IRS Warns Thousands of American Taxpayers of Potential Fines for Falling Victim to Online Tax Scams
The Internal Revenue Service (IRS) has issued a consumer alert regarding a series of tax scams that have led thousands of American taxpayers to file inflated refund claims during the past tax season. The IRS warned that individuals who fell victim to these scams could face fines of up to $5,000.
According to the IRS, scam artists and misleading social media posts have tricked well-meaning taxpayers into believing they are entitled to big tax refunds. The false claims primarily revolve around the Fuel Tax Credit, Sick and Family Credit, and household employment taxes, where taxpayers are claiming credits for which they are not eligible.
To address the questionable nature of these claims, the IRS has frozen refunds for these taxpayers and is requesting supporting documentation to prove eligibility for the credits. Those who are found to be ineligible for the credits may face penalties of up to $5,000 per return for filing frivolous claims. Additionally, inaccurate claims may result in an audit.
Taxpayers who knowingly file false tax returns also face potential criminal prosecution, with potential sentences of up to three years in jail and a $100,000 fine. Given the potential fines, the IRS is urging taxpayers who incorrectly filed for these claims to submit accurate tax returns without the ineligible claims as soon as possible. Seeking advice from a trusted tax professional is also recommended.
IRS Commissioner Danny Werfel emphasized that taxpayers who filed these claims should realize they have been tricked and may face a long wait for refunds they are owed for other reasons.
The Fuel Tax Credit is a specialized credit designed for off-highway business and farming use. Most taxpayers do not qualify for this credit, according to the IRS. Similarly, the Sick and Family Credit was available for self-employed individuals during the pandemic but is not available for 2023 tax returns. The IRS has seen instances where taxpayers incorrectly use the Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals form to claim a credit based on income earned as an employee, rather than as a self-employed individual.
In addition, some taxpayers have invented fictional household employees and filed false claims to obtain refunds based on fictitious sick and family medical leave wages they never paid.
Werfel attributed the rise in improper claims to scam artists preying on people’s hopes and using the complexity of the tax system to convince them they can receive large refunds. He emphasized the importance of carefully reviewing tax returns for accuracy before filing and seeking advice from trusted tax professionals rather than relying on questionable sources on social media.
The IRS’s warning comes after the agency collected approximately $4.7 trillion in taxes from Americans in the last fiscal year, down slightly from the previous year. The agency used supplemental funding provided under the Inflation Reduction Act (IRA) of 2022 to improve its operations, hire more enforcers and phone operators, and update its technology. Despite concerns about increased audits for taxpayers earning less than $400,000 per year, the IRS stated that there was no increase in audits for individuals below that income threshold.
Overall, taxpayers should be cautious of tax scams and seek reliable advice to avoid falling victim to fraudulent claims. By staying informed and working with trusted professionals, individuals can ensure they are accurately filing their tax returns and avoiding fines or potential criminal prosecution.
