The IRS has warned that thousands of taxpayers could face jail time for filing false tax returns and collecting artificially high refunds.
The IRS’s chief concern, laid out in an alert filed Tuesday, is that some taxpayers were fooled by tax scams or just bad social media advice into filing false tax returns.
“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,” IRS Commissioner Danny Werfel said in a 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.”
Fueled by fake social media advice from scammers, #IRS has seen thousands of false claims on tax returns involving the Fuel Tax Credit, Sick and Family Leave Credit and Household Employment taxes. Learn more to make sure you don’t fall for these scams: https://t.co/Dyw4tK3Flf pic.twitter.com/LdZryzRLLH
— IRStaxsecurity (@IRStaxsecurity) May 14, 2024
Two of the credits that created the most problems this year are the Fuel Tax Credit and the Sick and Family Leave Credit.
The Fuel Tax Credit was designed for “off-highway business and farming use,” and taxpayers must have “a business purpose and a qualifying business activity such as running a farm or purchasing aviation gasoline” to collect the credit. The IRS admits “most taxpayers” don’t qualify.
As for the Sick Leave and Family Leave Credit, it was for self-employed individuals during the pandemic back in 2020 and 2023.
“[T]he credit is not available for 2023 tax returns,” the IRS notes. “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.”
#IRS Form 7202 Credit for Sick Leave & Family Leave for Certain #SelfEmployed Individuals Benefit Periods – @TaxSlayer
❗️⚠️ These credits expired during 2021 & will not be available for 2022 #taxreturns.
For #Tax Year 2021 ONLY #taxes #VetBiz https://t.co/hjmM1hXsSD pic.twitter.com/pbLsSYU52s
— VETBIZ RESOURCES (@VetBizResources) January 4, 2023
Speaking with Newsweek, University of Tennessee at Martin financial literacy instructor Alex Beene warned that those who were scammed could end up incurring serious costs.
“We’re seeing a record amount of scams targeting taxpayers, and the unfortunate results could end up costing those receiving refunds time, money, and much more,” he said.
“Various tax credits that help boost a refund make the rounds on social media, taxpayers pick up on the idea and file using the advice, and the IRS has to sort through claims that are incorrectly reported,” he added.
Werfel, for his part, believes that most people who were duped by the scam either saw it on social media or received “bad advice.”
“These improper claims have been fueled by social media and people sharing bad advice,” he said. “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,” he added.
Anyone who falsely filed a false tax return could likely have their bank account frozen, after which they most likely will receive a letter from the IRS asking for an explanation and additional information.
If the taxpayer is unable to prove that they’re qualified for the credit, they could face a fine of up to $5,000 per return.
Beene argued that most taxpayers can avoid getting ensnared in such a scenario by following the advice of a trained tax adviser or following the guidance of any virtual tax preparation service.
“Ignore the trendy credits on social media you may see, because most apply to business circumstances, not those of personal tax filers,” Beene said. “Most importantly, if you find yourself in a situation where you inaccurately reported something, it’s important to work with the IRS to clear up any inconsistencies immediately.”
“It’s pivotal the IRS understands this was an unintentional error and not one meant to take advantage of the tax code to get a larger refund,” he added.
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Author: Vivek Saxena
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