IRS: Be on the lookout for promises of inflated tax refunds

WASHINGTON — The Internal Revenue Service warned taxpayers today to be alert to unscrupulous tax return preparers boasting of inflated tax refunds, a common scam tactic during filing season.

Return preparers promising larger refunds than competitors or providing refunds substantially larger than taxpayers have routinely seen could be a warning sign.

The IRS has included this scheme on its 2019 Dirty Dozen list of tax scams. To help protect taxpayers against these threats, the IRS highlights one scam on 12 consecutive weekdays to help raise awareness.

Con artists promising overly large refunds frequently prey on older Americans and low-income taxpayers and those who don’t have a filing requirement. They may also victimize non-English speakers who may or may not have a requirement to file a tax return.

Scam artists can use flyers, advertisements, phony storefronts or word-of-mouth to attract victims. They may even make presentations through community groups or churches.

These unscrupulous individuals may dupe others into making claims for fictitious rebates, benefits or tax credits. They may also file a false return in their client’s name, and the client never knows that a refund was paid.

Cons may also target those with a filing requirement who are due a tax refund. This may be done by promising larger refunds based on fake Social Security benefits and false claims for education credits or the Earned Income Tax Credit (EITC), among others.

Those perpetrating these scams can face significant penalties and interest and possible criminal prosecution. To protect taxpayers, the IRS Criminal Investigation Division works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

Falsely claiming zero wages, filing phony Forms W-2, 1099

Filing a phony information return, such as those involving made-up Forms 1099 or W-2, is an illegal way to lower the amount of taxes owed. The use of self-prepared, “corrected” or otherwise bogus forms that improperly report taxable income as zero is illegal. So is an attempt to submit a statement rebutting wages and taxes reported by a third-party payer to the IRS.

Some people also attempt fraud using false Form 1099 refund claims. In some cases, individuals have made refund claims based on the bogus theory that the federal government maintains secret accounts for U.S. citizens and that taxpayers can gain access to the accounts by issuing 1099-OID Forms to the IRS.

Taxpayers should resist the temptation to participate in any variation of this scheme. The IRS is aware of this scam, and the courts have consistently rejected attempts to use this tax dodge. Perpetrators receive significant penalties, imprisonment or both. Simply filing this type of tax return may result in a $5,000 penalty.

The IRS sometimes hears about scams from victims worried about losing their federal benefits, such as Social Security, veterans or low-income housing benefits. The loss of benefits comes because of false claims being filed with the IRS that provided incorrect income amounts.