Don't Mess With Taxes

Photo by Nataliya Vaitkevich

Beating identity thieves to the punch is one reason to file your tax return as soon as you can. Getting your legitimate Form 1040 to the Internal Revenue Service first will stop crooks who try to file a fake return in your name.

But that’s not the only tax fraud increase that the tax agency sees each filing season. So, this year, the IRS and its partners in the Coalition Against Scam and Scheme Threats (CASST) are taking new and additional actions to lessen the threats.

The CASST task force, comprised of representatives from federal and state tax agencies, software and financial companies, and key national tax professional associations, was created last August at the request of then-IRS Commissioner Danny Werfel.

CASST changes implemented in this just-underway tax filing season include —

• Increased review of a variety of “other withholding” claims on Form 1040;
• Outreach to taxpayers who might have used questionable “ghost” tax preparers who often file questionable claims but don’t stick around to sort through any IRS follow-up; and
• A new form to reduce improper Fuel Tax Credit claims, which often are pushed by aggressive promoters.

Below is more on these CASST moves.

“Other Withholding” claims: To protect taxpayers, the IRS is increasing its review of “Other Withholding” entries on line 25C of Form 1040, U.S. Individual Income Tax Return (shown below).

See more tax forms and more about them at Tax Forms 2024 and Tax Forms 2025.

Key forms covered by Line 25c, “Other Withholding”, include

• Form 1042-S, Foreign Person's U.S. Source Income Subject to Withholding;
• Form 8805, Foreign Partner's Information Statement of Section 1446 Withholding Tax;
• Form 8288-A, Statement of Withholding on Dispositions by Foreign Persons of U.S. Real Property Interests;
• Form W2G, Certain Gambling Winnings;
• Form 8959, Additional Medicare Tax; and
• Schedule K1, Partner’s Share of Income, Deductions, Credits, etc.

To reduce potential delays in verifying the “Other Withholding” claimed, taxpayers are encouraged to attach the supporting documentation to their return.

“Ghost Preparer” education: Tax preparers who do not sign the returns they complete for clients and/or don’t include their preparer tax identification number (PTIN) on the returns are known as “ghost preparers.”

Ghost preparers also are known in the tax world for inflating or fabricating claims to increase the amount they are paid.

The ephemeral appellation also is appropriate because they tend to vanish as soon as the returns are filed and they get fees or cuts of clients’ refunds. But they can haunt their clients long after returns are filed. The taxpayers are left alone to answer any IRS questions and, in many cases, pay for the mistakes in overdue taxes and penalties.

During the 2025 filing season, the IRS will send letters to taxpayers whose tax returns appear to have been completed by ghost preparer. The letters are meant to educate the taxpayer about ghost preparers in general, and to help the IRS identify such individuals who being paid to file returns but are not providing the required preparer information on those forms.

New Fuel Tax Credit statement: The Fuel Tax Credit is a real tax break. However, it is available only for off-highway business and farming use, not for most taxpayers, and last year made the IRS’ Dirty Dozen tax scam list.

Unscrupulous promoters or return preparers mislead taxpayers about fuel use, create fictitious documents or receipts, and then file fake credit claims on the unsuspecting taxpayers’ returns using the real IRS Form 4136, Credit for Federal Tax Paid on Fuels.

This filing season, the IRS has revised Form 4136 to make it harder for well-meaning taxpayers to be misled into claiming the credit. The new “Statement Supporting Fuel Tax Credit (FTC) Computation - 1” was designed to educate taxpayers on eligibility requirements for claiming the credit.

Below are statement’s key details.

• Who should file the new statement? Individuals filing Form 1040 for tax year 2024 who claim nontaxable use of gasoline, aviation gasoline, undyed diesel fuel, or undyed kerosene on Form 4136, Credit For Federal Tax Paid On Fuels.
• Where is the new statement located? “Statement Supporting Fuel Tax Credit (FTC) Computation – 1” is located in the instructions for Form 4136 for tax year 2024. The statement should be completed and attached to Form 1040 with Form 4136.
• What information does the statement want? The statement asks for the business information, including name and Employer Identification Number or EIN (if applicable), and make, model and type of machinery or vehicle for which the fuel was purchased. The taxpayer will also be required to complete a table to show the relationship between the estimated purchase price of the fuel compared to the actual cost and gallons reported as being purchased on Form 4136. The IRS used Gasoline and Diesel Fuel Update - U.S. Energy Information Administration (EIA), when determining the average price of fuel for the year.
• Should documentation to support the claim be included with the statement? No. Taxpayers should not include any receipts or explanation with their tax return but maintain them with their books and records for their tax return. Taxpayers may be asked at a later time to submit proof, such as receipts, of the actual costs paid for each fuel type.

Knowing the truth about tax breaks, especially arcane ones that are suddenly suggested by a promoter or tax preparer is vital. Regardless of what tax break they suggest you claim, if it is wrong (or illegal), you, the taxpayers, will pay.

The IRS also notes that claims and filings based upon a position identified as frivolous by the IRS or that reflect a desire to delay or impede tax administration are subject to a $5,000 penalty per Internal Revenue Code section 6702(a). This penalty is $5,000 for each return (or copy of return) claiming an improper credit, and is assessed against each spouse on a married filing joint return.

Stay vigilant: While tax scams increase during tax filing season, they never stop. Crooks come up with tax-related ways to steal your money or identity or both year-round. So take care any time a tax law is invoked.

Instead of looking to ill-informed information on social media or from shady tax return preparers presenting themselves as reputable tax professionals, the IRS and CASST recommend that taxpayers learn what scams are trending.

If presented with a tax break that seems sketchy, check it out first, preferably by consulting a trusted tax professional.

Pass it on: If you ever encounter an improper or abusive tax schemes, or a tax return preparers who knowingly prepares improper returns, the IRS wants to know.

Report an abusive tax scheme or a tax return preparer by mailing or faxing a completed Form 14242, Report Suspected Abusive Tax Promotions or Preparers. Include any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations at —

Alternatively, taxpayers and tax professionals may report the information to the IRS Whistleblower Office for possible monetary award.

Taxpayers can also report scams to the Treasury Inspector General for Tax Administration or the Internet Crime Complaint Center. The Report phishing and online scams page at IRS.gov provides complete details.

You also might find these items of interest:

• How to report tax scams and fraud
• Getting an IP PIN is a smart taxpayer security move
• DoJ touts successes in taking down unscrupulous tax preparers
• Watch for these data theft red flags, by tax and other financial crooks

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