NJ: Don’t fall for fake tax credits — not from IRS

💲 The IRS has issued an alert about a series of scams and fake social media advice

💲 The advice leads to false claims for certain tax credits

💲 This has led to thousands of inflated refund claims during the past tax season

The Internal Revenue Service has issued an alert to New Jerseyans, and others across the nation, about a series of scams and inaccurate social media advice. These schemes have led to thousands of inflated refund claims during the past tax season.

The IRS is warning taxpayers not to fall for these scams centered around the Fuel Tax Credit, the Sick and Family Leave Credit, and Overstated Withholding, said IRS spokesman, John Fuld.

He said the IRS has seen thousands of dubious claims come in where it appears taxpayers are claiming credits for which they are not eligible, which in turn, has led to refunds being delayed, and taxpayers having to show they have legitimate documentation to support these claims.

While social media can connect people and information from all over the globe, unfortunately, sometimes, people provide bad tax advice and that can lure good taxpayers into trouble, Fuld said.

He added that the IRS is aware of various filing season hashtags and social media topics related to this fraudulent information.

Fuel Tax Credit

The Fuel Tax Credit is a tax credit claimed for various non-taxable use of fuel. It is meant for off-highway business, farming, aviation, and commercial fishing use.

“It is not available for most taxpayers, and what we’re seeing is that the social media instructs taxpayers to claim this credit despite them not being eligible for it,” Fuld said.

If you claim an amount of Fuel Tax Credit that is disproportionate to the income reported on the return or file a claim reflecting an impossible quantity of fuel for the occupation reported, you are subject to a penalty of $5,000 for each return claiming an improper credit.

Sick and Family Leave

This credit enacted in 2020, was meant to help the U.S. combat COVID-19 by providing small and mid-size businesses refundable tax credits that reimburse them dollar-for-dollar,
Social media influencers are encouraging taxpayers to claim these tax credits that they are not eligible for, and that will get them in trouble, Fuld said.

To be eligible for this credit, taxpayers must have a trade or business as defined in IRC 1402. They must claim only the eligible number of days or wages, and claim the credit based on qualifying self-employed income.

These credits were available for self-employed individuals to claim on their 2020 and 2021 tax year returns during the pandemic. They are not available to claim on the 2022 or 2023 tax year return.

Overstated Withholding Scam

Ther Overstated Withholding scam is a recent scheme circulating on social media encouraging people to use software to manually fill out a W-2 form, Wage and Tax Statement, or other information returns to include false income and withholding information, Fuld said.

In this scam, bad actors suggest people make up large income and withholding amounts as well as the fictional employer supplying those amounts. They then instruct people to file false tax returns electronically, in hopes of getting a big refund due to the large amount of fraudulent withholding.

“Now, I can tell you for a fact that the IRS verifies the withholding claims on tax returns, and taxpayers should always a complete and accurate tax return with legitimate information because we are checking,” Fuld said.

If the IRS cannot verify the wages, income or withholding credits, the tax refund will be held pending further review.

What if a taxpayer receives a letter from the IRS?

Taxpayers may receive a letter from the IRS identifying their tax return as requiring authentication and/or being potentially frivolous.

If a taxpayer receives one of these letters, Fuld said it is important that they follow the directions exactly on the correspondence.

“Basically, what is needed is to avoid the legal consequences of this, so they are going to give you the instructions and within 30 days of receiving the IRS letter or notice, they are probably going to ask you to submit an amended tax return for the tax period to fix this,” Fuld said.

It is important that taxpayers file an accurate tax return because the penalties are pretty stiff, he added.

“Make sure to monitor the information you’re getting and always be aware of the old adage of ‘if it’s too good to be true, it probably is,’ and to file an accurate tax return,” Fuld said.

People can go to the IRS website for more information. It’s important to file a tax return that’s accurate based on the information a taxpayer is getting from their employers or 1099s.

“We are watching and we are doing our best to make sure everyone has an accurate tax return,” Fuld said.

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