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IRS Warns Of Tax Scams Leading To Inflated Refund Claims

A U.S tax form.

The IRS has warned over a series of scams and inaccurate advice on social media that led to thousands of people filing inflated refund claims.

U.S taxpayers are warned not to fall for the scams, which center around Fuel Tax Credit, the Sick and Family Leave Credit and household employment taxes.

The IRS says it has seen thousands of dubious claims where taxpayers are claiming credits they are not eligible for.

This leads to refunds being delayed and further investigation into whether the people have legitimate documentation to support these claims.

The advice from the IRS is to avoid false rumors which state there are ways of getting a huge refund.

Taxpayers are also warned they could face big fines, follow-up audits and even criminal action for submitting the false claims.

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People are advised to review the guidelines and talk to a trusted tax preparer.

The IRS says people may need to file an amended return to remove invalid claims to avoid potential penalties.

IRS Commissioner Danny Werfel said: "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.”

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Problem claims involve Fuel Tax Credit, Sick and Family Leave Credit, household employment taxes

The IRS has identified three common themes that continue to pop up among these bad refund claims.

They are:

  • Fuel Tax Credit: This specialized 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: This specialized credit is available for self-employed individuals for 2020 and 2021 during the pandemic; the credit is not available for 2023 tax returns.
  • Household employment taxes: Taxpayers “invent” fictional household employees to claim a refund based on false sick and family medical leave wages they never paid.

Werfel continued:

“These improper claims have been fueled by social media and people sharing bad advice.

“Scam artists constantly prey on people’s hopes and try to use the complexity of the tax system to convince people there are secret ways to get a big refund.

These three credits illustrate that it’s important to carefully review the tax return for accuracy before filing and rely on the advice of a trusted tax professional, not some fly-by-night preparer or a questionable source they hear on social media.”

Refunds are now frozen

The IRS has now frozen refunds for those who have submitted these claims.

Taxpayers whose refunds have been frozen will generally receive one of several letters from the IRS asking for additional information.

They may receive a letter asking them to verify their identity asking them a number of questions.

Taxpayers who initially received correspondence asking about their identity could receive an additional letter.

This is asking for additional documentation to show they actually qualify for the credits they claimed.

Legitimate taxpayers qualifying for these credits can submit documentation showing they actually qualify for the credit.

People who don’t qualify for these credits risk facing a penalty of up to $5,000 per return for filing a frivolous claim.

Those who knowingly filed a false tax return also face potential criminal prosecution.

More information can be found here.

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