According to the IRS, since 2022, more than $162 million in penalties have been levied against taxpayers who fell victim to fraudulent social media tax schemes. Over 32,000 enforcement actions have occurred against those who filed erroneous, frivolous tax returns, most of which were based on misleading self-proclamations as “tax experts” using social media.
Many and frequent questionable tax refund claims were due to wrong posts posted by people on platforms such as TikTok masquerading as tax professionals with schemes of misusing legitimate tax credits. These were quoted by James Clifford, IRS director-return integrity and compliance services. “These schemes are misleading and costly to taxpayers. People following this advice can, at best, have their claims rejected while incurring a penalty of as much as $5,000 in addition to other penalties that might apply”.
The most common social media tax fraud scams
- Misrepresentation of the Fuel Tax Credit: The Fuel Tax Credit has turned out to be the most commonly misused tax benefit under social media misinformation today. This credit is not available to the normal individual taxpayer, but specifically for usage in farming and off-highway business. Yet, many viral posts have falsely claimed that “all taxpayers” may receive significant refunds through this credit, and thousands of taxpayers have filed claims incorrectly.
- Sick and Family Leave Credit Confusion: The other primary area of false claims is in the Sick and Family Leave Credit. This credit, made available during the pandemic, was only available for self-employed persons for tax years 2020 and 2021. Despite its limited scope and expiration, social media promoters still encourage people to claim it even for later years or employee income, resulting in denied refunds and penalties.
- New fictitious name for this legitimate but limited credit: “Self Employment Tax Credit.” Scammers promised payments up to $32,000 for anyone who would not even qualify. The IRS has issued specific warnings about this campaign that misled self-employed individuals and gig workers.
- False Forms W-2: Another common scam that encourages taxpayers to input dummy individual Form W-2s into tax software is the one about bogus income and withholding figures. The victim is induced to input a huge fictitious amount of income with the corresponding amount of withholding and then file electronically, hoping for a refund that sometimes reaches an old five figure amount.
How to spot tax scams on social media
The IRS is recognizing a few customs signs by which most taxpayers should understand that they can be counted as tax scams on social media:
- Universal eligibility claims: Posts that say “”everybody qualifies” for certain credits should arouse each and every suspicion, as most credits have precise eligibility specifications.
- Easy money promises: The scammers guarantee “easy” or “fast” refunds with minimal documentation, which contradicts the thorough verification process of the IRS.
- Amended return instructions: This is the same as the advice about filing amended returns where one never qualified for that credit.
- Ignoring IRS communications: The most dangerous advice are those instructing the taxpayer to ignore IRS letters or reply with lies, which can dramatically escalate penalties.
Dire consequences of bad advice
For example, taxpayers who file false claims inspired by social media will incur a range of very serious impacts, including:
- Civil penalties: The first effect is an immediate 5,000 civil penalty under section 6702 of Internal Revenue Code for filing frivolous returns.
- Refunds still pending or denied: Legitimate refund claims may be delayed pending investigation of fraudulent claims by the IRS, causing hardships to existing taxpayers waiting for a valid refund.
- Enhanced scrutiny: Filing dubious claims now leads taxpayers to increasingly become a focus for IRS examination and enforcement action that could potentially affect future tax filings.
- Criminal exposure: In extreme cases involving knowingly false returns, taxpayers can also face criminal penalties in addition to civil penalties.
Top most important tips on how to stay out of trouble
The IRS has the Directory of Federal Tax Return Preparers to help permit taxpayers from both ends to verify credentials and qualifications. All legitimate tax preparers must have a PTIN, and the qualified professional preparers must have other credentials, such as CPA, EA, or attorney licenses.
Ensure the tax professional has unlimited representation rights before the IRS during audit, payment issues, and appeals. Enrolled agents, CPAs, and attorneys possess such comprehensive representation rights.
Monitor official IRS social media accounts
The IRS now has official and verified social media accounts on various platforms, including X (formerly Twitter), YouTube, and LinkedIn. These accounts provide the latest and accurate information related to tax for taxpayers straight from the source. The agency, however, would never contact the taxpayer using social media.
Taxpayers should be particularly careful of those accounts claiming the IRS has no verification badges. The IRS has a special handle @IRStaxsecurity on X and specifically shares information on how to avoid some common scams in that platform.
Use Form 1040-X to correct mistakes
If taxpayers think that they have been misled by posting about the tax thing on a social networking site and therefore filed bad returns, they should file Form 1040-X: Amended U.S. Individual Income Tax Return immediately. This form fixes filing status, corrects income, deductions, and credits.
The amended return process requires gathering original tax documents, W-2s, schedules, and any supporting documentation for corrections. Taxpayers have generally three years from the original filing date or two years from when they paid any tax due to file amended returns seeking refunds.
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