June 15, 2024

A large number of taxpayers in metro Detroit and other cities are dealing with the aftermath of faulty tax advice offered during the last tax season. Consequently, tax returns are currently held up, and piles of IRS letters asking taxpayers to confirm their identities have been sent. Many will also need to resubmit their 2023 returns to resolve the resulting mess.

They may even need to return hefty refund amounts received when they incorrectly claimed dubious tax breaks promoted by unscrupulous preparers.

In addition, numerous people can’t access their due tax refund money or the additional refund cash from the incorrectly claimed tax credits until the situtation is sorted out; the IRS has flagged their returns as suspicious.

Misuse of Key Credits by Unethical Tax Preparers

On Tuesday, the IRS admitted that during the past tax season, “thousands of taxpayers” made excessive refund claims. Some of these taxpayers anticipated tax refund windfalls reaching into five figures.

In most cases, these extreme scenarios weren’t self-created but were spread by dishonest tax preparers during this tax season. The tax filers may have listened to a trusted acquaintance in the neighbourhood associated with a preparer who guaranteed them additional refund cash in excess of $10,000 or $20,000. Either they misunderstood, trusted the wrong preparer, or deliberately tried to defraud the system.

IRS Commissioner, Danny Werfel, stated, “Scammers continuously exploit people’s hopes, using the tax system’s complexity to convince them there are secret methods to secure a large refund.”

Indicators of such complex tax issues appeared a month ago when many taxpayers received a letter asking them to confirm their identity after claiming certain doubtful tax credits. The IRS flagged these claims as problematic.

Troubles Faced by Taxpayers in April

Crazy-lines formed outside IRS buildings at special Saturday events held on April 13 at various IRS Taxpayer Assistance Centers across the country like Detroit, Atlanta, Houston, and Miami, as reported by local TV stations and social media videos.

Many people interviewed on scene revealed that they came to the IRS centers for assistance after receiving letters to verify their identities. Many were frustrated for being unable to achieve anything due to the massive turnout. For example, the Houston office had to close early on April 13 due to a fight breaking out as hundreds of people trying to file their taxes and verify their identities were turned away.

The IRS did not offer to prepare returns at these events but provided walk-in hours on a Saturday to resolve other issues. Another no-appointment Saturday event is scheduled by the IRS to address other issues on May 18 in several cities, including the Detroit office.

Different IRS Notices

Taxpayers with doubtful returns might have received another type of IRS letter asking them to provide proof of their eligibility for specific tax credits. These letters, referred to as “IRS Notice 3176c”, are associated with potentially frivolous tax returns, involving incorrect claims for fuel tax credits, sick and family leave credits, and household employment taxes.

Taxpayers who confirmed their identity in-person might receive these letters, stated the IRS. Taxpayers who haven’t verified their identities yet and receive such letters asking for added documentation should adhere to the advice on the most recent letter.

Luis Garcia, an IRS spokesperson, advised that tax filers caught up in these “secret” tax techniques need to amend their returns as soon as possible to avert future tax issues. Taxpayers must file an amended return to eliminate false claims for these credits, to avoid potential penalties.

When the IRS suspects a potential case of identity theft or fraud, it sends a letter asking to verify the individual’s identity. This verification letter, is sent out regardless of whether improper credits were claimed.

Garcia advised, “If you received a letter from us asking to verify your identity and you know it is incorrect, do not visit a Taxpayer Assistance Center. Instead, amend your tax return to remove the wrongly claimed credit”. He further added that taxpayers are liable for the information provided on the tax returns that they sign.

It’s essential to remember that receipt of a letter pertaining to potential ID theft, doesn’t necessarily mean wrongful practices have been conducted by the taxpayer.

Frequently Asked Questions

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What should I do if I receive a letter from the IRS asking me to verify my identity?

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If you receive a letter from the IRS asking you to verify your identity and you know it is incorrect, do not visit a Taxpayer Assistance Center. Instead, amend your tax return to remove the wrongly claimed credit.

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What are signs of unprofessionism from the tax preparer?

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One huge red flag to look out for is whether your tax preparer actually signed on your return. Fraudsters usually avoid putting their signature on these returns.

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What are the potential penalties if I fail to amend my tax return after falsely claiming credits?

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Failure to file an amended return to remove false claims for these credits could result in the imposition of potential penalties.
The Taxpayer Advocate Service has reported that the Internal Revenue Service (IRS) is sending letters requesting identity verification. The processing of taxpayer returns and issuing of refunds will be delayed until this process is completed successfully. The taxpayer will receive a notice with instructions on how to authenticate their identity, this could be done online or by a direct call to the IRS. In special cases, taxpayers may be asked to visit a Taxpayer Assistance Center for in-person verification.

Misinformation spread through social media has fueled tax fraud this tax season. Fraudsters have misled the public into thinking they are entitled to hefty tax refunds. If you’ve applied for significant tax credits based on deceitful advice, you may be a victim of such scams, says the IRS. During its fraud review process, the IRS has spotted many fraudulent claims such as those for the fuel tax credit, the sick and family leave credit, and household employment taxes.

Many taxpayers are now trying to amend their returns. Several taxpayers have sought assistance to amend their 2023 returns after the IRS notified them of inaccurate tax credits. Angela Aaron-Benifield, the director of financial mobility services for the Wayne Metropolitan Community Action Agency, says that these taxpayers had their returns filed by paid preparers. However, since the original returns were not handled by Wayne Metro, the agency could not assist with amendments.

Beware, there has been a surge in bogus tax advice online, including TikTok videos. The IRS has notified the public about a hike in false fuel tax credit claims, which are typically meant for off-road business and agriculture use. Dishonest tax return preparers inflated refunds by falsely claiming the fuel tax credit, thus exposing honest taxpayers to a poor choice.

The IRS has installed new identity theft screening filters and processing systems that are stopping numerous suspicious fuel tax credit refund claims. Other scams involved false claims for Form 7202, a credit for individuals self-employed during 2020 and 2021 due to the pandemic, and falsely filing Schedule H for household employment taxes.

If you receive a letter from the IRS, do not ignore it. Regularly refer to guidelines for credits claimed and consult a trusted tax preparer to avoid penalties of up to $5,000 per return for frivolous claims.

If you are yet to file your 2023 tax return, be vigilant about these alerts and fall for no scams. For Michigan taxpayers affected by severe storms in August, the deadline to file federal individual and business tax returns and tax payments has been extended to June 17.

### FAQ
#### What happens if the IRS is requesting identity verification?
If the IRS sends you a letter requesting an identity verification, the processing of your return and the issuing of your refund will be delayed until you have successfully completed this process. You may be asked to do this online, by phone, or in-person.

#### What are some of the false tax claims detected by the IRS?
The IRS has detected numerous false claims like the fuel tax credit mainly meant for off-road businesses and farmers, the sick, and family leave credit, and household employment taxes. It has also pointed out that false credit for Form 7202 and falsely filed Schedule H tax returns are scams.

#### How can I avoid falling for tax scams?
If you receive an IRS letter, do not ignore it. Make sure to review the guidelines for any credits you’ve claimed. And always consult a trusted tax preparer and beware of false claims that could lead to penalties of up to $5,000 per claim.