5 Recent Scams and Frauds Businesses Should Avoid

That Letter or Email Looks Official - But Is It?

Business Scams and Frauds
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Business owners, like consumers, are subject to a number of scams and frauds. Being forewarned helps you to avoid this tricksters. In this article, we'll look at some of the most common recent scams and frauds against businesses or those trying to start a business. 

Update January 2017: The IRS has issued an alert for businesses that have employees, about a new phishing (false email) scam involving W-2s. The schemes are focused on company payroll departments, hoping to get personal information about employees.

The spoofing emails seem to be sent by company officials by name and they request individual W-2 forms for employees, and Social Security Numbers. Before you turn over sensitive personal information about employees, check with the person whose name is on the email. 

What is a Scam or a Fraud?

A scam, by the way, is defined as a "dishonest scheme." A fraud, on the other hand, has a more specific definition. According to Black's Law Dictionary, fraud is "knowing misrepresentation of the truth or concealment of a material fact to induce another to act to his or her detriment." 

The "Business Registration" Scam 

This scam affects small business owners who register their businesses with their state as an LLC, corporation, or partnership.

I recently moved my business registration to a new state. Within a few weeks, I received several pieces of mail - on the same day! Both were telling me I had to pay more to register my business. Not true! 

The first mail was from the "Labor Compliance Department" telling me I had to pay $84 to post a "current compliant labor law poster in the workplace." The letter spelled out the penalties and risks for non-compliance, including "potential fines in excess of $17,000 per instance."

Scary. But I didn't bite. First, I work at home alone, with no employees. Second, I can get the required posters free from the Department of Labor. 

The second mail was from the "Certificate Filing Service," telling me I had to "attain your elective Florida Certificate of Status and corporate agreement templates." This one would cost me $68.42. But I don't need this form. Again, I can get any forms I need from the state secretary of state for nothing or a very minimal charge.

Don't fall for scams like this. If you get something in the mail or through email that asks for money, look carefully. The sender must identify itself as "not a government agency." Do some research. I'll guarantee you'll find any required forms on the website of the appropriate agency. 

The Fake Employer ID Application Scam

In this scam, someone searches online for "employer ID number registration" and finds a site that appears to be the IRS and that "helps" complete the SS-4 form (the Employer ID Number (EIN) application). Then, at the end of the process, the user is required to register and pay to "submit" the application to the IRS. 

The EIN application form SS-4 is free. It may be completed online fusing the EIN Assistant on the IRS website, by phone, or by mail. You don't need a third party to help you with this application. 

The Fake OSHA Poster and other OSHA Scams

Every employer of one or more employees is subject to OSHA, and one of the primary requirements of OSHA is a poster at every workplace informing employees of their rights. Some tricksters take advantage of this requirement by trying to sell unsuspecting businesses a poster and sometimes a "kit" of required materials. But you can download the poster from the Internet for free, so don't waste y our time on this one. 

Other OSHA scams include an "inspector" claiming to be from OSHA and trying to get you to pay fines and penalties or OSHA kits. 

Fake Emails from the IRS

William Perez, Tax Planning expert, writes about phony emails purportedly from the IRS warning you of something. Since the IRS never contacts taxpayers by email, you can be pretty sure this one isn't for real.

William says these "scams often trick you into thinking you have a missing refund, are under criminal investigation, refers to a non-existent tax form, or asks for your credit card number."

 The Phony Cease and Desist Notice

This one isn't from a state or federal agency, but from an individual. The person claims to have trademarked a name similar to your business trademark and warns you that you must cease using the name. Of course, there is a threat of court, but the sender says you can avoid a trial by paying off the sender. 

Some of these notices are legitimate, but others are not. The fraudulent ones just want you to pay money. Before you do anything, contact your attorney and research carefully. 

How to Avoid These Scams and Frauds

In general, you can protect yourself and your business against fraud by knowing what to look for, checking the source of the information, and monitoring activity of employees and customers.  

Look for the tell-tale signs of a scam or fraud: 

  • Mis-spelled words, poor grammar, and odd capitals. 
  • An official-looking letter or phone call or visit. If it looks fishy, it probably is. 
  • Someone asking you to pay for something from a federal or state government. Most federal departments don't charge for documents. States do charge, but they are up-front about the charges. 
  • Check the exact name of the government-sounding entity online. 
  • Read the fine print. These scam artists should tell you they are not affiliated with the federal or state government, but it's usually in fine print. 

Information from the IRS on Scams and Frauds

If you receive unsolicited email or telephone calls from anyone purporting to be from the IRS, it’s probably a scam. Don’t click on any links; don’t answer any questions. Forward the emails or report the calls to phishing@irs.gov. You can check some of the recent tax fraud and identity theft issues on the IRS Tax Fraud page.