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IRS warns of tax credit scams targeting the tribal community

Taxpayers and tribal communities should beware of fraudulent schemes

WASHINGTON — The Internal Revenue Service today warned taxpayers, tribal communities, businesses and tax professionals about promoters selling fake “Tribal Tax Credits” that do not exist under federal law. Promoters are falsely claiming that these credits can reduce federal tax liabilities or generate refunds.

Promoters market these fake credits generically as “Tribal Tax Credits,” “Native American Tax Credits,” “Sovereign Tribal Tax Credits,” or similar names. These federal tax credits do not exist, and taxpayers who claim them may face civil and criminal penalties.

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

Promoters typically encourage taxpayers to purchase the purported credits from an entity they claim is associated with a tribal community. They may 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.

Promoters may also 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, regardless of whether a refund was issued initially based on the fake Tribal Tax Credit.

Taxpayers are responsible for the accuracy of information reported on their tax returns. Participating in an abusive tax scheme can result in the assessment of the correct tax owed, penalties, interest, and, potentially, fines and imprisonment.

Financial advisors and tax professionals should be cautious if approached by promoters and avoid enabling these schemes.

How promoters misrepresent tax law

Promoters often use legitimate tax provisions or government programs to make fraudulent schemes appear credible. For example, they may:

• Claim a government agreement exists. Promoters may cite a purported agreement between the Treasury Department, Department of the Interior, and/or certain tribal governments that allows conversion of tribal trust fund payments into federal tax credits. No such agreement exists.
• Misrepresent transferable tax credits. Promoters may cite provisions allowing sale or transfer of certain credits among taxpayers. Federal law permits transfers only for specific clean energy credits and does not create a Tribal Tax Credit.
• Misuse the New Markets Tax Credit. Promoters may reference Internal Revenue Code Section 45D and the New Markets Tax Credit. That program has no relationship with these fake Tribal Tax Credits.
• Make false claims about tribal ownership. Promoters may claim that a company owned by tribal members can receive tax credits due to its sovereign status. No federal statute or agreement creates such a credit.
• Misrepresent executive orders or federal law. Promoters may cite presidential executive orders and provisions of the Internal Revenue Code as authority for a Tribal Tax They do not create such a credit.
• Point to previously accepted returns. Promoters may claim that the IRS’s acceptance of a previously filed return proves the credit is valid. Acceptance of a return does not mean the IRS has approved a credit claimed on that return.

Promoters may charge a fee for arranging the purported purchase of the credit or creating supporting documentation. They may also provide purported legal opinions that they claim were prepared or endorsed by a reputable law firm or attorney.

Watch for red flags

Taxpayers, tribal communities, businesses, and tax professionals should be aware of warning signs of an abusive scheme, including:

• Offers to purchase tax credits for substantially less than their value.
• Claims that only a limited number of credits are available or that taxpayers must act quickly.
• References to government or interagency agreements that are not publicly available.
• Legal opinions that cannot be verified directly with the attorney or law firm identified.
• Requests to sign a nondisclosure agreement before receiving basic information about the credit.

How to report tax 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.

For more information about common tax schemes and scams, visit Tax Scams on IRS.gov.

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