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Table of Contents

Lead Story

The shifting landscape of merchant acquiring

Patti Murphy

News

Industry Update

Merchants, courts debate credit card surcharging

Merchant groups press on for lower Durbin cap

Amazon unveils exclusive e-commerce program

Features

How tax fraud impacts your merchants

Andrew Altschuler

Views

The showroom effect

Dale S. Laszig
DSL Direct LLC

What to disclose to underwriters

Ken Musante
Eureka Payments LLC

Education

Street SmartsSM:
The merchant cash advance

John Tucker
1st Capital Loans LLC

Getting legal with millennials in payments

Adam Atlas
Attorney at Law

A great leader may not be your friend

Steven Feldshuh
Merchants

Facilitating collaboration to safeguard sensitive data

James Daube
Global Legal Law Firm

From EMV to CNP: A look into U.S. authentication

Christoph Tutsch
Onpex GmbH

Company Profile

Go4Payments

New Products

Internet failover for high-volume merchants

OptConnect duo
OptConnect

Comprehensive, proactive ID theft protection

BFR SecurID
Business Financial Resources LLC

Inspiration

Brush up your phone manners

Departments

Letter from the editors

Readers Speak

Resource Guide

Datebook

Skyscraper Ad

The Green Sheet Online Edition

April 25, 2016  •  Issue 16:04:02

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How tax fraud impacts your merchants

When merchants start accepting electronic payments for goods and services, they also open their businesses up to greater risks. While multiple fraud types can occur directly at the POS and through fraudulent chargebacks, merchant accounts are also prey to cybercriminals that hack systems to steal cardholder information, employee identification data or corporate tax numbers stored in the back office.

While all types of fraud are continually rising, identity theft, in particular, has skyrocketed. According to the 2015 Identity Fraud Study published by Javelin Strategy & Research, $16 billion was stolen from 12.7 million U.S. consumers in 2014, compared with 13.1 million who were victimized a year earlier. The report also concluded there was a new identity fraud victim every two seconds in 2014.

Although identity fraud is carried out in a number of ways, business data systems are a common target. And, despite the fact that access to business data and records is generally restricted by firewalls, encrypted security or old fashioned lock and key, criminals are constantly prowling around for loopholes in corporate operational frameworks.

The widespread adoption of electronic payments established a broader criminal playing field, and as the added risk has mounted so has the incidence of stolen card data and POS system breaches. The industry's answers – compliance programs like the Payment Card Industry Data Security Standard (PCI DSS) and EMV (Europay, MasterCard and Visa) chip-enabled cards – have helped businesses become more aware of the need for locking down this data. However, the criminals are now shifting focus toward online, mobile and other theft-friendly avenues.

Business identities at risk

Consequently, the theft of consumer card data and identity information during payment transactions isn't the only kind of fraud a business owner has to worry about. The 2015 tax season began with the IRS notifying all taxpayers and businesses that the incidence of tax fraud prompted the federal government to implement tighter measures for authenticating tax returns.

"According to the IRS, tax refund fraud is expected to hit a record $21 billion this year," said Michelle Schofield, Senior Director of Global Marketing at identity management and credentials company Jumio. "The growing issue of tax fraud has brought to light the need for increased verification."

Schofield also highlighted that even if consumers took steps to file early to get ahead of someone else fraudulently filing a return using their stolen identity, criminals would still be able to exploit loopholes and vulnerabilities to gain access to a victims' refund.

This is where business identity fraud comes into play. And, it's a very real vulnerability for which the feds have not yet provided added protections. An article recently published at BusinessIDtheft.org stated, "Tax refund fraud and tax identity theft have become wildly popular with street gangs, organized crime and many other criminal opportunists. The IRS National Taxpayer Advocate reports that tax-related identity theft has increased 650 percent since 2008."

The article stated that many businesses are falling victim to identity theft when fraudulent accounts are opened with just a stolen business name, address and employer identification number (EIN).

Unsuspecting accomplice

Furthermore, a federal EIN essentially acts as a business Social Security number, and it is commonly used for bank accounts, business loans, credit lines and merchant credit card accounts, as well as many other activities. Therefore, in addition to the threat of someone posing as a business owner to open credit lines or other fraudulent accounts, a business EIN is also a target for criminals interested in committing tax refund fraud.

According to BusinessIDtheft.org, these individuals must support a fraudulent tax return with legitimate statements of income. Therefore, the criminals use stolen EINs and business identities to forge W-2 or 1099 documents that trick the IRS into believing a tax refund is due.

These merchant fraud risks can only be overcome with adequate education and awareness ‒ a responsibility in which most members of the payments industry are deeply vested. To maintain customer satisfaction and the industry's fraud fighting reputation, it's smart for payment pros to alert their clients to the business risks associated with tax fraud.

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.

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