The IRS has issued a statement that warns consumers about a new scam going around that involves W-2 forms. This scam is being performed by people who are falsifying information on their tax return in order to claim a larger tax refund. This is a serious issue that the IRS addressed recently stating that anyone who performs such scams will face potential penalties and investigation. As usual, the IRS is closely watching this scheme and any other ones that might be similar to it. But what else is there to this new scam?
How did this scam start?
One of the variations of this scam seems to have possibly had its origins come from social media, or at least has spread and become much more prevalent as a result of being shared to social media. This unfortunately isn’t the first time social media has seen the spread of illegal trends, but it is still always a surprise to see how people are willing to spread dangerous trends for the sake of internet fame. Whether or not they are performing the scams themselves, people who teach others how to perform scams like this might be responsible for what happens as result.
How does the scam actually work?
As we mentioned before, the W-2 scam has made its way to social media where people teach others how to do it. The scam encourages people who use tax software for filing their taxes to put false information on a W-2. This is often a rather large amount, and in addition to this, people are encouraged to withhold figures and the employer the W-2 is coming from. The goal of this is to trick the tax software into giving them a larger refund than what they would normally receive. These refunds often reach amounts of five figures due to the large amount of withholding people are doing.
The IRS has identified two variations of schemes that use W-2 forms to falsify information. The first of these schemes is people using Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals. These scammers are using this form to claim credit based income as an employee, rather than as self-employed. These credits were intended to be used by self-employed individuals in 2020 and 2021 during the pandemic. They are not actually able to be used for 2022 tax returns.
The second variation of this scheme identified by the IRS is somewhat similar to the first. This time it involves people creating fake employees that are employed in their household and using Schedule H (Form 1040), Household Employment Taxes. Scammers try to claim a refund based on false sick and family wages that were never actually paid.
What has the IRS said in response to this trend?
Acting IRS Commissioner, Doug O’Donnel stated the following regarding the scam: “We are seeing signs this scam is increasing, and we worry that innocent taxpayers could be at risk of being tempted into falling into a trap that puts them at risk of financial and criminal penalties. The IRS and Security Summit partners remind people there is no secret way to get free money or a big refund. People should not make up income and try to submit a fraudulent tax return in hopes of getting a huge refund.””
It is clear the the IRS is aware of this scam and are warning people not to try to commit this scam. Just because it’s an easy scam to commit doesn’t mean you should do it.
What happens to people who commit this scam?
Individuals who are caught committing the W-2 scam are subject to face a wide range of penalties. These penalties include but are not limited to a frivolous return penalty of $5,000. It is also possible to be at risk of a criminal prosecution for filing a tax return.
The IRS does give people who have committed the scam some options for what to do. People can amend a tax return they sent, or they can speak with a trusted tax professional for guidance on what to do. Not everyone who did this knows it was a scam, or that it was as serious of an issue as it is, so they should definitely try to seek help to get out of this tough situation. If this is you or someone you know, feel free to contact us here at Jacobwise and we will be happy to help you get everything sorted out.