Illegal Ways People Try To Claim Larger Tax Credits

Why This Matters Right Now

Every year, thousands of taxpayers attempt to artificially increase their refund by inflating credits such as:

• Earned Income Tax Credit (EITC)
• Additional Child Tax Credit (ACTC)
• American Opportunity Tax Credit (AOTC)
• Premium Tax Credit

These credits can legitimately produce thousands of dollars in refundable payments. But fraudulently increasing them is one of the top IRS enforcement priorities.

In 2026, the IRS continues to expand automation and identity-verification tools to detect suspicious returns instantly—before the refund ever leaves the Treasury.

1. Claiming Children Who Do Not Qualify

This is the most common issue. The IRS audits millions of returns every year because taxpayers improperly claim dependents who do not meet the IRS tests for:

• residency
• relationship
• support
• custody

The IRS now cross-checks Social Security records, school enrollment data, and past-year dependents to identify conflicting claims.

2. Inflating Income to Maximize the EITC

One illegal tactic is falsely reporting higher income to reach the optimal EITC range.

The IRS’s automated income-matching system compares reported earnings to employer W-2 data and 1099 information. If it does not match, the IRS freezes the refund and issues income verification notices (CP05/CP75).

3. Fabricating Education Expenses

People sometimes try to claim AOTC credits without:

• enrollment
• tuition receipts
• 1098-T forms

The IRS has increased matching with the Department of Education and requires documentation proving qualified education expenses.

4. Claiming Relatives as Dependents Without Providing Support

Dependents must be supported by the taxpayer. Claiming a parent or adult child without meeting the support test is a frequent audit trigger—especially with refundable credits.

5. Filing Head of Household Status Without Qualifying

The IRS aggressively audits taxpayers who choose HOH status without maintaining a qualifying household. This creates a larger standard deduction and often inflates credits.

IRS Penalties for Illegal Credit Claims

Penalties may include:

• loss of the credit for up to 10 years
• accuracy-related penalties
• civil fraud penalties
• interest charges
• criminal tax prosecution in severe cases

Knowingly filing a false claim is a felony.

IRS Automation Is Making Fraud Harder

The IRS now uses:

• identity verification
• automated income-matching
• data analytics
• Return Integrity and Verification Operations (RIVO)
• AI-based fraud detection

Most fraudulent refunds are stopped before they are ever paid.

Protect Yourself and Your Refund

Always meet eligibility requirements and keep documents that prove:

• residency
• custody
• education expenses
• earned income
• dependent eligibility

If the IRS requests proof, you must be ready to provide it.

When to Seek Professional Help

You should consult a tax professional immediately if:

• your return was flagged
• you received a CP75 or CP05
• you were denied a refundable credit
• the IRS questioned your dependent claims

Tax credits can significantly increase refunds—but they must be claimed honestly and legally. Every credit has strict rules and documentation requirements. The IRS is actively reviewing refundable credits, and fraudulent claims can result in major penalties or criminal charges.