IRS warns taxpayers: Social media advice can lead to costly penalties

Social media can be costly for taxpayers who turn to it for advice on filing returns, the IRS reiterated Monday.

Since 2022, the IRS has seen a surge in questionable refund claims, singling out the fuel tax credit and the sick and family leave credit as ones that attract fraudulent claims. It has imposed over 32,000 penalties, totaling $162 million, James Clifford, IRS director of Return Integrity and Compliance Services, said in a news release.

“These schemes are not only misleading but can cost taxpayers dearly,” Clifford said. Taxpayers face the possibility of rejected claims and a penalty of up to $5,000 for filing a frivolous return under Sec. 6702, plus other possible penalties, the IRS said.

The IRS first included social media advice as a stand-alone item on its annual Dirty Dozen list — which highlights 12 common tax scams — in 2020. But it warned against social media as a part of other scams, such as phishing, at least as far back as 2011.

“The IRS has warned about social media scams for many years, including variants aimed at tax-related identity theft,” said Terry Lemons, former communications and liaison chief for the IRS who started the Dirty Dozen list in 2002, said in an email to the JofA. “But a jump in activity as the pandemic started prompted social media’s inclusion as a stand-alone item in 2020. The concerns continued to accelerate in the last few years, including scams like the fuel tax credit.

“Given that concerns were growing from tax pros during this period about clients being misled by social media, it was important to include these scams in the Dirty Dozen.”

In a speech at AICPA & CIMA ENGAGE in 2024, National Taxpayer Advocate Erin Collins singled out TikTok as particularly problematic for fraudulent tax advice because federal government employees are banned from even seeing its posts.

“We are prohibited from going into TikTok as a federal agency, so how do you counter a social media site that you can’t go into?” she asked. “We’re not supposed to even see what’s in there.”

Warning signs of scams

The IRS noted the following typical traits of social media scams:

• Posts that claim everyone qualifies for certain tax credits.
• Promises of an “easy” or “fast” refund with minimal documentation.
• Instructions to file amended returns, even if you did not originally qualify for the credits.
• Encouragement to ignore IRS letters or respond with false information.

Taxpayers who believe they have been misled or filed an incorrect return should:

• Amend the tax return as soon as possible using Form 1040-X, Amended U.S. Individual Income Tax Return.
• Respond promptly to any IRS letters or notices.
• Seek help from a reputable tax professional or official IRS resources at IRS.gov.

— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.