The IRS issued IR-2024-139 in May warning about tax scams involving claims for the fuel tax credit, sick and family leave credit, and household employment taxes. These scams have caused numerous taxpayers to submit exaggerated refund claims for credits they are not eligible for, only to have their refunds delayed as the IRS conducts investigations.
Here's what you need to know:
Frozen Refunds: If your tax return includes any suspicious claims, the IRS will freeze your entire refund—even the legitimate parts—until you provide documentation to back up your claims.
Penalties and Audits: Filing an improper claim can result in penalties up to $5,000 per return. You might also face follow-up audits or, if the false claim was made knowingly, criminal charges. If you have discovered that your tax return includes improper credits, consult with a qualified CPA and consider amending your return to remove the ineligible claims as soon as possible.
Common Scams:
Fuel Tax Credit: This credit is meant for businesses that use fuel for off-highway purposes, like farming or aviation. Most taxpayers do not qualify.
Sick and Family Leave Credit: This credit was only available to self-employed individuals for 2020 and 2021 during the COVID-19 pandemic. It's not applicable to income earned as an employee.
Household Employment Taxes: Scammers may file false claims using Schedule H for fictional household employees to get refunds for sick and family leave wages they never paid.
Media Misinformation: Many scams are spread through social media, tricking people into thinking they can get large refunds that they may not qualify for. Always verify your information with a trusted tax professional rather than relying on unregulated sources.
What to Do If Your Refund is Frozen: If your refund is frozen, the IRS will typically send you a letter requesting additional information. Follow the instructions provided to resolve the issue. Or, if you need help deciphering the notice, consult with a trusted professional.
Ways to Protect Yourself
Double-Check Your Return: Review your tax return carefully before filing. Make sure all claims are accurate and legitimate.
Seek Professional Advice: Consult a trusted tax professional to ensure your return is correct and to get guidance on any credits you think you might be eligible for.
If you have questions, contact HFM today. Our professionals are well versed on the latest issues to provide our clients with professional, personalized services.