(TND) — The IRS this week warned of tax scams and inaccurate social media advice that could land taxpayers in hot water.
The IRS said it has found thousands of dubious claims sharing common themes.
People who seemingly aren’t eligible claimed legitimate, but limited, tax credits.
Many of the claims involve the fuel tax credit, the sick and family leave credit, and household employment taxes.
Myths persist that these are ways to obtain a huge refund, according to the IRS.
But taxpayers with false or frivolous claims risk a penalty of up to $5,000 per tax return, an audit or even potential criminal prosecution, the IRS warned.
“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 news release. “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.”
Pete Sepp, president of the nonprofit National Taxpayers Union, said Wednesday that such scams are nothing new. But the details “shift depending on what scammers think they can target in a given year.”
“Every year, the IRS warns taxpayers that if a certain deduction or credit or tax strategy sounds too good to be true, it may very well be too good to be true,” Sepp said.
Misinformation on social media leads more taxpayers to think they qualify for something when they really don't, he said.
“Part of the problem with these scams is that almost all of them contain just a kernel of truth,” Sepp said.
The fuel tax credit, for example, is for farm machinery or vehicles a person operates on a business site.
It’s a real credit, but most people don’t qualify.
The sick and family leave credit was available for self-employed people for 2020 and 2021 but not for 2023 tax returns. And the IRS said it appears some taxpayers incorrectly claimed the credit based on income earned as an employee and not as a self-employed person.
With household employment taxes, the IRS said some taxpayers used fictional household employees to claim a refund based on false sick and family medical leave wages they never paid.
Why are taxpayers falling victim to such scams or misinformation?
“More than anything else, there's confusion over what the tax code says and how it applies to each individual,” Sepp said. “When you throw in the complexity of the tax system itself, which costs Americans more than 6 billion hours a year of their time just to comply with, it becomes easier to understand why people fall for scams like these.”
The IRS has frozen the refunds for these taxpayers and sent them letters asking for additional information.
Legitimate taxpayers qualifying for these credits can submit supporting documentation.
In some cases, taxpayers can file an amended return to remove claims for which they’re ineligible to avoid penalties, the IRS said.
Sepp offered some advice for people to avoid such scams.
“One of the best things you can do is avail yourself of tax software that asks you the questions that you need to answer in order to qualify for specialized deductions like these,” he said.
Get a tax professional for help. Look for one who's associated with the American Institute of CPAs or perhaps the National Association of Enrolled Agents, he said.
If you can't afford those, go to the IRS' Volunteer Income Tax Assistance program or a low-income tax clinic in your area.
“The volunteers there are very, very sharp,” Sepp said. “They won't steer you in a bad direction.”
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