The IRS Dirty Dozen: False Fuel Tax Credit Claims and How to Protect Yourself

Introduction: 

The IRS releases its annual “Dirty Dozen” list to warn taxpayers about the most common and dangerous tax scams circulating today. In this installment of the series, Jon Markee, your Builder CPA, highlights a growing concern: false fuel tax credit claims. While the credit is legitimate in certain situations, it is being aggressively promoted to taxpayers who do not qualify. Understanding how this scam works and how to protect yourself can help you avoid costly mistakes.

https://www.youtube.com/watch?v=eFhyfWhyYM0

What Is the Fuel Tax Credit?

The fuel tax credit is designed for specific off-highway business and farming use. It is not available to most taxpayers. However, some unscrupulous tax preparers and social media promoters are encouraging individuals to claim this credit to inflate their refunds artificially.

The IRS has seen an increase in improper filings using Form 4136, Credit for Federal Tax Paid on Fuels. Many taxpayers are being misled into believing they qualify when they do not.

The Role of Social Media and Bad Advice

This scam ties closely to another Dirty Dozen issue: bad social media tax advice. Online influencers and promoters may present the fuel tax credit as a “loophole” or an easy way to increase your refund. In reality, claiming credits that do not apply to you can trigger IRS scrutiny, audits, penalties, and repayment of improperly received refunds.

Just because a strategy is trending online does not mean it is legitimate. Tax advice should always come from qualified professionals who understand your specific situation.

How to Do a “Gut Check” on Your Tax Return

Whether you prepare your own return or hire a professional, you should always review it carefully before filing. One of the simplest ways to do a quick review is by calculating your effective tax rate.

To do this, divide your total tax liability by your total income for the year. For most Americans, the effective tax rate typically falls between 10% and 20%.

Many taxpayers confuse their marginal tax bracket with their effective tax rate. The U.S. has a graduated tax system, meaning each portion of your income is taxed at increasing rates as income rises. You do not pay your top bracket rate on every dollar you earn.

If your effective tax rate falls far outside the typical range, especially if it is unusually low, it may be a red flag. While there are legitimate reasons for variations, an artificially low effective tax rate could signal that a questionable credit, such as the fuel tax credit, has been improperly claimed.

Watch for Form 4136

If you review your return and see Form 4136 included, pause and ask questions. Unless you have legitimate off-highway business or farming fuel use, the fuel tax credit likely does not apply to you.

Even if you trust your tax preparer, it is your name and signature on the return. Always skim through your return, ideally page by page, to ensure everything makes sense.

Conclusion: Protect Yourself from Costly Mistakes

The promise of a bigger refund can be tempting, especially when promoted online. But claiming credits you do not qualify for can lead to IRS audits, penalties, and repayment demands.

The best defense is awareness and review. Understand the credits you are claiming, perform a simple, effective tax rate “gut check,” and work with a qualified professional who understands your industry.

If you have questions about your tax return or want to ensure you’re filing accurately, reach out to Jon Markee, your Builder CPA. Staying informed is the best way to protect your business and your peace of mind.