The IRS has encountered a significant number of falsely claimed tax credits from taxpayers attempting to secure larger refunds. In response, the agency has put these refunds on hold and requested additional documentation to verify the claims.
In a recent announcement, the IRS highlighted that many taxpayers have been influenced by misleading social media posts to claim inaccurate tax credits on their federal returns. Popular platforms like TikTok have seen influencers encouraging the false claims of credits such as the fuel tax credit, sick and family leave tax credit, and the refund of household employment taxes paid, among others.
“Scam artists and social media posts have spread numerous false and misleading claims, leading taxpayers to believe they’re entitled to large, windfall tax refunds,” the IRS stated.
These fraudulent claims were detected through the IRS’s fraud review process. The agency has currently frozen the refunds in question and has sent notices to the affected taxpayers, instructing them to provide additional documentation to substantiate their claims.
Taxpayers involved in this issue need to file an amended tax return to correct the refund amount. The IRS offers an online tool, “Should I file an amended return?” on IRS.gov to help taxpayers determine if they need to submit an amended return.
If a taxpayer is unable to support their falsely claimed credits, they could face penalties of up to $5,000. Additionally, they may be subject to further audits or even criminal charges for submitting improper claims.
The IRS advises taxpayers to carefully review the guidelines or consult a financial adviser when filing an amended return. The agency will not accept the amended return until the taxpayer submits the necessary documentation, and the original return has been processed.
Refund Delays
Typically, when the IRS suspects a fraudulent return, it suspends processing and requires taxpayers to verify their identity to ensure the return was not filed using stolen ID information. This verification process can lead to delays in receiving tax refunds, an issue for which the IRS has faced criticism.
“Taxpayers who filed these claims should understand that they’ve been misled, and they may face a lengthy review process and a significant wait if they are owed a refund for other legitimate claims,” the IRS noted.
At the end of 2023, approximately 500,000 taxpayers had unresolved Identity Theft cases with the IRS, with an average resolution time of 19 months, according to a report by National Taxpayer Advocate Erin Collins.
However, delays are generally shorter in cases where there is a discrepancy on a return, and the IRS requests identity verification before issuing the refund.