Home » Personal Finance

Falsely Claimed Tax Credits: What You Need to Do Now

Published on

The IRS received thousands of falsely claimed tax credits from taxpayers who were looking to score bigger refunds. To reduce such scams, the agency has put such refunds on hold, and has asked the taxpayers to submit additional documentation to support their claims.

Falsely claimed tax credits: what to do now

In a recent press release, the IRS noted that many taxpayers falsely claimed tax credits on their federal returns using inaccurate social media posts to receive more refunds.

According to the IRS, many influencers on popular social media platforms, including TikTok, encouraged taxpayers to falsely claim certain tax credits, such as the fuel tax credit, sick and family leave tax credit, the refund of household employment taxes paid, and more.

“Scam artists and social media posts have perpetuated a number of false and misleading claims that have tricked well-meaning taxpayers into believing they’re entitled to big, windfall tax refunds,” the IRS said in a press release.

Such claims were caught by the agency’s fraud review process. The agency, for now, has frozen these refunds, and has sent notices to such taxpayers to submit additional documents to back their claims.

Such taxpayers need to file an amended tax return to claim the correct refund. Taxpayers can visit the IRS.gov tool (Should I file an amended return?) to find out whether or not they need to file their amended return.

If a taxpayer fails to support their falsely claimed tax credits claim, they may be hit with penalties of up to $5,000. They may also face potential follow-up audits or criminal accusations for improper claims.

The IRS recommends taxpayers to review the guidelines or talk to a financial adviser when filing an amended return. According to the IRS, it won’t accept the amended return until the taxpayer submits the additional documents and the original return has been completed processing.

Delay in refund

Generally, when an agency suspects a fraudulent return, it doesn’t process the return; rather, it asks the taxpayers to identify their identity to ensure their return hasn’t been filed using stolen ID information.

Verifying IDs in such cases delays a tax refund. The delay in issuing such refunds is something the IRS has been criticized for in the past.

“Taxpayers who filed these claims should realize they’ve been tricked, and they face an extensive review process and a long potential wait if they’re owed a refund for other things,” the IRS said.

About 500,000 taxpayers still have Identity Theft cases pending with the IRS at the end of 2023. The average wait time in such cases is 19 months, according to an annual report from National Taxpayer Advocate Erin Collins in January.

The delay, however, is much shorter in cases where there is a discrepancy on a return and the IRS requests ID verification before issuing the refund.