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Archive | Tax Time

Common Errors to Avoid when Filing a Tax Return

 

To ensure they meet their tax obligations, taxpayers should file accurate tax returns. If a taxpayer makes an error on their tax return, it will likely take longer to process and could delay a refund. Taxpayers can avoid many common errors by filing electronically, the most accurate way to file a tax return. All taxpayers can use IRS Free File.

Here are common errors to avoid when preparing a tax return:

  • Missing or inaccurate Social Security Numbers. Be sure to enter each SSN on a tax return exactly as printed on the Social Security card.
  • Misspelled names. Spell all names listed on a tax return exactly as listed on the taxpayers’ Social Security cards.
  • Filing status.  Some taxpayers claim the wrong filing status, such as Head of Household instead of Single. The Interactive Tax Assistant on IRS.gov can help taxpayers choose the correct status. E-file software also helps prevent mistakes.
  • Math mistakes.  Math errors are common, ranging from simple addition and subtraction to more complex items. Figuring the taxable portion of a pension, IRA distribution or Social Security benefits is more difficult and results in more errors. Taxpayers should always double check their math. Better yet, tax preparation software does it automatically.
  • Figuring credits or deductions. Taxpayers can make mistakes figuring their Earned Income Tax Credit, Child and Dependent Care Credit, the standard deduction and other items. Follow the instructions carefully. For example, a taxpayer who’s 65 or older, or blind, should claim the correct, higher standard deduction, if not itemizing. The IRS Interactive Tax Assistant can help determine if a taxpayer is eligible for tax credits or deductions.
  • Incorrect bank account numbers. Taxpayers who are due a refund should choose direct deposit for ease and convenience, but the IRS cautions taxpayers to use the right routing and account numbers on the tax return.
  • Unsigned forms. An unsigned tax return isn’t valid. Both spouses must sign a joint return. Taxpayers can avoid this error by filing their return electronically and digitally signing it before sending it to the IRS. Taxpayers who are using a tax software product for the first time will need their adjusted gross income from their 2016 tax return to file electronically. Taxpayers who are using the same tax software they used last year usually will not need to enter prior-year information to electronically sign their 2017 tax return. 
  • Filing with an expired ITIN. The IRS will process and treat as timely a return filed with an expired Individual Tax Identification Number, but won’t allow any exemptions or credits. Taxpayers will receive a notice explaining that an ITIN must be current before the IRS will pay a refund. Once the taxpayer renews the ITIN, the IRS will process exemptions and credits and pay an allowed refund. ITIN expiration and renewal information is available on IRS.gov.

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Tips for Getting Unclaimed 2014 Tax Refunds 

 

The IRS reminds taxpayers they may have money waiting for them. About 1 million taxpayers who did not file a 2014 federal income tax return have unclaimed tax refunds totaling about $1.1 billion. Here are some things taxpayers should know about these unclaimed refunds:

To collect the money, taxpayers must file their 2014 tax return with the IRS no later than this year’s tax deadline, Tuesday, April 17.

  • The IRS estimates that half of the refunds are more than $847.
  • When a taxpayer who is getting a refund does not file a return, the law gives them three years to claim that tax refund. If the taxpayer does not file a tax return within three years, the money goes back to the U.S. Treasury. For 2014 tax returns, the three-year window closes April 17, 2018.
  • The law requires taxpayers to properly address and mail the tax return to the IRS. It must be postmarked by the April deadline.
  • The IRS may hold the 2014 refunds of taxpayers who have not filed tax returns for 2015 and 2016.
  • The unclaimed money will be applied to any amounts still owed to the IRS or a state tax agency. The money may also be used to offset unpaid child support or past due federal debts, such as student loans.
  • By failing to file a tax return, people stand to lose more than just their tax refund. Many low- and moderate-income workers may be eligible for the earned income tax credit. For 2014, the credit was worth as much as $6,143.
  • Current and prior year tax forms are available on the IRS.gov Forms, Instructions and Publications page or by calling toll-free 800-TAX-FORM. This includes forms 1040, 1040A and 1040EZ for 2014.
  • Taxpayers who are missing forms W-2, 1098, 1099 or 5498 for the years 2014, 2015 or 2016 should request copies from their employer, bank or other payer. Taxpayers who are unable to get missing forms can order a free wage and income transcript at IRS.gov using the Get Transcript Online tool. Taxpayers can use the information on the transcript to file their tax return.

Share this tip on social media — #IRSTaxTip: Tips for Getting Unclaimed 2014 Tax Refunds https://go.usa.gov/xQgrg

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Military and families get free tax assistance 

 

The IRS offers free tax help to members of the military and their families through the Volunteer Income Tax Assistance program. A VITA site is easy to find on or off base — even overseas.

The Armed Forces Tax Council directs the military tax programs worldwide. Military VITA-certified employees receive training on military tax issues, including tax benefits for service in a combat zone. They can help with special extensions of time to file tax returns and pay taxes, or with special rules that apply to the Earned Income Tax Credit.

Members of the military going to a VITA site for their tax return preparation should bring these things with them:

* A valid power of attorney form, if needed. Married taxpayers filing a joint return generally requires both spouses to sign. If both can’t be present to sign the return, they will need a power of attorney, unless eligible for an exception. 

* Valid military identification card. 

* Social Security or individual taxpayer identification numbers for all household members or adoption taxpayer identification numbers for those who don’t have Social Security numbers. 

* Birth dates for everyone listed on the tax return. 

* Wage and earning forms, such as forms W-2, W-2G and 1099-R. 

* Interest and dividend statements. 

* Health Insurance forms. Taxpayers who purchased insurance through Healthcare.gov must bring Form 1095-A. Forms 1095-B and C for other types of insurance are optional this year, but taxpayers should know their coverage dates for all household members. 

* Form 1098-T for students with post-secondary tuition expenses or grant income. 

* A copy of last year’s federal and state tax returns, if available. 

* Routing and account numbers for direct deposit of a tax refund. 

* Total amount paid for day care and the day care provider’s identifying number. This is usually an Employer Identification or Social Security number. 

* Other relevant information about income and expenses.

Additional IRS Resources at IRS.gov:

* Military Pay Exclusion – Combat Zone Service

* Publication 4940, Tax Information for Active Duty Military and Reserve Personnel

* Publication 3, Armed Forces’ Tax Guide

IRS YouTube Videos:

* Military Tax Tips – English | Spanish

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The Right to Privacy: Taxpayer Bill of Rights #7 

 

IRS Tax Tip 2018-50

The IRS is committed to protecting the privacy rights of America’s taxpayers. In fact, the right to privacy is one of ten rights the Taxpayer Bill of Rights gives all taxpayers.

Taxpayers have the right to expect that any IRS inquiry, audit, or enforcement action will comply with the law and be no more intrusive than necessary. Taxpayers can also expect that the IRS will respect all due process rights, including search and seizure protections. Finally, they will provide a collection due process hearing when appropriate.

Here are some more details about what taxpayers can expect related to the right to privacy:

• The IRS cannot seize certain personal items, such as schoolbooks, clothing and undelivered mail.

• The IRS cannot seize a personal residence without first getting court approval, and the agency must show there is no reasonable alternative for collecting the tax debt. 

• Sometimes, a taxpayer submits an offer to settle their tax debt with an offer that relates only to how much they owe. This is formally known as a Doubt as to Liability Offer in Compromise. When a taxpayer makes this offer, they do not need to submit any financial documentation.   

• During an audit, if the IRS finds no reasonable indication that a taxpayer has no unreported income, the agency will not seek intrusive and extraneous information about the taxpayer’s lifestyle.  

• A taxpayer can expect that the IRS’s collection actions are no more intrusive than necessary. During a collection due process hearing, the Office of Appeals must balance that expectation with IRS’s proposed collection action and the overall need for efficient tax collection.  

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Tax-time tips in the final stretch of the tax season

(BPT) – The April 17 tax filing deadline is quickly approaching. While many are excited about the possibility of a tax refund, nearly 1 in 3 taxpayers waits until April to file their return. Whether filing online or meeting with a tax professional, H&R Block shares three tips to help make the final stretch of the tax season less daunting.

1. Get organized

Keeping good records is the foundation for everything else because you can’t deduct what you haven’t documented. Take the time to complete a paper chase and find all tax and financial documents and related information needed to file a tax return. It may be easier to use a customized tax preparation checklist to help you make sure you aren’t missing important documents. Missing tax documents can lead to missing out on tax benefits you are entitled to claim.

Consider starting with your previous year tax return, then track all income and receipts, and finally document each. After that, separate business-only bank accounts and credit cards to make it easier to keep good records and file accurate tax returns. Remember to secure paper and digital records in a safe place like MyBlock, and make sure you back them up too.

2. Don’t overlook credits and deductions

The tax refund is the single largest financial transaction many taxpayers will have in a year. The stakes can be high and mistakes can be costly, especially when it comes to life changes – getting married, having a baby, buying or selling a home, sending a child off to college or retiring. Not understanding how these life changes can impact your return causes many taxpayers to make mistakes and leave money on the table. In fact, the IRS announces annually that approximately $1 billion goes unclaimed in federal tax refunds.

Most taxpayers file their taxes using the standard deduction, but you may be eligible for a variety of deductions or credits that could possibly save you more, including:

* Education benefits: Federal tax credits can help offset the costs of higher education for yourself or your dependents – depending on your academic program, what year the student is in, etc. To qualify, you must pay for post-secondary tuition and fees for yourself, your spouse or your dependent.

* Earned Income Tax Credit for lower-income workers: Twenty percent of eligible taxpayers, particularly lower-income workers, do not claim the Earned Income Tax Credit (EITC). Keep in mind that eligibility may fluctuate based on financial, marital and parental status, which may cause taxpayers to be ineligible one year, but eligible the next. Also, people tend to overlook the EITC because they may not earn enough income to have to file a return. Remember that the EITC is a refundable credit, so even those who don’t need to file a return can still claim the credit.

* Itemizing deductions: Itemizing can save taxpayers hundreds of dollars, as only 1 in 3 taxpayers itemize, but millions more should. Owning a home is often the key that unlocks itemization, but some taxpayers with high state taxes and charitable contributions may also be able to itemize.

3. Avoid common filing pitfalls 

Selecting the wrong filing status can affect which credits and deductions you are eligible for, the value of your standard deduction and your tax bracket. In addition, common clerical errors such as mixing up names, forgetting to include information reported on your W-2, 1099 or other forms, or even making mathematical errors can also affect your tax benefits.

Not filing at all is even worse – as the penalty for not filing a tax return is 10 times greater than the penalty for not paying in full. The best way to avoid this penalty, which could add up to 25 percent to your tax bill, is to file a completed tax return or apply for an extension. An extension to file is not an extension to pay any taxes you might owe. To avoid a penalty, you will need to estimate what you owe and pay at least 90 percent by April 17.

To ensure you get the maximum refund without delay this year, or if you find yourself filing incorrectly, visit hrblock.com for more information, to make an appointment with a tax professional or to start your own tax return online for free.

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Withholding calculator reflects changes in new tax law

 

To help taxpayers, the IRS updated the special Withholding Calculator tool on IRS.gov to reflect changes in the Tax Cuts and Jobs Act passed in December.

With most employees seeing withholding changes in their paychecks, the IRS recommends taxpayers use the Withholding Calculator to do a “paycheck checkup.” This will help taxpayers check that they are having the correct amount of income tax withheld from their paychecks.

Doing a checkup can help protect against having too little tax withheld and facing an unexpected tax bill or penalty at tax time in 2019. Some taxpayers might prefer to have less tax withheld up front and receive more in their paychecks, which would reduce their tax refund next year.

The IRS encourages everyone to check their withholding as soon as possible, but it’s especially important for these people to use the Withholding Calculator to make sure they have the right amount of tax withheld:

  • Two-income families
  • People with two or more jobs at the same time or who only work for part of the year
  • People who claim credits such as the Child Tax Credit
  • People who claim older dependents, including children age 17 or over
  • People who itemized deductions in 2017
  • People with high incomes and more complex tax returns
  • People with large tax refunds or large tax bills for 2017

Remember, the Withholding Calculator does not ask the user for personally identifiable information, such as name, social security number, address, or bank account numbers. The IRS does not save or record the information the taxpayer enters in the calculator.

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Contribute to an IRA by April 17

 

Claim it for 2017

WASHINGTON —The Internal Revenue Service reminds taxpayers that it’s not too late to contribute to an Individual Retirement Arrangement (IRA) and still claim it on a 2017 tax return. Anyone with an IRA may be eligible for a tax credit or deduction on their 2017 tax return if they make contributions by April 17, 2018.

This is the sixth in a series of nine IRS news releases called the Tax Time Guide, designed to help taxpayers navigate common tax issues. This year’s tax-filing deadline is April 17.

An IRA is designed to enable employees and the self-employed to save for retirement. Most taxpayers who work are eligible to start a traditional or Roth IRA or add money to an existing account.

Contributions to a traditional IRA are often tax deductible, but distributions are generally taxable. Contributions to a Roth IRA are not deductible, but qualified distributions are tax-free. To count for a 2017 tax return, contributions must be made by April 17, 2018. In addition, low- and moderate-income taxpayers making these contributions may also qualify for the Saver’s Credit.

Generally, eligible taxpayers can contribute up to $5,500 to an IRA. For someone who was 50 years of age or older at the end of 2017, the limit is increased to $6,500. The same general contribution limit applies to both Roth and traditional IRAs. However, a Roth IRA contribution might be limited based on filing status and income. An individual can’t make regular contributions to a traditional IRA in the year they reach 70½ and older. However, they can still contribute to a Roth IRA and make rollover contributions to a Roth or traditional IRA regardless of age.

If neither the taxpayer nor their spouse was covered for any part of the year by an employer retirement plan, they can take a deduction for total contributions to one or more traditional IRAs up to the contribution limit or 100 percent of the taxpayer’s compensation, whichever is less.

For 2017, if a taxpayer is covered by a workplace retirement plan, the deduction for contributions to a traditional IRA is generally reduced if the taxpayer’s modified adjusted gross income is between:

  • $0 and $10,000; married filing separately
  • $62,000 and $72,000; single and head of household
  • $99,000 to $119,000; married filing jointly or a qualifying widow(er)
  • $186,000 to $196,000; married filing jointly where the IRA contributor is not covered by a workplace retirement plan but is married to someone who is covered

The deduction for contributions to a traditional IRA is claimed on Form 1040, Line 32, or Form 1040A, Line 17. Any nondeductible contributions to a traditional IRA must be reported on Form 8606. 

Even though contributions to Roth IRAs are not tax deductible, the maximum permitted amount of these contributions is phased out for taxpayers whose modified adjusted gross income is above a certain level:

  • $0 to $10,000; married filing separately
  • $118,000 to $133,000; single and head of household
  • $186,000 to $196,000; married filing jointly

For detailed information on contributing to either Roth or Traditional IRAs, including worksheets for determining contribution and deduction amounts, see Publication 590-A, available on IRS.gov.

Also known as the Retirement Savings Contributions Credit, the Saver’s Credit is often available to IRA contributors whose adjusted gross income falls below certain levels. Eligible taxpayers get the credit even if they qualify for other retirement-related tax benefits. Like other tax credits, the Saver’s Credit can increase a taxpayer’s refund or reduce the taxes they owe. The amount of the credit is based on several factors, including the amount contributed to either a Roth or traditional IRA and other qualifying retirement programs.

For 2017, the income limit is:

  • $31,000; single and married filing separate
  • $46,500; head of household
  • $62,000; married filing jointly.

Taxpayers should use Form 8880 to claim the Saver’s Credit, and its instructions have details on figuring the credit correctly.

Taxpayers can find answers to questions, forms and instructions and easy-to-use tools online at IRS.gov 24 hours a day, seven days a week. No appointments required and no waiting on hold.

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The right to finality — 

 

Taxpayer Bill of Rights #6

Taxpayers who are interacting with the IRS have the right to finality. This right comes into play for taxpayers who are going through an audit. These taxpayers have the right to know when the IRS has finished the audit. This is one of ten basic rights—known collectively as the Taxpayer Bill of Rights—that all taxpayers have when dealing with the IRS.

For taxpayers who are in the process of an audit, here’s what they should know about the right to finality:

  • Taxpayers have the right to know:
  • The maximum amount of time they have to challenge the IRS’s position.
  • The maximum amount of time the IRS has to audit a particular tax year or collect a tax debt.
  • When the IRS has finished an audit.
  • The IRS generally has three years from the date taxpayers file their returns to assess any additional tax for that tax year.
  • There are some limited exceptions to the three-year rule, including when taxpayers fail to file returns for specific years or file false or fraudulent returns. In these cases, the IRS has an unlimited amount of time to assess tax for that tax year.
  • The IRS generally has 10 years from the assessment date to collect unpaid taxes. This 10-year period cannot be extended, except for taxpayers who enter into installment agreements or the IRS obtains court judgments.
  • There are circumstances when the 10-year collection period may be suspended. This can happen when the IRS cannot collect money due to the taxpayer’s bankruptcy or there’s an ongoing collection due process proceeding involving the taxpayer. 
  • A statutory notice of deficiency is a letter proposing additional tax the taxpayer owes. This notice must include the deadline for filing a petition with the tax court to challenge the amount proposed. 
  • Generally, a taxpayer will only be subject to one audit per tax year. However, the IRS may reopen an audit for a previous tax year, if the IRS finds it necessary. This could happen, for example, if a taxpayer files a fraudulent return.

For more info on the Taxpayer Bill of Rights, visit www.irs.gov/taxpayer-bill-of-rights.

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Uncle Sam wants you to save for retirement

The Saver’s Credit—a little-known tax credit made available by the IRS to eligible taxpayers—could make saving for retirement more affordable than many people realize.

(NAPS)—If you ever feel your finances are too stretched to save for retirement, you’re not alone—and there could be good news for you. The Saver’s Credit—a little-known tax credit made available by the IRS to eligible taxpayers—could make saving for retirement more affordable than you think. It may reduce your federal income taxes when you save for retirement through a qualified retirement plan or an Individual Retirement Account (IRA).

“The Saver’s Credit is a fantastic tax credit because it pays you to save for retirement. It offers eligible workers an added incentive to save for retirement on top of the benefits of tax-deferred savings when they contribute to a 401(k), 403(b), 457(b) or IRA,” says Catherine Collinson, president of nonprofit Transamerica Center for Retirement Studies®.

Here’s how it works:

1. Check Your Eligibility

Depending on your filing status and income level, you may qualify for a nonrefundable credit of up to $1,000 (or $2,000 if filing jointly) on your federal income taxes for that year when you contribute to a 401(k), 403(b), 457(b) or similar retirement plan, or IRA.

Single filers with a maximum Adjusted Gross Income (AGI) of up to $31,000 in 2017 or $31,500 in 2018 are eligible. For the head of a household, the AGI maximum is $46,500 in 2017 or $47,250 in 2018. For those who are married and file a joint return, the AGI maximum is $62,000 in 2017 or $63,000 in 2018.

You must be 18 years or older by January 1 and cannot be a full-time student or be claimed as a dependent on another person’s tax return. If you fit within these parameters, the Saver’s Credit may be for you.

2. Save for Retirement

Save for retirement in your employer’s retirement plan, if offered, or in an IRA. In general, for every dollar you contribute to a qualified retirement plan or IRA (up to the lesser of the limits permitted by an employer-sponsored plan or the IRS), you defer that amount from your current overall taxable income on your federal tax returns—and you may also qualify for the Saver’s Credit.

3. File Your Tax Return and Claim the Credit

When you prepare your federal tax returns, you can claim your Saver’s Credit by subtracting this tax credit from your federal income taxes owed.

Workers who are eligible to claim the Saver’s Credit are also eligible to take advantage of IRS’ Free File program for taxpayers with an AGI of $66,000 or less. Twelve commercial software companies make their tax preparation software available through the Free File program at www.irs.gov/FreeFile. 

  • If you are using tax preparation software, use Form 1040, Form 1040A or Form 1040NR. If your software has an interview process, be sure to answer questions about the Saver’s Credit, also referred to as the Retirement Savings Contributions Credit and/or Credit for Qualified Retirement Savings Contributions.
  • If you are preparing your tax returns manually, complete Form 8880, the Credit for Qualified Retirement Savings Contributions, to determine your exact credit rate and amount. Then transfer the amount to the designated line on Form 1040, Form 1040A or Form 1040NR.
  • If you are using a professional tax preparer, be sure to ask about the Saver’s Credit.
  • Consider having any refund you receive directly deposited to an IRA to further boost your retirement savings.

Note that the Saver’s Credit is not available with Form 1040EZ.

The 18th Annual Transamerica Retirement Survey found that just 36 percent of American workers are aware that the credit exists. Don’t overlook Uncle Sam’s Saver’s Credit; it may help you pay less in your current federal income taxes while saving for retirement.

For more details and resources on the Saver’s Credit and an online retirement planning calculator, visit Transamerica Center for Retirement Studies® at www.transamericacenter.org.

Transamerica Center for Retirement Studies® (TCRS) is a division of Transamerica Institute®, a nonprofit, private foundation. 

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Avoid making improper claims for business credits

 

WASHINGTON — The Internal Revenue Service warned that taxpayers should avoid making improper claims for business credits, a common scam used by unscrupulous tax preparers.

Two common credits targeted for abuse by shady return preparers include the research credit and the fuel tax credit. Both credits have legitimate uses, but there are specific criteria that taxpayers need to qualify for these.

As part of the 2018 “Dirty Dozen” tax scams, the IRS reminds taxpayers to watch out for these red flags involving business credits when dealing with return preparers. Remember, the taxpayer is responsible for the information on the tax return long after the scammer is gone.

Each year, the IRS publishes its “Dirty Dozen” list of a variety of common scams that taxpayers may encounter any time. These can especially peak during the tax filing season as people prepare their returns or hire people to help with their taxes.

Research Credit Scams

Section 41 of the Internal Revenue Code provides a credit for increasing research activities, commonly known as the “research credit.” Congress enacted the research credit in 1981 to provide an incentive for American private industry to invest in research and experimentation.

The IRS continues to see significant misuse of the research credit. Improper claims for this credit generally involve a failure to participate in or substantiate qualified research activities and/or a failure to satisfy the requirements related to qualified research expenses.

To qualify for the credit, a taxpayer’s research activities must, among other things, involve a process of experimentation using science with a goal of improving a product or process the taxpayer uses in its business or holds for sale or lease. However, there are certain activities specifically excluded from the credit, including research after commercial production, adaptation of an existing business product or process, foreign research and research funded by the customer. Qualified activities also do not include activities where there is no uncertainty about the taxpayer’s method or capability to achieve a desired result.

The IRS often sees expenses from non-qualified activities included in claims for the research credit. In addition, qualified research expenses include only in-house wages and supply expenses and 65 percent (typically) of payments to contractors. Qualified research expenses do not include expenses without a proven nexus between the claimed expenses and the qualified research activity.

Steps to Properly Claim the Credit

Taxpayers who qualify for the credit may claim up to 20 percent of qualified expenses above a base amount by completing and attaching Form 6765, Credit for Increasing Research Activities, to their tax return. For tax years beginning in 2016, eligible small businesses may use the research credit to offset the alternative minimum tax. Also for tax years beginning in 2016, qualified small businesses may elect to use a portion of the research credit as a payroll tax credit against the employer’s portion of the Social Security tax. Qualified small businesses make this election on Form 6765 and must complete and attach Form 8974, Qualified Small Business Payroll Tax Credit for Increasing Research Activities, to their Form 941, Employer’s Quarterly Federal Tax Return.

To claim a research credit, taxpayers must evaluate and document their research activities contemporaneously (i.e. over the period of time in which the research occurs) to establish the amount of qualified research expenses paid for each qualified research activity. While taxpayers may estimate some research expenses, taxpayers must have a factual basis for the assumptions used to create the estimates.

Unsupported claims for the research credit may subject taxpayers to penalties. Taxpayers should carefully review reports or studies prepared by third parties to ensure they accurately reflect the taxpayer’s activities. Third parties who are involved in the preparation of improper claims or research credit studies also may be subject to penalties

Fuel Tax Credit Scams

Fraud involving the fuel tax credit is considered a frivolous tax claim and can result in a penalty of $5,000. Furthermore, illegal scams can lead to significant penalties and interest and possible criminal prosecution. IRS Criminal Investigation works closely with the Department of Justice to shutdown scams and prosecute the criminals behind them.

The fuel tax credit is generally limited to off-highway business use or use in farming.  Consequently, the credit is not available to most taxpayers. Still, the IRS routinely finds unscrupulous tax return preparers who have enticed sizable groups of taxpayers to erroneously claim the credit to inflate their refunds.

The federal government taxes gasoline, diesel fuel, kerosene, alternative fuels and certain other types of fuel. Certain commercial uses of these fuels are nontaxable. Individuals and businesses that purchase fuel for one of those purposes can claim a tax credit by filing Form 4136, Credit for Federal Tax Paid on Fuels.

The tax is on fuels used to power vehicles and equipment on roads and highways. Taxes paid for fuel to power vehicles and equipment used off-road may qualify for the tax credit and may include farm equipment, certain boats, trains and airplanes.

Improper claims for the fuel tax credit generally come in two forms. An individual or business may make an erroneous claim on their otherwise legitimate tax return. It is also possible for an identity thief to claim the credit as part of a broader fraudulent scheme.

The IRS has taken a number of steps to improve compliance processes involving fuel tax credits. IRS compliance systems are preventing a significant number of questionable fuel tax credit claims from being processed. For example, new identity theft screening filters have also improved the IRS’s ability to identify questionable fuel tax credit claims during return processing. 

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