Tax Credit Refund Scam: What Taxpayers Need to Know in 2025

by Mary Varano
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Tax credits are designed to reduce tax burdens for certain expenses. Unfortunately, there is also a lot of misinformation online when it comes to who is eligible for these credits and how much can be claimed. One particularly pervasive scam is rearing its ugly head again and involves scammers encouraging taxpayers to claim credits they’re not eligible for.

Ghost Preparers Hawking False Credits

Last year, the IRS issued a consumer alert to inform taxpayers about a series of scams that has reportedly led thousands of taxpayers to file fraudulent credit claims on their tax returns. This scam is popping up again in 2025.

In most cases, taxpayers are led to believe that they are eligible for credits by so-called “ghost preparers” who pose as tax professionals. In other cases, social media posts circulate that lead people to believe they are eligible for credits when, they do not meet the eligibility requirements and do not have proper documentation to support their claims.

The most common tax credits that seem to be involved in this scam include the fuel tax credit, credits for sick and family leave and household employment taxes. Scam artists posing as tax professionals often convince taxpayers that they are eligible for these credits as a means of charging them for tax guidance or return preparation.

IRS Response

For those who fraudulently claim these credits without proper documentation or cause, the ramifications could be severe. The IRS usually freezes tax refunds for taxpayers who mistakenly file these claims. Unfortunately, this means that even well-meaning taxpayers who were scammed could have their tax refunds frozen for an indefinite period of time. From there, affected taxpayers need to follow very specific steps to resolve the issue and avoid potential fines or penalties.

What Taxpayers Need to Do

The IRS notifies any taxpayers whose refund has been frozen by letter. This letter should detail exactly what steps need to be followed to resolve the issue. This may include sending in additional documentation.

If the taxpayer does not have the necessary documentation because they were not actually eligible for the credit(s) in the first place, it may be necessary for the taxpayers to amend their returns and remove the credit claims. Failure to file an amendment and follow the instructions on the IRS letter could result in hefty penalties of up to $5,000 per return, so it is important to take this seriously. It is also worth noting that taxpayers who need to amend returns or who file suspected fraudulent returns could be more likely to be audited.

As part of the return amendment process, taxpayers will also need to go through an authentication process. This usually includes a simple verification of the taxpayer’s identity in the form of a driver’s license or other ID. Once the verification step is completed, the amended return can proceed.

When in Doubt, Consult with a Professional

For those who have already filed returns and have claimed these credits, now is the time to make sure documentation is available to substantiate these claims. If not, then there is a chance that these taxpayers may have been victims of this scam. Action needs to be taken quickly upon receiving an IRS notification so as to potentially avoid penalties and audits.

This situation can be stressful and complex, which is why it is so important to consult with an experienced and legitimate tax professional when filing a return (or amended return). From there, it is possible for taxpayers to receive the guidance they need in filing their taxes correctly the first time while claiming any and all credits to which they may actually be eligible.

Corrigan Krause Can Help

The Corrigan Krause Tax Team is here to help you navigate tax season in 2025 and beyond. Click here to request more information about becoming a Corrigan Krause client and sign up for our newsletters.

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