The IRS has issued an alert about a series of tax scams and inaccurate social media advice. Such scams have prompted thousands of taxpayers to file erroneous claims, delaying their refunds.
These scams concern the Fuel Tax Credit, the Sick and Family Leave Credit and household employment taxes. The IRS said that it has seen thousands of dubious claims come in where it appears that taxpayers are claiming credits for which they are not eligible. As a result, refunds have been delayed and taxpayers have had to show that they have legitimate documentation to support these claims.
These taxpayers may have fallen for bad social media advice and “ghost preparers.” Taxpayers who have been victimized need to follow a series of steps to verify their eligibility for the claims. Some taxpayers could also face steep financial penalties, potential follow-up audits or criminal action for filing improper claims. The IRS encourages taxpayers to review the guidelines, talk to a trusted tax preparer and, in some cases, file an amended return to remove claims for which they’re ineligible to avoid potential penalties.
The Fuel Tax Credit is designed for off-highway business and farming use. Taxpayers need a business purpose and a qualifying business activity, such as running a farm or purchasing aviation gasoline to be eligible for the credit. Most taxpayers don’t qualify for this credit.
Credits for Sick Leave and Family Leave are available for self-employed individuals for the years 2020 and 2021, during the pandemic; the credit is not available for 2023 tax returns. The IRS is seeing repeated instances where taxpayers are incorrectly using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to incorrectly claim a credit based on income earned as an employee and not as a self-employed individual.
Some taxpayers have also invented fictional household employees, then filed Schedule H (Form 1040), Household Employment Taxes, to claim a refund based on sick and family medical leave wages that 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.”
The IRS has previously warned taxpayers about tax advice given on sites such as TikTok.
In light of the questionable nature of many of these claims, the IRS has frozen the refunds for taxpayers with improper claims and advised them to follow several specific steps to resolve these issues, such as filing an amended return or talking to a trusted tax professional.
Taxpayers whose refunds have been frozen will generally receive one of several letters from the IRS asking for additional information.
To avoid penalties and potential follow-up action by the IRS, taxpayers who incorrectly filed for these claims need to promptly submit an accurate tax return without the claims, the IRS stated. Taxpayers can visit 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 an IRS Taxpayer Assistance Center. Taxpayers in this situation can also consult a trusted tax professional for advice.