With tax season well underway, Division of Revenue officials are noting an uptick in Delaware returns reporting overstated Delaware income tax withholding. The appropriate amount to report is limited to the total in Box 17 of the W-2 form provided by your employer (or the sum of those amounts if you have multiple employers), plus any state income tax withholding reported on a Form 1099-R.

Division of Revenue Director, Jennifer R. Hudson, Esq. noted “We are reviewing all returns that have overstated withholding, and they may be treated as fraudulent returns.”

Overstated withholding can be a sign of fraud, and returns with higher amounts than usual are being treated as suspicious. That means these returns will be pulled for review, extending the length of time required to process your return – and potentially delaying your refund.

If you have questions about the appropriate amounts to report, please contact the Division of Revenue Public Service area at 302-577-8200, or 1-800-292-7826.

Small business identity theft is a big business for identity thieves. Just like individuals, businesses may have their identities stolen and their sensitive information used to open credit card accounts or file fraudulent tax returns seeking bogus refunds. To mark “National Tax Security Awareness Week,” the Delaware Division of Revenue, along with the IRS and the nation’s tax industry have joined together to warn small businesses to be on-guard against a growing wave of identity theft against businesses and employers.

In the past year, the Internal Revenue Service noted a sharp increase in the number of fraudulent Forms 1120, 1120S and 1041 as well as Schedules K-1. The fraudulent filings include forms filed relating to partnerships, estates and trusts. Identity thieves are displaying a sophisticated knowledge of the tax code and industry filing practices as they attempt to obtain valuable data to enable them to file fraudulent returns.

Identity thieves have long made use of stolen Employer Identification Numbers (EINs) to create fake Forms W-2 that they file with fraudulent individual tax returns seeking refunds. Fraudsters also used EINs to open new lines of credit or obtain credit cards. Now, they are using company names and EINs to file fraudulent returns for the businesses themselves.

As with fraudulent individual returns, there are certain signs that may indicate identity theft. Those filing returns for corporations, partnerships, estates or trusts should be alert to potential identity theft and contact the IRS if they experience any of these issues:

• Extension to file requests are rejected because a return with the Employer Identification Number or Social Security number is already on file;
• An e-filed return is rejected because a duplicate EIN/SSN is already on file with the IRS;
• An unexpected receipt of a tax transcript or IRS notice that doesn’t correspond to anything submitted by the filer;
• Failure to receive expected and routine correspondence from the IRS because the thief has changed the taxpayer’s address.

New Procedures to Protect Businesses in 2018

The Division of Revenue, the IRS, and software providers share certain data points from returns, including business returns, which help identify a suspicious filing. Delaware and the IRS are asking that businesses and tax practitioners provide additional information that will help verify the legitimacy of the tax returns they file.

For 2018, the “know your customer” procedures that are being put in place include the following questions:

• Authorized signer – Confirm the name and SSN of the company executive authorized to sign the corporate tax return;
• Payment history – were estimated tax payments made? If yes, when were they made, how were they made, and how much was paid?
• Parent company information – is there a parent company? If yes, what is the name of the parent company?
• Deduction information – Provide additional information based on deductions claimed;
• Filing history – has the business filed Form(s) 940, 941 or other business-related tax forms?

Individuals operating as sole proprietorships who file Schedule C with Form 1040 and partnerships that file Schedule K-1 with Form 1065 also will be asked to provide additional information items, such as a driver’s license number. Providing this information will help Delaware and the IRS identify suspicious business-related returns.

For small businesses looking for a place to start on security, the National Institute of Standards and Technology (NIST) has produced Small Business Information Security: The Fundamentals. NIST is the branch of the U.S. Commerce Department that sets information security frameworks followed by federal agencies. The United States Computer Emergency Readiness Team (US-CERT) has created Resources for Small and Midsize Businesses.

Take the steps recommended by cyber experts to protect your business, and visit the Identity Protection: Prevention, Detection and Victim Assistance for more information about business-related identity theft.

Division of Revenue Director Patrick T. Carter has announced that Delaware tax season will begin Tuesday, January 19, 2016. Citizens are encouraged to file their 2015 State of Delaware Personal Income Taxes online at www.delaware.gov. This year’s filing deadline is Monday, May 2, 2016. Online filing offers many advantages, and Delaware urges taxpayers to electronically file their returns. Refunds from electronically filed returns are issued on average within 2 weeks, while refunds from paper-filed returns average over seven weeks. Last year, the average time to issue a refund for all tax filing methods combined was just over 20 days.

Delaware offers the following electronic filing options:

1. Those who don’t need tax preparation software can file for free on the Delaware Division of Revenue website. This online system is extremely user-friendly and available 24/7. The system also allows taxpayers to file their returns and then schedule any payment due closer to the May 2nd deadline. Taxpayers may pay their State of Delaware taxes on this system using a credit card or by debiting their bank account.
2. Those who prefer tax-preparation software can electronically file their federal and state income tax returns for a fee, although these products also offer free-filing options for Delaware taxpayers who meet the following qualifications:

• Adjusted gross income is less than the software’s established means criteria; or
• Active-duty military with an adjusted gross income of $60,000 or less (including Reservists and National Guard); or
• Qualify for the Federal Earned Income Tax Credit (EITC)

For paper-filed returns, the State uses a modernized processing system that identifies tax filings based on the return type. Any taxpayer who files a 2015 tax return using a previous-year return, or who modifies the paper return in some way, will experience significant delays. Paper tax returns will be available at local libraries or for download at www.revenue.delaware.gov.

Because Delaware does not maintain reciprocity agreements with other states; it is important for anyone who is not a Delaware resident – but who has worked in Delaware – to understand that they must file a Delaware tax return. Delaware Residents who work out-of-state are required to file returns with Delaware in addition to the state where they worked.

By law, Delaware employees should receive their W-2 employment forms by January 31, 2016 for any job worked during the 2015 calendar year. Those who haven’t received a W-2 by January 31 should contact their employer.

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Leslie A. Poland
Public Information Officer
Delaware Department of Finance
Division of Revenue
(302) 577-8522
leslie.poland@delaware.gov