Thousands of taxpayers have been warned by the IRS that they could face criminal prosecution if they filed false tax returns in order to receive high refunds. The warning comes after the agency discovered numerous fraudulent claims for tax credits such as the Fuel Tax Credit, Sick and Family Credit, and household employment taxes.
In a press release issued on Tuesday, the IRS urged taxpayers to be cautious and not fall prey to tax scams that promise big refunds. They specifically warned against claims for the Fuel Tax Credit, which is meant for off-highway business and farming use, and requires a legitimate business purpose. Taxpayers must also have qualifying business activities, such as running a farm or purchasing aviation gasoline.
The Sick and Family Credit, which was made available for the years 2020 and 2021 in response to the pandemic, is also being fraudulently claimed by taxpayers. However, the credit was only meant for self-employed individuals during those years and not for employees. The IRS has noted that many taxpayers are incorrectly using Form 7202, which is for the Sick and Family Leave Credit, to claim the credit. This credit is not available for the year 2023.
In addition, taxpayers have been inventing fictional household employees to claim household employment taxes. These claims are based on false sick and family medical leave wages that were not actually paid. The IRS has linked these fraudulent claims to misinformation spread on social media and by untrustworthy tax preparers.
IRS Commissioner Danny Werfel has emphasized the importance of carefully reviewing tax returns for accuracy before filing taxes. He has also advised taxpayers to seek the advice of a trusted tax professional rather than relying on questionable sources on social media.
Taxpayers who have been flagged by the IRS for potentially submitting any of these credits fraudulently may have their refunds frozen until they resolve the issue. They may receive a letter from the IRS requesting additional information, such as identity confirmation, proof of eligibility for the credit, or details on the tax preparer used.
Taxpayers who have received a frozen refund may need to amend their tax return to remove the claimed credit. The IRS has also stated that taxpayers are not required to visit a Taxpayer Assistance Center to verify their identity.
Legitimate taxpayers who have been flagged for the credit but can provide supporting documentation for their eligibility can pass the review process. However, those who have claimed the credit without actually qualifying for it could face a fine of up to $5,000 per return. They may also be audited and face criminal prosecution.
As tax season approaches, the IRS is urging taxpayers to be cautious and only claim credits that they are truly eligible for. They also advise seeking advice from trusted professionals and being wary of information spread on social media. As these fraudulent claims continue to be discovered, the IRS will continue to take action to protect honest taxpayers from falling victim to these scams.
