 Internal Revengers, IRS tax news, IRS warrants taxpayers of new filing season scams involving form W2 wages. Those filing fake returns face potential penalties, investigation, W2 filing season scam. Yeah, I'll say, I mean, honestly, my employer has actually been colluding with the government this whole time, giving not only me a W2 form, but they've actually been giving a W2 form to the IRS as well. I mean, can you believe that? This is supposed to be a self reporting tax system for crying out like, I should have an AB relationship with my employer and then like a like an AC relationship with the IRS, you know, and a relationship about A without A should never be, don't you see? Yes, don't you dare see go harassing my employer like that? Anyways, sorry if that was a little confusing. My producer Phil keeps distracting me right before I start recording by asking me a math question. He's like one and two and three and four. It's like whatever, Phil, what are you talking about? Why don't you just say 10? Honestly, like right before we start recording is no time to ask for help with your math homework. Plus, I know you already know the answer to the math question, Phil, because you asked me the same exact question like three times a day always right before we start recording, which is like the worst time. I'm telling you, like, it's almost as bad as the IRS making me fill out a tax return when they already colluded with everyone I've had a financial interaction with. So they clearly already know all the answers about my taxes as well as my sex life. Just just kidding. But seriously, dang government, they're all the same. I tell you, I mean, it's just like when a police officer pulls you over and then they ask, would you tell me how fast you were going? And like, I'd say they do it on purpose and you have to just sit there and resist the irresistible urge of saying like, dude, you're the one with the speed gun right in your hand. Why don't you tell me how fast I was going because I'm pretty sure you already know the answer and you have no intentions of relying on my answer. And then they're like, do you think the law doesn't apply to you? And it's just just give me the ticket for crying out anyways, whatever onto the news. IR 2023-38, March 3, 2023, Washington, the internal revenue service issued a consumer alert today to warn taxpayers of new scams that urge people to use wage information on a tax return to claim false credits in hopes of getting a big refund. One scheme which is circulating on social media encourages people to use tax software to manually fill out form W2 wage and tax statement. There's a link to that here and include false income information. So in this W2 scheme, scam artists suggest people make up large income and withholding figures as well as the employer it is coming from. Scam artists then instruct people to file the bogus tax return electronically in hopes of getting a substantial refund sometimes as much as five figures due to the large amount of withholding. So let's just kind of recap how this might work. So let's think about the income tax system in general and what this kind of scam system might do within it. So we have an income tax system. We pay taxes when income is generated. The IRS has an incentive to try to kind of look over the shoulder of people that are generating income. When we think about a business situation, any interaction that we have, there's going to be someone that has the revenue side of the transaction and the other person that's going to have an expense side of the transaction. One person or one business is buying goods and services and paying for them. The other is selling the goods and services and if it's a free market transaction, you would expect those two sides to be equivalent value between the two of them. The IRS has the leverage on the payer side because of an income tax system. So they're going to be able to kind of force the payer to be able to give them information about who they pay. So in an employer employee situation, they have the leverage over the employer to force the employer to not only give the IRS the information, but also to actually withhold the taxes before they give the taxes to the employee. So it's actually from the IRS perspective, that's a beautiful system, right? Now you've made the employer, the tax reporter, not only that, but actually the tax collective. You've made them the arm of your tax collection arm. So that means that the IRS, when you file the W-2 form, they already have the W-2 form. So if you file something differently, then obviously they would know that. Now you could say, well, what if then I filed a W-2 form like I was an employer with false information on it? Why would I do that? Because the W-2 form usually is reporting income because I can then report a larger amount of withholdings than the income. And therefore, even though I would then have to reflect that income on my taxes, I would have this big withholding that would offset it. Now that kind of scheme might work like in the short run because then the IRS would have the W-2 form that basically ties to the employer. But there's no way that that W-2 form is going to hold up for long because there's no other information. The employer is not filing any tax return related to it, right? So there's no actual other supporting document of the W-2 if you just made up the corporation because there's no actual corporation that's actually filing tax returns. So you would think that without even an intensive audit, a little bit of time would catch that problem. However, it might, even on an automated system without even like a manual audit kind of, it's not the most sophisticated type of tax scheme. But you would think maybe in the short run, they don't catch it automatically in the short run, possibly filing or giving out a refund. Now again, I think that's really a short-sighted type of thing to do even if it worked because it's clearly, you can be audited at least three years into the future. And if there's fraud that's been committed on the IRS, then I believe they basically have like an unlimited amount of time to come back and audit. So you're basically on the hook. You have to worry about that forever into the future. And obviously if they were to come back, which you would think they would at some point in time, then they're going to be charging you. You would think you're possibly liable not only for just not paying your taxes, but basically that's a clearly intentionally fraudulent thing intent to kind of deceive. So I would think the people pushing this kind of fraud, the way it might work is the people that are pushing others to report and do this type of fraud are not the actual one. And then they're going to try to get a benefit. You give them part of the refund that you get. So the people that are trying to push this fraud are probably trying to get people to actually file the tax return other than them. Because then the other person's on the hook for the social security and then they get the refund and they leave or whatever before everything hits the fan, when the IRS gets around to fixing the problem. When they fix the problem, they're obviously going to go back to the one who filed the social security number. So if anybody's trying to convince you to file a fraudulent return and possibly give them part of the money for their genius scam or something like that, that's really not a good idea because the person who has their social security number on the return is the one on the hook. So I would believe that would probably be the way that scam might work. They're trying to convince other people to file this return in a very pretty unsophisticated kind of way. And then when it hits the fan sometime in the next year, even if they get the refund, the person that convinced them will be gone or something like that, that's my guess. But I don't know. The IRS along with the Security Summit Partners, there's a link to that here in the tax industry and the states, are actively watching for the scheme and others. In addition, the IRS works with payroll companies and large employers as well as Social Security Administration to verify W-2 information. So with national consumer protection week starting Monday, the IRS and Summit Partners warn people not to fall for these scams. Quote, we are seeing signs of the 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. End quote said acting IRS Commissioner Doug O'Donnell. Quote, the IRS and Security Summit Partners remind people there's 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. End quote. Obviously that's not going to be generally good. And anyone's convincing someone to do that again, they're probably trying to convince someone else to do it because they don't want to use their own Social Security number to do it because again, it's something they're probably going to catch that kind of that doesn't seem very sophisticated to me. I mean, so two verifications of this scheme are also being seen by the IRS, both involving misusing form W-2 waging information in hopes of generating a large refund. One variation involves people using form 7202 credits for sick leave and family leave for certain self-employed individuals. There's a link to that here to claim a credit based on income earned as an employee, not as a self-employed individual. These credits were available for self-employed individuals for 2020-2021 during the pandemic. They are not available for 2022 tax returns. Now obviously some of these laws that went into place during COVID, anytime there's this big substantial change in laws and then obviously an attempt to support people by just throwing money out there, obviously that is an environment ripe for scams. So they're kind of reeling in some of these new laws that went out there. But we still have the remnants of that whole thing, which leads to less stability, uncertainty, which leads to people taking advantage of systems oftentimes. So a similar variation involves people making up fictional employees employed in their household and using schedule H form 1040 household employment taxes to try and claim refund based on false sick and family wages they never paid. So the form is designed to report household employment taxes if a taxpayer hired someone to do housework and those wages were subject to Social Security Medicare or FUTA taxes or if the employer withheld federal income tax from those wages. So household employee reporting and in that case. So the IRS reminds people who try this that they face a wide range of penalties. There's a link to that here. This may include frivolous return penalty of $5,000. There's a link to that here. Filers also run the risk of criminal prosecution for filing false tax returns. So that's the thing that's really kind of scary with it because you would think that that kind of just fragrant, you know, you just making up a W2 form and putting wages on it as if you're an employer when you're not an employer. That seems like that pretty easy to possibly prove intention. So if you're intentionally not just frivolousness, but if you're intentionally fraud stuff, then you would think that could be a criminal type of thing and that's not good. Typically the penalties are harsher for fraud on the law. So in any case, for anyone who has participated in one of these schemes, there are several options that the IRS recommends. People can amend a previous tax return or consult with a trusted tax professional. Now most of the times if you've been if you got sucked into something, the problem is just like any lie, right? You get into this web of lies. Now you're saying, okay, I filed a fraudulent tax return. Someone admitted, you know, convinced me to do it. And now I feel like an idiot because now I'm scared and I don't want to, you know, I don't want to do anything. So now I either go down the route of just continually in the web of lies or does the IRS give me a way out? Now usually the IRS is you would think the law would be put up in such a way that they're going to try to encourage people to amend the problem if they recognize the problem or if they say, okay, yeah, that was bad. I'm going to change it. So usually you're better off in that kind of situation amending the tax return and saying, and then you're, which means you're basically admitting, you know, yeah, I've basically lied on this tax return kind of, you know, but if you amend it, then you took the action and that's usually you're going to be better served under the law, typically in that case, but it's kind of a scary situation when you have to be in that kind of position. So you might consult a tax professional as well just to do that, but that could be difficult too because then you have to say, yeah, someone scammed me or I thought this was a good idea, probably wasn't. How do I get out of it now and whatnot and so on. So in any case, there's links to that stuff here. There'll be a link to this in the description.