Taxpayers are being cautioned by the IRS to steer clear of new scams that intend to fraudulently increase tax refunds. A particular scheme making rounds on social media urges individuals to utilize tax software to complete a Form W-2 with fabricated details. Fraudsters persuade taxpayers to invent figures that indicate substantial income and corresponding tax withholdings. Afterward, they propose submitting an invalid tax return electronically to acquire a sizable refund based on the false withholdings.
Fabricating income is also employed as a means to exploit refundable tax credits that usually necessitate earned income for eligibility, such as the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC). This could serve as a motivation to falsify actual income earned. The IRS has also received reports of scammers advising taxpayers to submit Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, to request a credit based on income obtained as an employee instead of a self-employed individual. Although this was a credit implemented during the pandemic, it is not accessible for 2022 tax returns.
The IRS is keeping a close eye on these activities
Another fraudulent scheme entails taxpayers fabricating non-existent employees purportedly working in their household and utilizing Schedule H, Household Employment Taxes. Subsequently, taxpayers apply for a refund based on fabricated sick and family wages that were never paid in reality. Numerous such schemes are circulating widely on social media platforms. Furthermore, I have observed posts and reels proposing that one can assert their dog as a dependent (which is not valid) and classify personal expenses as tax-deductible by placing their home into an LLC (which could pose significant problems for various reasons).
According to the IRS, it is actively monitoring these types of schemes in collaboration with the Security Summit partners in the tax industry and the states. Additionally, the IRS collaborates with payroll companies and prominent employers, as well as the Social Security Administration, to authenticate Form W-2 details.
Consequences or sanctions imposed for violating tax laws
What is in jeopardy? If one makes a fraudulent claim or obtains a deceitful refund, they may face penalties and, in some cases, imprisonment. Previous scam victims have reported losing their Social Security benefits, specific veteran’s benefits, or low-income housing benefits after submitting tax returns with the IRS that included fabricated income figures.
To safeguard yourself, seek guidance on tax matters from reliable sources such as the IRS website and a qualified tax professional. Be wary of advice that seems too good to be true (it most likely is), and avoid sharing it, even if it appears humorous. Sharing such advice could unintentionally lead other taxpayers down a deceitful path.
If you have already engaged in one of these fraudulent schemes, you can still rectify the situation. The IRS emphasizes that taxpayers can modify a previous tax return or consult with a tax professional for further advice.