The Internal Revenue Service cautioned consumers to beware of tax scams spread by social media that prompted thousands of taxpayers to file overblown claims and held up their tax refunds.
The scams center around the Fuel Tax Credit, the Sick and Family Leave Credit, and household employment taxes. The IRS said it's received thousands of dubious claims in which taxpayers seem to be claiming tax credits for which they're not eligible. The tax refunds are being delayed and taxpayers now need to demonstrate they have legitimate documentation to support their claims.
Fuel Tax Credit Scams
The Fuel Tax Credit is supposed to be for off-highway business and farming use, and taxpayers need to have a business purpose and a qualifying business activity such as running a farm or buying aviation gasoline to be eligible to claim. Most taxpayers don't qualify for this credit. A recent report from the Treasury Inspector General for Tax Administration also found problems with the IRS's ability to spot questionable claims for tax credits for biofuels such as biodiesel.
Misuse of the Sick and Family Leave Credit
The Sick and Family Leave Credit was available for self-employed individuals for 2020 and 2021 during the worst years of the pandemic, but it's not available for 2023 tax returns. Nevertheless, the IRS said it's 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.
Household Employment Tax Scams
The IRS is also seeing tax scams related to household employment taxes in which taxpayers create fictional household employees and then file Schedule H (Form 1040), Household Employment Taxes, to claim a refund based on false sick and family medical leave wages they never paid in the first place.
Impact of Social Media on Tax Scams
The IRS blamed social media for inspiring people to try out these misguided tax strategies. "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 in a recent statement. "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."
Resolving Issues with Tax Scams Spread by Social Media
The IRS said taxpayers would now need to follow several specific steps to resolve these issues, and many of them will probably need help from reputable tax professionals. Taxpayers whose tax refunds have been frozen will typically receive one of several letters from the IRS asking for additional information. They may initially receive a letter asking them to verify their identity. If they filed the return, they should review whether it's accurate and if they actually qualified for one of the three credits listed above. If they used a tax preparer, they should check to see if the preparer actually signed the tax return. When tax preparers don't sign a tax return, that's a red flag that the taxpayer is being misled by a so-called "ghost preparer."
Consequences of Incorrect Tax Claims
Taxpayers who improperly claimed these credits don't need to visit a Taxpayer Assistance Center to verify their identity, but they may need to amend their tax return to remove the improperly claimed credit. The IRS advised taxpayers to 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.
Some taxpayers who initially received a letter asking about their identity may receive another letter asking for additional documentation to show they actually qualify for the credits they claimed. Taxpayers who verified their identity in-person may receive these letters. Taxpayers who haven't verified their identity yet and receive one of these letters asking for additional documentation should follow the advice on the most recent letter.
These letters – IRS Notice 3176c – apply to potentially frivolous tax returns, including incorrect claims for Fuel Tax Credits, Sick and Family Leave Credits, and household employment taxes.
Legitimate taxpayers who genuinely qualify for these tax credits can submit documentation showing they actually qualify. But those who don't qualify for these tax credits risk facing a penalty of up to $5,000 per return for filing a frivolous claim. Taxpayers sending inaccurate claims also face the risk of a tax audit, and those who knowingly filed a false tax return also face the prospect of potential criminal prosecution.
Financial misinformation online is an ongoing problem. Tiktok especially has been responsible for the spread of many pernicious tax myths, which experts must repeatedly debunk.
Be Aware and Watch Out for These New Tax Scams Spread by Social Media!
Try not to be fooled or taken in by these new scams. Review everything carefully and if anything doesn't add up, let the IRS and TIGTA know. And you can let us know too! My Team and I are always here to help. And if you get any kind of notice from the IRS – or find yourself on their radar in any way – please don't ignore it! Contact me or any member of my Tax Problem Solver team for help, and we'll start the ball rolling to solve whatever is going on.
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