[World Tax News] US IRS Imposes $162 Million Penalties for False Tax Credit Claims

Editorial Team – [2025] 178 taxmann.com 339 (Article)

World Tax News provides a weekly snippet of tax news from around the globe. Here is a glimpse of the tax happening in the world this week:

1. US IRS imposes $162 million in penalties for ‘False Tax Credit Claims’ driven by Social Media

The Internal Revenue Service (IRS) of the United States has cautioned taxpayers about an increasing wave of fraudulent schemes on social media encouraging misuse of tax credits such as the Fuel Tax Credit and the Sick and Family Leave Credit. These schemes have resulted in thousands of taxpayers filing ineligible or frivolous returns, leading to refund denials and substantial penalties.

Since 2022, the IRS has observed a sharp rise in improper refund claims stemming from misleading posts and individuals posing as tax experts. Many posts falsely assert universal eligibility for credits reserved for specific taxpayers, such as self-employed persons or businesses. The IRS regularly updates its list of frivolous positions on IRS.gov, which may result in penalties.

“These schemes mislead taxpayers and can be extremely costly,” said James Clifford, IRS Director, Return Integrity and Compliance Services. “Following this advice could lead to rejected claims and a penalty of up to $5,000, in addition to other applicable penalties. To date, the IRS has imposed more than 32,000 penalties totalling over $162 million. Taxpayers should remain vigilant.”

Common traits of these scams include:

• Social media claims that all taxpayers qualify for certain credits.
• Promises of quick or effortless refunds with minimal documentation.
• Directions to file amended returns without actual eligibility.
• Advice to disregard IRS correspondence or respond with false details.

Consequences for taxpayers who participate:

• Delayed or denied refunds.
• A civil penalty of $5,000 under Internal Revenue Code Section 6702 for filing a frivolous return.
• Additional IRS review and enforcement action.

Steps taxpayers should take if affected:

• File Form 1040-X, Amended U.S. Individual Income Tax Return, promptly to correct errors.
• Respond immediately to IRS letters or notices.
• Seek guidance from a qualified tax professional or IRS resources at IRS.gov.
• Report suspected scams to the IRS at phishing@irs.gov or file a complaint with the Treasury Inspector General for Tax Administration (TIGTA).

Source – News Release

2. Malta rolls out optional 15% flat tax regime

On 2 September 2025, Malta published Legal Notice No. 188 of 2025 in the Official Gazette, issuing the Final Income Tax Without Imputation Regulations 2025. These regulations introduce an elective regime under which entities may choose to be taxed at a flat 15% on chargeable income instead of applying the standard full imputation system.

Key features include:

• • Eligible entities : Companies, bodies of persons treated as companies, and trusts electing treatment as companies under Article 27D(1) of the Income Tax Act.
  • Election procedure: Available from the 2025 assessment year (fiscal year 2024) by filing the prescribed notification with the Commissioner for Revenue within the stipulated time.
  • Lock-in period: Once opted, the 15% regime applies for at least five years. If switching back to the standard regime, that too must be maintained for a minimum of five years.
• Treatment of tax paid under the regime:

(a) Not refundable;
(b) Not creditable or offset against other tax liabilities;
(c) Allocated to the entity’s final tax account, unless already taxed under another final tax provision.

• Exclusions from chargeable income:

 (a) Dividends derived from profits not allocated to the final tax account of another Maltese company;
(b) Income already subject to tax at a final rate under any other provision of the Income Tax Act, and allocated to the final tax account (except as modified by these regulations).

•  Safeguard rule: Tax payable under the 15% regime cannot be less than the amount that would be payable under the ordinary system after shareholder refunds.

Source – Legal Notice