How to Verify Possibly Fraudulent Information on a 1099 Form

Whitewashing 1099 data is considered fraud and can warrant severe penalties.
Whitewashing 1099 data is considered fraud and can warrant severe penalties. (Image: Jupiterimages/ Images)

As an employer, it is your duty to verify that the information provided by your employees and contractors is accurate. Failure to accurately report workers can lead to stiff fines and penalties. You can take several steps to make sure that the information provided on 1099 forms is not fraudulent.

Things You'll Need

  • Completed 1099 form
  • Computer access, for researching within agencies and sites
  • Company information, as provided in business filings and public records

Validate the company's identification to ensure the individual issuing a 1099 is actually part of the company listed and is not using the company's name inappropriately.

Review the amounts and, if possible, time worked. The person receiving the 1099 might be listed as an individual contractor, when, in fact, he should be a paid employee, requiring the payment of payroll taxes each quarter, instead of annually.

Review the taxes paid by the company via public tax records within the relevant tax/revenue governmental agency; most times, this information is available online. In many cases, by listing an employee on a 1099, a company can avoid paying quarterly payroll taxes; and in some cases, may not pay taxes at the end of the year, either.

Review the information provided for the person listed as an independent contractor. Check the Social Security number and other information listed to see if it is valid information or whether the information provided is incorrect or fake. This may be exceptionally relevant if the business may appear to employ illegal immigrants or undocumented workers.

Tips & Warnings

  • Some states have additional databases where companies can check individual workers' eligibility to work. In many cases, the use of a 1099 (which requires less information) may allow companies to skirt current laws regarding the employment of certain workers who do not have valid Social Security numbers or other required legal documentation to work.
  • Failure to conduct the necessary background checks on employees, or the intent to file false information regarding employees and contractors, can meet with severe penalties. Aside from the interest due on unpaid taxes, you can be hit with fines of up to 20 percent of the amounts in question, as well as potential jail time in egregious cases.

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