There will be many instances this year of taxpayers receiving a Form 1099-G for Unemployment Benefits fraudulently paid by the state to a claimant pretending to be the taxpayer. How do we handle this in preparing a tax return?
The tax professional should have the taxpayer notify the IL Department of
Employment Security (IDES) of the fraud and get a corrected 1099-G or a letter stating there were no benefits received. IDES should issue a corrected 1099-G showing $0 Unemployment Benefit. (Good luck in getting through to IDES!) IDES also suggests the taxpayer report the fraud to the local police department and get a copy of the police report to document the
fraud and eventually send to the IRS who will want documentation later.
The tax professional should omit the 1099-G unemployment income and tax withholding, and document the fraud in the client file. Then, have the
documentation of fraud handy to answer the IRS letter when it comes much later after filing. For more information, go to www.IDES.illinois.gov then enter in the search box: “1099-G”. Also, select “Fraud and Identity Theft”, then “Victims”. Another resource is www.illinoisattorneygeneral.gov and then select “Identity Theft Hotline”. Also, the taxpayer should notify the Federal Trade Commission at www.identitytheft.gov or call 877-ID-THEFT.
See more information attached from the IRS and IDES.