IRS warns of tribal tax credit scams

The Internal Revenue Service issued a warning Friday to taxpayers, tribal communities, businesses and tax professionals about promoters selling fraudulent “Tribal Tax Credits” that don’t actually exist under federal law. 

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The scammers are falsely claiming the credits can reduce federal tax liabilities or generate refunds. The fake tax credits are being touted as “Tribal Tax Credits,” “Native American Tax Credits,” “Sovereign Tribal Tax Credits,” or similar names. However, such tax credits do not exist under federal law, and taxpayers who claim them can even face civil and criminal penalties. 

Promoters typically encourage taxpayers to purchase the purported credits from an entity they claim is associated with a tribal community. They often promise a significant return on investment by reducing an existing tax liability or generating a tax refund, and they may pressure taxpayers to act quickly. 

In addition, promoters may urge taxpayers who previously claimed these fake credits to challenge the IRS during an audit. A federal tax return claiming a nonexistent “Tribal Tax Credit” contains a false claim, the IRS noted, regardless of whether a refund was issued initially based on the fake credit. 

The IRS said financial advisors and tax professionals should be cautious if they’re approached by promoters, and avoid aiding these schemes. Taxpayers and tribal communities can use Form 14242, “Report Suspected Abusive Tax Promotions or Preparers,” to report a suspected abusive tax avoidance scheme and tax return preparers who promote such schemes. Taxpayers with information about tax fraud or other illegal tax-related activity can report it at  IRS.gov/submitatip.

“Protecting taxpayers and the integrity of the tax system remains central to the IRS mission,” said IRS CEO Frank Bisignano in a statement. “For that reason, the IRS will always confront abusive and illegal tax schemes that, if left unchallenged, could undermine confidence in our tax system.”

Bisignano himself is also facing allegations of misrepresentation, however, in his other job as commissioner of the Social Security Administration. A group of Democrats on the tax-writing House Ways and Means Committee sent him a letter Friday demanding he answer questions about a staffing crisis at the SSA after he provided seemingly contradictory testimony before the Ways and Means Committee earlier this year. 

The American Federation of Government Employees, which represents approximately 25,000 SSA employees, told Congress that severely understaffed field offices are operating as “ghost offices” and record-low morale has created the worst staffing crisis in SSA’s history. The union said the administration has forced out approximately one in seven SSA employees nationwide and canceled previously agreed-upon accommodations for many workers.