Social Media Isn’t a Trusted Source for Tax Advice (Clone)

The IRS has issued repeated warnings over the past year about inaccurate advice and outright scams circulating on such platforms by people without the proper credentials. Here are some recent bogus claims that businesses and individuals have fallen for, putting them at risk of costly civil and criminal penalties, interest, and fees.

Self-Employment Tax Credits

To be clear, there's no "self-employment tax credit" under current tax law. But that hasn't stopped nefarious promoters from marketing it on social media as a way for self-employed people to receive large payments for losses incurred during the pandemic. Their posts wrongly suggest that many people qualify for payments of up to $32,000.

The claims stem from a more limited tax break known as the sick leave and family leave credit. This legitimate credit generally was available to self-employed people who would've been eligible to receive the temporarily expanded qualified sick or family leave wages if they'd worked for an employer. However, the IRS has received tax returns from taxpayers claiming the credit based on income earned as employees, not as self-employed individuals.

Moreover, the credit applies only to narrow COVID-related circumstances in 2020 and 2021. Eligible taxpayers must have had one of various technical reasons that prohibited them from working during the covered period. For example, they must have needed to care for someone subject to a quarantine or isolation order.

Misuse of Forms

The IRS has identified multiple filing season hashtags on social media and posts involving the use of legitimate tax forms for the wrong reasons. One scheme, for example, relies on Form W-2, "Wage and Tax Statement."

The scheme encourages people to use tax software to manually complete the form with false information and then file it electronically. Scammers suggest taxpayers include large income and withholding figures, along with fake employer names, to obtain substantial refunds based on the falsified withholding amounts.

Schedule H (Form 1040), "Household Employment Taxes," is another subject of trickery. Misleading social media posts advise people to invent fictitious household employees and use the form to claim refunds based on false sick and family medical leave wages they never paid.

Social media users also may see "wildly inaccurate claims" regarding Form 8944, "Preparer e-file Hardship Waiver Request." For example, some posts indicate taxpayers can use it to receive refunds, even if taxpayers have balances due. However, the form is only for tax professionals who need waivers to file tax returns on paper instead of electronically. It's not a form that the average taxpayer should use.

Fuel Tax Credit

The fuel tax credit is legitimate, but it's available only for off-highway business and farming use, which puts it outside most taxpayers' use. The IRS is seeing a growing number of fictitious claims for the credit on Form 4136, "Credit for Federal Tax Paid on Fuels."

According to the IRS, unscrupulous promoters or tax return preparers mislead taxpayers about deductions for fuel use and create fake documents or receipts for fuel. They often charge high fees for filing false claims. Taxpayers should be aware that the IRS has intensified its scrutiny of fuel tax credit claims and those claiming it improperly are at risk of compliance action by the agency.

Employee Retention Tax Credit

Perhaps the most successfully promoted misuse of a tax break has centered around the Employee Retention Tax Credit (ERTC). This refundable credit generally was intended to help employers that continued to pay their employees when they were shut down during the pandemic or suffered major drops in gross receipts in 2020 and 2021. Eligible employers could potentially qualify for $26,000 in refunds per employee.

Scammers jumped on social media to promote far-fetched schemes, charging hefty fees to help employers claim the ERTC, regardless of whether they were eligible. Many weren't, due to the strict requirements.

The IRS received a flood of invalid claims, resulting in an almost year-long moratorium on the processing of new claims. After reviewing about 1 million filings, the IRS announced it would deny tens of thousands of erroneous claims. Its review of 2020 claims found more than 22,000 improper claims, resulting in $572 million in assessments against employers.

The good news is that the IRS is providing employers with some avenues for relief, including a withdrawal program. For a limited time (through November 22, 2024), the IRS provided a Voluntary Disclosure Program to some taxpayers. If you're uncertain about the legitimacy of an ERTC claim your business previously filed, contact your SSB tax advisor to assess your options.

Reach Out for Trusted Advice

The IRS regularly urges taxpayers to consult with an experienced, reputable tax professional before filing claims based on social media posts from untrusted sources. At the very least, remember that if a tax strategy seems too good to be true, it probably isn't legitimate.

©  2024