Taxpayers Misled By Social Media File False Returns In Search Of Bigger Refunds, Says IRS

Thousands of U.S. taxpayers have falsely claimed tax credits on their federal returns based on inaccurate tips in social media posts, the IRS has announced. The agency said the suspicious advice appears to be aimed at people looking to score larger refunds.

Influencers on TikTok and other social media channels encouraged taxpayers to say they qualify for certain tax credits. The tax scam advice targets the fuel tax credit, sick and family leave tax credit and the refund of household employment taxes paid, the IRS said. The improper claims were caught by the agency’s fraud review process.

The agency has frozen these refunds and asked the taxpayers to show additional documentation to support their claims. Taxpayers who fail to correct fabricated tax returns could be hit with penalties of up to $5,000, audits or criminal prosecution.

Alton Bell II, founder of Bell Tax Accountants & Advisors in Chicago, warns taxpayers to exercise caution when considering tax advice shared on social media.

“Although the advice may sound advantageous in general, it will be in your best interest to confirm if it applies to your tax situation by consulting with a tax professional,” says Bell.

What To Do if You Were Misled

Filers who made dubious claims to these tax credits will not receive any tax refunds for now. The IRS is notifying them that their tax returns are questionable, asking them to verify their identity and urging them to resolve dubious claims soon.

Taxpayers who receive the notices should review their tax returns for accuracy and confirm, with documentation, that they qualify for the tax refund claimed.

These taxpayers can file an amended tax return to claim the correct tax due or refund amount.

Which Credits Are Used in the Scam?

According to the IRS, the tax claims in question involve credits for fuel use, sick and family leave and wages for imaginary employees. Here’s why claiming those credits may be bogus:

  • Fuel tax credit. To qualify for the fuel tax credit, a taxpayer must have a business purpose and a qualifying activity, such as running a farm. Taxpayers can use Form 4136, “Credit for Federal Tax Paid on Fuels,” to claim it. The agency says most taxpayers won’t qualify because the credit is available only for off-highway business and farming use.
  • Sick and family leave credit. Self-employed taxpayers may claim a credit for sick and family leave for 2020 and 2021 if they missed work days due to Covid-19 or the need to quarantine. Some taxpayers may be eligible if they had to take time off to help a family member. However, the IRS is questioning returns where taxpayers incorrectly use Form 7202, “Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals,” to report their employee wages and claim the credit.
  • Refunds of taxes not paid. Some taxpayers have created fictitious household employees and then filed Form 1040’s Schedule H, “Household Employment Taxes.” The purpose: to claim refunds based on wages they never paid during the imaginary workers’ sick and family leave.

IRS notices may also ask the recipients whether they themselves filed the tax return. If not, says the agency, it’s important to review the tax return to ensure the paid preparer signed it. The lack of a preparer’s signature on the return is considered an indication that the taxpayer’s claim could be questionable.

“Scam artists…try to use the complexity of the tax system to convince people there are secret ways to get a big refund,” said IRS Commissioner Danny Werfel in a public statement. “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.”

Bell urges individuals to consult the IRS website’s Tax Professional Directory tool to ensure that they hire a credible tax professional. “Taxpayers should search for a tax professional with credentials such as certified public accountant (CPA) or enrolled agent (EA),” he says.

What To Do if Your Tax Preparer Made a Mistake–or Falsified Your Return

Your tax return may contain these or other mistakes. If you believe that your tax preparer is responsible for incorrectly claiming tax credits, you may wish to file a complaint about them with the IRS. Use Form 14157, “Complaint: Tax Return Preparer.”

Sometimes, troublesome claims aren’t accidental. If you believe the preparer intentionally claimed credits you’re not entitled to, you can report them for fraud by also submitting Form 14157-A, “Tax Return Preparer Fraud or Misconduct Affidavit.”

You should mail these completed forms with all your supporting documentation to the IRS. If you received a notice from the agency about this matter, you should include a copy of that letter and send your paperwork to the address found there.

Without an IRS notice, you should mail the forms and documentation to the address where you ordinarily send your Form 1040.

You may also want to consult a tax attorney for additional support, especially if you’re facing expensive consequences.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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