The Internal Revenue Service (IRS) has issued a consumer alert regarding tax scams and inaccurate social media advice that led many taxpayers to file inflated refund claims this past tax season. The IRS is warning taxpayers warning taxpayers against falling for scams involving the Fuel Tax Credit, the Sick and Family Leave Credit, and household employment taxes.

The IRS has identified three primary scams that have resulted in numerous false refund claims:

1. Fuel Tax Credit: This credit is for off-highway business and farming use. Taxpayers must have a qualifying business activity, such as farming or purchasing aviation gasoline. Most taxpayers do not qualify for this credit.
2. Sick and Family Leave Credits: These credits were available for self-employed individuals in 2020 and 2021 during the pandemic. They are not available for 2023 tax returns. The IRS has seen instances where taxpayers incorrectly use Form 7202 to claim this credit based on employee income rather than self-employed income.
3. Household Employment Taxes: Taxpayers are filing false claims by inventing fictional household employees and using Schedule H to claim refunds based on wages they never paid.

Taxpayers who fall victim to these scams should verify their eligibility for the claims. They may face financial penalties, audits, or criminal action for improper claims. The IRS advises taxpayers to review guidelines, consult a trusted tax preparer, and file an amended return if necessary to avoid potential penalties.

IRS Commissioner Danny Werfel emphasized the importance of recognizing these scams:

“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. 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.”

Due to the questionable nature of these claims, the IRS has frozen refunds for affected taxpayers. Taxpayers will receive letters asking for additional information to verify their claims. Key steps include:

• Verify Identity: Taxpayers may receive a letter to verify their identity. If the return is accurate, check if the tax preparer signed it. Unsigned returns are a red flag.
• Amend Incorrect Claims: Use the IRS.gov tool “Should I file an amended return?” to determine if an amended return is necessary. Amended returns do not require a visit to a Taxpayer Assistance Center (TAC).

Taxpayers who received letters (IRS Notice 3176c) about potentially frivolous tax returns must submit documentation proving their eligibility for the credits. Incorrect claims can result in a penalty of up to $5,000 per return for filing a frivolous claim, audits, and potential criminal prosecution.

Legitimate taxpayers should provide documentation to support their claims. To avoid penalties and follow-up actions, taxpayers who incorrectly filed must promptly submit accurate tax returns without false claims. Consulting a trusted tax professional is also advised.

The IRS notes that all refunds are frozen on returns with bad claims, and taxpayers will not receive any portion of their refund, even if legitimate credits were claimed.

Taxpayers are urged to stay vigilant and avoid scams promising inflated refunds. Following the IRS guidelines and consulting trusted tax professionals will help ensure accurate tax filings and avoid potential penalties and legal issues. For more information, visit the IRS.gov tool “Should I file an amended return?” and consult with a trusted tax advisor.

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