Taxpayers ‘Tricked’ Into Filing for Ineligible Credits, IRS Warns

The Internal Revenue Service (IRS) building in Washington on Jan. 4, 2024. Madalina Vasiliu/The Epoch Times

The U.S. Internal Revenue Service (IRS) alerted taxpayers about a series of scams and misleading advice on social media that have led to thousands of people filing for unqualified credits and bigger tax refunds.

The scams are centered on three legitimate tax provisions—Fuel Tax Credit, the Sick and Family Leave Credit, and household employment taxes, the IRS said in a May 14 press release.

The provisions are only applicable to very special situations. However, the agency “has seen thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims.”

The agency “continues to urge taxpayers to avoid these scams as myths continue to persist that these are ways to obtain a huge refund.”

The Fuel Tax Credit is to be used for off-highway business and farming use. To be eligible, the taxpayer must have a business and a qualifying business activity like running a farm or buying aviation gasoline. “Most taxpayers don’t qualify for this credit,” the IRS said.

Credits for Sick Leave and Family Leave are only available for self-employed individuals for the pandemic years of 2020 and 2021. The agency said it was seeing instances of taxpayers trying to claim this credit despite being employees.

As to household employment taxes, the IRS accused taxpayers of inventing “fictional household employees” and seeking to claim a refund based on “false sick and family medical leave wages they never paid.”

“Scam artists and social media posts have perpetuated a number of false and misleading claims that have tricked well-meaning taxpayers into believing they’re entitled to big, windfall tax refunds,” said IRS Commissioner Danny Werfel.

“These bad claims have been caught during our fraud review process. Taxpayers who filed these claims should realize they’ve been tricked, and they face an extensive review process and a long potential wait if they’re owed a refund for other things.”

Americans who fell for these scams should verify their eligibility for the filed claim. If found to be ineligible, taxpayers could be on the hook for “steep financial penalties, potential follow-up audits or criminal action for improper claims,” the IRS warned.

The agency advised taxpayers to review tax guidelines and talk to a trusted tax preparer. In cases where they’ve filed for something ineligible, IRS asked taxpayers to file an amended return to avoid penalties.

Dealing With Tax Scams

Due to the questionable nature of many of the claims, the IRS has frozen refunds of such taxpayers. These individuals will receive a letter from the IRS seeking additional information.

“Initially, taxpayers may have received a letter asking them to verify their identity. In these situations, if they filed the return in question, they should review whether their tax return is accurate,” the agency said.

“For example, did they actually qualify for one of the three credits listed above? Or if they used a tax preparer, check to see if the preparer actually signed the tax return. When tax preparers don’t sign a tax return, it is a red flag that the taxpayer is being misled.”

Taxpayers who improperly claimed credit do not need to visit a Taxpayer Assistance Center (TAC) for identity verification. However, they have to amend their tax return and remove the improperly claimed credit.

“Taxpayers should use the IRS.gov tool ‘Should I file an amended return?’ to determine if they should amend their return. If they submit an amended return, they do not need to visit a TAC.”

People who get the IRS letter asking about their identity may also receive a letter seeking additional documentation to prove they truly qualify for the credits claimed.

If the claim is legitimate, the taxpayer can submit the documentation. Those who do not qualify risk being penalized up to $5,000 per return for filing a frivolous claim. Such people face the risk of an audit as well. Individuals who knowingly filed a false return may face criminal prosecution.

Offshore Scams

The IRS has earlier warned of similar scams targeting taxpayers. In April, the agency issued an alert about fraudulent offshore schemes.

The promoters lure Americans to place their assets in offshore accounts, claiming this puts it outside the reach of the IRS.

“These assertions are not true. The IRS can identify and track anonymous transactions of foreign financial accounts,” the agency said.

“Many of these schemes are promoted and advertised online, but all these schemes have one thing in common—they promise tax savings that are ‘too good to be true’ and will likely cause legal harm to taxpayers who use them.”

In February, the IRS warned about an email scam impersonating software providers seeking to steal critical information that gives hackers access to client data of tax preparers.

Scammers posing as tax software providers request electronic filing identification number (EFIN) documents from tax professionals, the IRS said.

The criminals claim that docs need to be verified so that tax preparers can send returns to the IRS. EFIN is assigned by the agency to tax preparers accepted into the e-filing program and signifies they’re an authorized IRS e-filing service provider.

Scammers seek to “steal client data and tax preparers’ identities, creating the potential for them to file fraudulent tax returns for refunds,” the IRS stated. The agency claimed to have received “dozens of reports” of such scams targeting tax professionals.