In a reminder to taxpayers everywhere, the IRS recently announced that it has assessed over $162 million in penalties on more than 32,000 individuals who filed false or frivolous tax credit claims promoted via social media. These false statements were frequently the result of deceptive posts claiming that everyone is eligible for special credits like the Fuel Tax Credit or Sick & Family Leave Credit. They weren't just innocuous errors. After reading this story, you will start to question yourself. Have you ever come across aggressive posts or ads promising easy refunds?
Let's examine what's happening, why it's important, and how to avoid these pitfalls. We will also outline the steps to take in such a situation.
What’s the Issue?
Misleading Social Media Claims
Since around 2022, an increasing number of so-called tax advice or refund opportunity campaigns have been promoted on social media sites like Facebook, Instagram, TikTok, and others, making the following claims:
- Anyone, regardless of income or business status, is eligible for certain tax credits.
- Even when there is no credit available, filing an amended return is another easy way to get refunds.
- Little to no documentation is required.
These claims are often shared by influencers or people posing as tax experts, but they are frequently incorrect or outright false. The IRS refers to many of these claims as “frivolous tax positions,” meaning they are not backed up by law or evidence.
Penalties
Because of these false claims:
- Over 32,000 penalties have already been issued.
- Total assessed penalties exceed $162 million.
- One of the specific consequences for filing a “frivolous” return is a civil penalty under Internal Revenue Code Section 6702, which can be up to $5,000, plus other penalties or interest.
Why It’s Not Just Harmless
These false claims don't just mislead or confuse; there are serious repercussions:
- Refunds are denied when the IRS determines a claim is frivolous.
- The fines and interest may accumulate.
- In the extreme cases, legal or criminal exposure may occur to some of them.
- Identity theft or abuse of personal information may also take place when using free-form advice with sources that are not verified.
Why the Problem Has Grown
Several factors have driven up the incidence of these social media–based tax scams:
- Viral reach: It is believed that posts on social media can go viral very fast, and most individuals believe that posts on social media that are made by influencers or sponsored by a company are credible.
- Complex tax regulations: Certain credits are available, such as the Fuel Tax Credit or the Sick and Family Leave Credit, the eligibility criteria of which are frequently simplified or misrepresented on the internet.
- Desire for quick refunds: Especially among people who believe they’ve overpaid taxes, there’s a strong pull toward anything that offers a “refund fast.”
- Low perceived risk: Many believe they won’t get caught or that, at worst, they’ll just have to pay back what they received. But IRS enforcement shows that penalties do happen.
What the IRS Is Doing
- Enforcement actions: Assessing penalties, denying refunds, auditing filings that took these false claims.
- Public warnings: The IRS is publishing guidance and reminders about what constitutes a frivolous position. They are alerting taxpayers to pay attention and verify any claim they see online. IRS
- Outreach: Encouraging people to report scams, to verify information via official IRS channels rather than social media, and to consult qualified tax professionals.
How to Avoid Becoming a Victim
If you’re a taxpayer, individual, or small business, here are some practical tips to avoid falling into these traps:
1. Verify before you act
Always cross-check with IRS.gov or consult a qualified tax professional before acting on something you saw on social media.
2. Watch for red flags
- “Everyone qualifies” or “100% guaranteed refund” slogans.
- Claims that documentation isn’t needed.
- Pressure to file something quickly.
- Advice to ignore IRS notices.
3. Understand your eligibility
Credits are regulated, there are income requirements, and events that qualify one to receive a credit, and in some cases, certain documents are also required. You do not qualify if you do not see them.
4. Be cautious with “free advice”
Unsolicited advice or volunteer assistance by a non-professional is more dangerous. Professional tax workers and the IRS can be more expensive, yet they provide legal advice and information verification.
5. Keep good records
If you do try something online, save screenshots, copies of the post, dates, and who you spoke to. If things go wrong, evidence helps.
What to Do If You’ve Already Filed with False Claims
If you discover you’ve filed a tax return or amended one based on misinformation, here are your steps:
- Consider amending your return using Form 1040-X to correct any false credit claim.
- Act on all IRS notices immediately. Never disregard letters, as they are usually given a chance to clarify or to correct.
- If this can be demonstrated, that you acted on correct, fair information, you can appeal or request abatement in cases in which you have paid or been fined.
- Always seek the advice of a tax expert, whether the circumstances are complicated or the fines are the cause of concern.
Implications for Tax Professionals & Businesses
This is a problem that affects more than just individual filers; it affects tax professionals, accounting firms, and businesses. There are wide-ranging ripple effects.
- Reputational risk: It speaks poorly of advisors or service providers if clients take bad advice and are penalized.
- Compliance burden: More scrutiny means more due diligence is required when preparing returns, especially for credits.
- Education opportunity: Professionals can differentiate themselves by helping clients understand rules clearly and avoid pitfalls.
- Staying updated: Tax laws, credit eligibility, IRS rules, and published “frivolous positions” lists evolve; professionals must keep up.
What This Means Moving Forward
- Social media platforms are likely to become more regulated or held accountable for misinformation when it comes to tax/credit claims.
- The IRS may increase public awareness campaigns and enforcement actions.
- Tax advice offered through social media will probably need clearer disclaimers, more documentation, and greater transparency.
- Individuals and businesses will need to be more discerning consumers of online content.
Final Thoughts
The IRS’s $162 million penalty action is a serious wake-up call. Social media may be powerful for spreading ideas, but when it comes to tax credits and refunds, it can also spread misinformation fast.
This has the following implications for various groups going forward:
- People should be mindful of offers for quick fixes. Consult reputable professionals or official IRS guidance.
- Tax professionals should work even harder to protect and educate their clients.
- Businesses should carefully consider how to craft marketing, promotional, or advisory content because even accidentally disseminating false information can have expensive repercussions.
Consult a qualified tax professional if you've been impacted by false tax credit advice or if you want to make sure your next return is accurate and compliant. Having integrity, records, and knowledge now will help you avoid fines, wasted time, and stress later.
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