IRS Alerts Tribal Communities to Fake Tax Credits Promoted in Scams

Understanding the Scam Targeting Tribal Communities

The Internal Revenue Service has issued a warning about promoters selling nonexistent tax credits marketed as "Tribal Tax Credits," "Native American Tax Credits" or "Sovereign Tribal Tax Credits." These schemes specifically target tribal communities, businesses and individual taxpayers with promises of large tax reductions or refunds.

A claimed connection to a tribal government or a reference to a genuine federal program does not establish that a promoted credit is valid. The IRS says a return claiming one of these nonexistent credits contains a false claim even if an initial refund was issued.

Common Misrepresentations Used by Promoters

One documented tactic is to cite a supposed agreement involving Treasury, Interior or tribal governments that converts tribal trust payments into federal credits. The IRS says no such agreement exists.

Other tactics include misrepresenting rules that allow certain clean energy credits to be transferred between taxpayers, suggesting these rules create a new tribal credit. Similarly, promoters invoke the New Markets Tax Credit under Internal Revenue Code Section 45D, even though that program has no connection to the schemes.

Additional false claims involve assertions that companies owned by tribal members automatically qualify for special credits due to sovereign status, or that executive orders and various tax code sections authorize the credit. Promoters may also point to previously accepted tax returns as proof the credit is valid, when acceptance of a return does not equal approval of every claimed item.

Costs and Risks for Consumers

The IRS says promoters may charge for arranging a purported credit purchase or preparing supporting documents. Offers to buy credits for substantially less than their claimed value, limited-supply claims and pressure to act quickly are among the warning signs it identifies.

The financial consequences can be severe. Taxpayers face assessment of the correct tax owed plus penalties and interest. In some cases, criminal prosecution may result in fines or imprisonment. Even those who received an initial refund after claiming the credit remain liable.

The agency also cautions financial advisors and tax professionals against enabling these schemes. It recommends care when a promoter approaches them with a proposed credit arrangement.

Red Flags and Consumer Protections

Several warning signs can help consumers avoid these scams. Offers to buy credits for far less than their supposed value, demands to sign nondisclosure agreements before receiving basic details, and references to non-public government agreements are major red flags.

The IRS also flags legal opinions that cannot be verified with the attorney or firm identified. Taxpayers remain responsible for the information on their returns; paperwork supplied by a promoter does not establish that a claimed credit is legitimate.

Tribal communities and individuals are encouraged to report suspected schemes using Form 14242 or through IRS.gov/submitatip. Additional information about common tax scams is available on IRS.gov.