Final answer:
When faced with business identity theft evidenced by a fake partnership return and fraudulent Schedule K-1, a business should immediately contact the IRS, report the incident to local authorities, place a fraud alert with credit bureaus, and seek professional advice.
Step-by-step explanation:
If a business encounters a situation where a fake partnership return has been filed and a fraudulent Schedule K-1 (Form 1065) has been issued, it is a clear indication of business identity theft. The next steps are crucial to mitigate the potential damage. The business should immediately contact the Internal Revenue Service (IRS). The IRS provides specific guidance for businesses that have experienced identity theft.
Furthermore, the business should report the incident to the local authorities and consider placing a fraud alert on the credit files of the business with the major credit bureaus. It would also be wise to consult with a tax professional or an attorney who deals with tax issues to explore what other steps should be taken to protect the business and its stakeholders.
Preventative measures should also be put into place to protect against future instances, which may include stronger security protocols, employee training, and monitoring services for any irregular activity involving the business's tax information.