Jesse Jones

Tax forms - the latest unpleasant surprise in the mail for victims of unemployment impostor fraud

Everett, WA — Christian Fraley is caught up in the $650 million Employment Security Department fraud. Now the Everett resident’s old ESD problems have suddenly become an immediate IRS issue.

“I’m actually more sad and shocked than I am frustrated,” says Fraley.

He just received a 1099-G tax form from the state for more than 10 thousand dollars. Now Christian, not the thief, may have to pay taxes on that income which could push him into a higher tax bracket.

He informed ESD last summer that he was a victim in the scam.

Now Christian says he can’t get any help from the state. But he’s not alone.

“It needs to get fixed. And they need to come up with an affirmative solution for this problem that I face, and everyone else across the state is going to be facing,” says King County Councilmember Reagan Dunn.

Dunn reached out to me with the very same problem. He received a 1099-G form for seven thousand dollars.

“From my income perspective, real money to the taxpayers. But it’s going to create a huge problem for other similarly-situated people,” says Dunn.

I reached out to accountant Rick Walter, with Hutchinson and Walter, PLLC of Bellevue. He shows us what he would do to fix this issue on your tax return.

“I would say that you should file the return, pick up the income on the line you’re supposed to for unemployment,” he says.

Here’s how Rick says to get it done.

“In here under the ‘other income’ you’re going to have a line here for unemployment compensation. Line seven here, okay? So I would show the full unemployment compensation on line seven and then under ‘other income’ I would say ‘less amounts not received’ by taxpayer. And have a negative amount there,” says Rick.

He says by the time the IRS will question it, you should have a corrected 1099-G.

The IRS did come out with guidance to the states that said: “No Forms 1099-G should be issued to those individuals the states have identified as ID theft victims.”

And how did that work out?

The IRS says to ask the state for a corrected 1099-G form.

We asked ESD what they can do to help, and I was told basically to check their website.

In other words, you’re on your own.

ESD representatives say they are still resolving thousands of fraud investigations and can’t give a timeline for resolution, a response, or a corrected 1099.

In part, their statement read:

“We had managed to investigate and resolve the majority--but not all--of the backlogged fraud reports before January 1, 2021. We placed priority for resolving these investigations for those who needed to receive benefits.”

“Unfortunately, we knew that people whose fraud reports hadn’t been resolved before January 1 would receive 1099s for benefits that may have been fraudulently paid in their names.”

I’m demanding that the state draft a letter to inform the IRS of its mistakes and send that to the people impacted by this. So they can have proof to show the IRS so they don’t pay for the state’s mistake.

And just this afternoon the office of Congresswoman Jaime Herrera Beutler informed me that immediate action is being taken.

She has drafted a letter to ESD urging the agency to review and fix incorrect information it has reported to the IRS that could further impact fraud victims.

If a 1099 in the mail is the first sign of identity theft, see our guide here on steps to take.

You can see more of our reporting on Washington’s pandemic unemployment crisis here:

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