Understanding your letter 3176C

 

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.

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:

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

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.

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.

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.

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.

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.

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

Reference tools

Need help?

  • If you can't find what you need online, call the IRS number at the top of your notice or letter.