorrect tax forms should fill out a worksheet on the department website, adding that the website has been “busy.” Some lawmakers worry the agency might not be able to handle the workload. Republican state Sen. Scott Wilk said one of his constituents was “dumbfounded” to get a notice that he owed taxes on $11,000 in unemployment benefits. “In a time when we really need people to have confidence in their government, going through this pandemic and rolling out the vaccine, the last thing we need to do is additionally shatter their confidence in our ability to be competent,” Wilk said. ––– Associated Press reporters John Hanna in Topeka, Kansas; Andrew Welsh-Huggins in Columbus, Ohio; and Christopher Rugaber in Washington contributed reporting.

Unemployment agencies across the U.S. became lucrative targets for criminals when they were bombarded with claims last year as millions lost jobs due to coronavirus shutdowns.