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Avoid Improperly Claimed Business Tax Credits

Avoid Improperly Claimed Business Tax Credits

One of the IRS Dirty Dozen scam for 2019 was improperly claiming business tax credits. If your tax preparer tries to claim one of these credits, you could be responsible for the incorrect items on your return.

If your return is audited and contains improper business tax credits, you might need to pay back taxes, accuracy-related penalties, and interest. In some cases, the IRS may also assess civil tax fraud penalties.

Research Tax Credit

One business credit that is commonly abused is the research tax credit. This credit only applies to experimentation with the goal of improving a product or process you use in your business. Research after commercial production doesn’t qualify, and neither do activities with no uncertainty about the ability to achieve a result.

The credit is also limited to expenses directly related to the research, and some taxpayers have tried to claim expenses that are not clearly related to the research activity.

Fuel Tax Credit

The fuel tax credit can only be used in farming or for off-highway business use. This credit can be improperly claimed on a taxpayer’s legitimate return or used by an identity thief on a fraudulent return.

Improper use of the fuel tax credit is considered a frivolous tax claim which can result in a $5,000 penalty. Other penalties may apply, along with back taxes and interest.

If you are claiming the fuel tax credit, expect the IRS to closely scrutinize your return.

Beware of Unscrupulous Tax Preparers

Some tax preparers will use these bogus tax credits to boost your refund. This tactic can be used to get your business or to increase the tax preparer’s fees if they are based on the size of your refund.

These tax preparers may also improperly claim other tax credits, exaggerate your deductions, or try to lower your taxable income through illegitimate means.

The IRS can hold you accountable for anything on your tax return, even when you worked with a tax preparer. It’s your responsibility to double-check everything on the return and make sure you aren’t committing tax fraud.

Contact a tax attorney if you are facing an IRS audit or have been assessed tax fraud penalties.

Get help with an IRS tax audit by calling The Gartzman Law Firm at (770) 939-7710.