More About the Scam
In May of 2024, the IRS issued a consumer alert to inform taxpayers about a series of scams that has reportedly led thousands of taxpayers to file fraudulent credit claims on their tax returns.
In most cases, taxpayers were led to believe that they were eligible for these credits by so-called “ghost preparers” who posed as tax professionals. In other cases, social media posts were circulated that led people to believe they were eligible for credits when, in reality, they did not meet the eligibility requirements and did not have proper documentation to support their claims.
The most common tax credits that seem to be involved in this scam include the fuel tax credit, credits for sick and family leave and household employment taxes. Scam artists posing as tax professionals often convince taxpayers that they are eligible for these credits as a means of charging them for tax guidance or return preparation.
IRS Response
For those who have fraudulently claimed these credits without proper documentation or cause, the ramifications could be severe. Currently, the IRS is freezing tax refunds for taxpayers who have mistakenly filed these claims. Unfortunately, this means that even well-meaning taxpayers who were scammed could have their tax refunds frozen for an indefinite period of time. From there, affected taxpayers will need to follow some very specific steps to resolve the issue and avoid potential fines or penalties.
What Taxpayers Need to Do
For taxpayers who have recently claimed any of these credits and are wondering whether they are affected, the first thing to keep in mind is that the IRS is notifying all taxpayers whose refunds have been frozen. In other words, taxpayers do not need to worry unless they have received a letter directly from the IRS.
For those who are affected, this letter should detail exactly what steps need to be followed to resolve the issue. This may include sending in additional documentation—although, in many cases, taxpayers will not have this documentation because they were not actually eligible for the credit(s) in the first place.
If this is the case, it may be necessary for taxpayers to amend their returns and remove the credit claims. Failure to file an amendment and follow the instructions on the IRS letter could result in hefty penalties of up to $5,000 per return, so it is important to take this seriously. It is also worth noting that taxpayers who need to amend returns or who file suspected fraudulent returns could be more likely to be audited.
As part of the return amendment process, taxpayers will also need to go through an authentication process. This usually includes a simple verification of the taxpayer’s identity in the form of a driver’s license or other ID. Once the verification step is completed, the amended return can proceed.
When in Doubt, Consult with a Professional
For those who have already filed returns and have claimed these credits, now is the time to make sure documentation is available to substantiate these claims. If not, then there is a chance that these taxpayers may have been victims of this scam. Action needs to be taken quickly upon receiving an IRS notification so as to potentially avoid penalties and audits.
This situation can be stressful and complex, which is why it is so important to consult with an experienced and legitimate tax professional when filing a return (or amended return). From there, it is possible for taxpayers to receive the guidance they need in filing their taxes correctly the first time while claiming any and all credits to which they may actually be eligible.
Contact Frankel to learn more about how we can support you and your business at www.frankel.cpa or call us at (402) 469-9100.
