Sunday, June 23, 2024

IRS warns audits and frozen refunds could impact thousands of taxpayers

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If you took advantage of a “pro tip” from social media as you figured out your taxes this year, you could be in for an IRS audit or a delay to your refund this year, the tax agency warned Tuesday.

The Internal Revenue Service, in an alert, said a series of tax scams and inaccurate social media advice had led thousands of taxpayers to artificially inflate their refund claims. The bad advice and scams centered mainly around the Fuel Tax Credit, the Sick and Family Leave Credit and household employment taxes.

“The IRS has seen thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, leading to refunds being delayed and the need for taxpayers to show they have legitimate documentation to support these claims,” the alert reads. “The IRS continues to urge taxpayers to avoid these scams as myths continue to persist that these are ways to obtain a huge refund.”

That could lead to steep financial penalties for people who are unable to show eligibility for the claim. Some could face follow-up audits and even criminal action for the claims.

The Fuel Tax Credit, the tax agency said, is designed for off-highway business and farming use and those who claim the credit need to have a qualifying business. Most taxpayers do not. Sick Leave of Family Leave credits were available in 2020 and 2021 for people who were self-employed, but were not offered in the 2023 tax year. The IRS says many people are trying to claim it anyway, even when they’re full-time employees at a workplace.

The issue of household employment taxes is a bit more fraud related than getting bad advice. The IRS says some taxpayers are creating fictional household employees, then attempting to claim a refund based on false leave wages that were never paid.

“These improper claims have been fueled by social media and people sharing bad advice,” IRS Commissioner Danny Werfel said. “Scam artists constantly prey on people’s hopes and try to use the complexity of the tax system to convince people there are secret ways to get a big refund. 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.”

Taxpayers whose refunds have been frozen for these claims will receive letters from the IRS asking for additional information. If they’re unable to supply that, they might need to amend their returns.

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