IRS says taxpayers who filed suspicious returns with key tax credits must verify their IDs

The IRS crackdown on what appears to be extensive fraud involving key but obscure tax credits remains ongoing. And taxpayers who receive notices that they need to verify their identity must pay attention to the paperwork they receive and get their IDs verified, if they're hoping to get any tax refund cash.

On Wednesday, the Internal Revenue Service updated an initial May 14 release to indicate that "taxpayers who improperly claimed these credits still need to authenticate their identity. Once the taxpayer’s identity has been verified, they may need to amend their tax return to remove the improperly claimed credit."

The amended return, the IRS stressed, won't go through in these cases until after the taxpayer authenticates their identity.

The IRS consumer alert states that a series of tax scams and inaccurate social media advice drove "thousands of taxpayers to file inflated refund claims during the past tax season."

These scams, the IRS said, centered on the Fuel Tax Credit, the Sick and Family Leave Credit and household employment taxes.

The IRS warned taxpayers not to fall for these scams.

In the past week, the IRS has changed its statement on what needs to be verified. A week ago, the IRS said in its statement that taxpayers who wrongly claimed key credits, including a fuel-related credit, do not need to visit a Taxpayer Assistance Center to verify their identity. This advice was given days before the IRS was offering no-appointment needed Saturday hours on May 18 in several cities, including Detroit.

Perhaps, I'd suggest, the IRS was attempting with its earlier release to discourage an onslaught of tax filers at the May 18 events. But a huge crowd — estimated to be less than 1,000 people — lined up for hours along Michigan Avenue to get in-person help at the IRS office in downtown Detroit anyway.

Now, no more walk-in hours are scheduled for Saturdays. And the IRS said it's necessary to verify your ID before you amend any return in cases with improperly claimed credits.

Typically, IRS taxpayer assistance centers are open from 8:30 a.m. to 4:30 p.m. Monday through Friday and will work with taxpayers by appointment only. To make an appointment, call 844-545-5640.

Taxpayers in this situation may have received letters from the IRS — called IRS Notice 3176c — that apply to potentially frivolous tax returns, which include incorrect claims for fuel and sick and family leave credits, and household employment taxes.

To avoid penalties and potential follow-up action by the IRS, the IRS said, "taxpayers who incorrectly filed for these claims need to promptly submit an accurate tax return without the claims."

Taxpayers can visit the IRS.gov tool — Should I file an amended return? — to determine whether they need to amend their return. They still must verify before amending. Taxpayers in this situation can visit a trusted tax professional for advice.

The IRS often finds and corrects errors during processing. But there are certain situations, such as the one with the improperly claimed credits, when a tax filer needs to file an amended return to correct an error or make other changes.

Many people I talked with in the amazingly long line Saturday said they did not know why they needed to verify their IDs; they did not believe they wrongly claimed any credits. Others may have needed to verify their IDs for other reasons, too. One 17-year-old was a first-time filer and likely needed to verify her identity because it was the first time she was filing a return. One parent told me he needed to verify the identity of a child claimed on his return.

One woman told me after she stood in line and later saw an IRS employee that she was told to amend a previous tax return.

More: Hundreds wait in long lines at IRS offices in Detroit to verify IDs and get tax refunds

More: Terrible tax tips promoted on social media trigger big refund headaches for 2023 returns

When the IRS suspects that a fraudulent return is filed, it will not process the refund. Instead, the agency will initially seek to verify a person's identity to make sure that the return was filed by the legitimate filer, not a fraudster using stolen ID information.

The verification letter is sent out, even if you're not claiming any improper credits, if the IRS has some indication that you might be a victim of identity theft or fraud.

Clearing up one's ID isn't always an easy process with the IRS — and the process will delay getting a tax refund.

The IRS has been criticized in the past for taking too long to issue refunds to victims of identity theft. Nearly 500,000 people who had cases still pending with the IRS’s Identity Theft Victims Assistance unit at the end of 2023 found themselves waiting an average of 19 months for the IRS to resolve their problems, National Taxpayer Advocate Erin Collins stated in her 2023 Annual Report to Congress in January.

According to a Bloomberg Tax report, Collins stated Tuesday that the IRS is taking 22 months to process and send refunds to victims of tax-related identity theft. She spoke at an event held by the National Association for Enrolled Agents.

“It’s a real problem and I’d like to see the IRS be a help in the solution rather than causing more harm,” Collins was quoted as saying.

The 22-month delay applies when a tax filer is unable to file his or her own federal income tax return because a fraudster already filed a return using the legitimate taxpayer’s ID. The real taxpayer's return is rejected by the system and the victim of ID theft must go through the process to clear up the problem.

But the delays are far shorter in cases where the IRS sees discrepancies on a return and flags that return to request ID verification before a refund can be issued.

Unfortunately, those who trusted, perhaps, a less than trustworthy tax preparer, are now dealing with quite a mess if their tax refund has been inflated by claiming tax credits that don't apply to them. They will need to take all the necessary steps to verify that ID first and then amend a return before any federal income tax refund is issued.

"The entire refund amount is frozen on returns with these bad claims," the IRS stated. "Taxpayers will not receive any portion of their refund, even if they also claimed legitimate credits."

Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X (Twitter) @tompor.

This article originally appeared on Detroit Free Press: IRS now says taxpayers with suspicious credits must verify their IDs