Report tax fraud schemes If you think you took part in a questionable tax scheme with a tax promoter or preparer, report it to us . We have increased our compliance efforts against false claims of refundable credits on tax returns. Be aware of abusive tax schemes and tax return preparers. Don’t fall victim to tax fraud schemes Taxpayers taking part in any questionable tax scheme should be aware the IRS has increased its compliance efforts related to falsely claiming refundable credits. Be aware of abusive tax schemes and tax return preparers. What this letter is about We received a frivolous tax return where there’s no basis in the law for the position or there’s an attempt to delay or impede administration of the tax laws. If we don’t receive a response as directed in Letter 3176C, we'll assess a $5,000 penalty against you. What you need to do You must respond within 30 days from the date on the letter or contact IRS to request an extension. The letter will instruct you to send one of the following: Corrected tax return (Form 1040-X, Amended U.S. Individual Income Tax Return). Signed request to withdraw your frivolous position. Signed declaration/jurat statement. Documentation to support the items under review on your tax return. You may want to We encourage you to refer tax law related questions to a tax professional. Learn how to choose a tax return preparer PDF. Current schemes and scams The IRS has seen an increase in emerging schemes including credits on: Form 4136, Credit for Federal Tax Paid on Fuels Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals Overstated withholding on Forms W-2 and Forms 1099 Fuel tax credits The fuel tax credit (FTC) is claimed on Form 4136 and is meant for off-highway business and farming use, aviation, and commercial fishing and, as such, isn’t available to most taxpayers. Improper claims for the credit Tax returns requesting an amount of FTC that are: Disproportionate to the income reported on the tax return, or Large amounts of fuel for the occupation reported, are considered frivolous. Sick and family leave credits The sick and family leave credit is claimed on Form 7202. Eligible self-employed individuals are allowed a credit against their federal income taxes for any taxable year equal to their “qualified sick leave equivalent amount” or “qualified family leave equivalent amount.” Improper claims for the credit Taxpayers use the Form 7202 to claim a credit based on income earned as an employee and not as a self-employed individual. These credits were available for self-employed individuals for 2020 and 2021 during the pandemic; and cannot be claimed on 2023 tax returns. Taxpayers “invent” fictional household employees and then file a Schedule H, Household Employment Taxes, to claim a refund based on false sick and family medical leave wages they never paid. Overstated withholding claims The IRS actively matches income and withholding information with the information returns filed by companies with the taxpayer’s tax return. Tax returns claiming withholding credits from a false information return such as a Form W-2, or 1099 are fraudulent. IRS holds the tax refund if: IRS can’t verify the wages, income, or withholding credits claimed pending further review. There’s no evidence the withholding credit was paid to the IRS from the payer found on the information return. For additional information, refer to Related topics. Frequently asked questions What if I didn’t file the tax return? (added July 18, 2024) Someone may have filed a fraudulent tax return using your name and SSN. If you didn’t file a tax return for the tax year shown on your letter, you can respond to the Letter 3176C to let us know you may be victim of identity theft. Should I file an amended tax return? (added July 18, 2024) Use the Interactive Tax Assistant tool to help you decide if you should file an amended tax return. If amending your tax return, remember to attach letter 3176C and mail it to the return address at the top of the letter. Can I request an extension? (added July 18, 2024) If you need to request more time to submit a response, you must call the telephone number listed at the top of letter 3176C within 30 days from the date on the letter. What if I don’t respond? (added July 18, 2024) We’ll assess a $5,000 penalty per return ($10,000 if jointly filed.) Internal Revenue Code (IRC) Section 6702 provides us the authority to assess this penalty. What if I want to contest the penalty? (added July 18, 2024) You must pay the entire penalty and then file a claim for refund, with the IRS, within two years of the date of payment. If the IRS doesn’t issue a determination allowing or disallowing the claim within six months, you may file suit in the district court or U.S. Court of Federal Claims. Once the IRS issues a disallowance letter, you have two years from the date of the disallowance letter to file suit contesting this penalty in the district court or U.S. Court of Federal Claims. Can the penalty be reduced? (added July 18, 2024) IRC Section 6702(d) authorizes the IRS to reduce the amount of the penalty assessed, under IRC Sections 6702(a) or (b), if the IRS determines that a reduction would promote compliance with federal tax laws. Revenue Procedure 2012-43 describes the requirements you must meet to qualify for reduction. IRS will treat a written statement that includes the same information requested in Form 14402, IRC Section 6702(d) Frivolous Tax Submissions Penalty Reduction PDF. Don’t use Form 14402 if you want to challenge the merits of an IRC Section 6702 penalty assessment. Related topics Tax scams and consumer alerts Social media schemes The worst of the worst scams Abusive tax schemes Why do I have to pay taxes? PDF Notice 2010-33, Frivolous Positions The truth about frivolous arguments Choose a tax pro Reference tools Publication 1, Your Rights As A Taxpayer Publication 17, Your Federal Income Tax Notice Topic 651 Need help? If you can't find what you need online, call the IRS number at the top of your notice or letter.
