The Oct. 15 tax extension deadline is around the corner and we're hearing a warning about one tax break you don't want to claim.
Did you spot anything on lately on social media telling you how much you can save if you tap into "Tribal Tax Credits" or "Native American Tax Credits" or "Sovereign Tribal Tax Credits" when you file a return? Don't bother trying to claim anything like these credits; they are not real.
The Internal Revenue Service is warning taxpayers, tribal communities, businesses and tax professionals about promoters who are selling fake “Tribal Tax Credits” that do not exist under federal law.
We're talking about shady tax schemes here. This tribal tax credit should sound ridiculous on the surface. But schemers might trick some people
with claims that only a limited number of credits are available or that taxpayers must act quickly.
If it sounds like a tax break that's too good to be true, well, it really is in this case. It could lead to major problems, which in the past also involved delaying your entire refund. Don't believe any such claims, especially if someone says you must sign a nondisclosure agreement before receiving basic information about a tax credit.
Tribal tax scheme apparently gaining traction
The scheme itself isn't brand new. But the IRS alert issued in September gives a clue that it could be particularly hot now, according to Tom O'Saben, director of tax content and government relations at the National Association of Tax Professionals.
"I would describe this as an existing scheme that apparently has become significant enough for the IRS to issue a broader public warning now," O'Saben told the Detroit Free Press.
He noted that the IRS was already dealing with these so-called “Tribal Tax Credits” during 2025.
"What makes the scheme potentially convincing is that promoters appear to mix pieces of legitimate tax law with something that doesn't exist," O'Saben said.
The bottom line, though, is that no general federal “Tribal Tax Credit” exists that allows a taxpayer to purchase such a credit from a tribe or tribal-related entity and then use to reduce their federal income tax bill or generate a bigger refund.
"The IRS warning does make an interesting point: promoters apparently are using previously accepted returns as evidence that the credit works," O'Saben said.
"The IRS specifically warns that simply because a return was processed and a refund issued doesn't mean the IRS determined the credit was legitimate. That suggests at least some claims may have made it through initial processing, but I don't think we can responsibly put a number on the government's exposure yet," he said.
Such promotions on social media and elsewhere might trigger some unhappy conversations between taxpayers and legitimate tax professionals.
"A taxpayer may arrive with documentation supplied by a promoter, perhaps even a legal opinion, and be convinced that he or she purchased a legitimate tax asset," O'Saben said.
"The tax professional then is left to explain that documentation doesn't create a federal tax credit where the law doesn't provide one. The IRS has specifically cautioned tax professionals against enabling these claims."
And think about it: Why would anyone offer to sell a tax credit worth $1 for substantially less than $1? Really?
And to top it off, someone is claiming that such a promotion depends upon a confidential government agreement, tribal sovereignty or a legal opinion that can't independently be verified. Again, really?
"If the credit is legitimate, the promoter should be able to identify the specific Internal Revenue Code provision creating it and explain exactly how the taxpayer qualifies," O'Saben said.
"For practitioners, I think the answer is fairly straightforward: don't put a credit on a return simply because the client has paperwork saying they bought one," he said.
He suggests that a taxpayer and a tax professional must identify the statutory authority for the credit first. "If that authority isn't there, neither the client's insistence nor the promoter's documentation changes the preparer's responsibility," O'Saben said.
And the IRS warns that taxpayers who claim erroneous tribal credits may face civil and criminal penalties.
Bad tax advice promoted on social media
We've been warned in the past about a flurry of bad tax advice by social media influencers that drove thousands of taxpayers to file bogus tax returns that claimed inflated refunds. Many will suggest that you wrongly tap into obscure tax credits. The IRS has reported problems with a misused fuel tax credit, too.
In 2024, an IRS crackdown on extensive fraud involving obscure tax credits triggered a round of notices for taxpayers that required the taxpayer to verify their identity.
Those who trusted a less than trustworthy tax preparer found themselves dealing with quite a mess. If their tax refund was inflated by claiming tax credits that don't apply to them, the taxpayer had to verify their ID first and then amend a return before any federal income tax refund could be issued.
How one bad tax credit scheme works
Here's how the trouble with fake "Tribal Tax Credits" starts: Promoters will encourage a taxpayer to buy 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," the IRS warns.
Worse yet, those behind such schemes often 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," the IRS warns.
“For that reason, the IRS will always confront abusive and illegal tax schemes that, if left unchallenged, could undermine confidence in our tax system," said IRS Chief Executive Officer Frank J. Bisignano in a statement.
The objective, he said, is to protect taxpayers and the integrity of the tax system.
The IRS warns that participating in an abusive tax scheme can result in the assessment of the correct tax owed, penalties, interest, and, potentially, fines and imprisonment.
Taxpayers and tribal communities can use Form 14242, Report Suspected Abusive Tax Promotions or Preparers, to report a suspected scheme. Taxpayers with information about tax fraud or other illegal tax-related activity can report it at IRS.gov/submitatip.
Some red flags of these schemes, according to the IRS:
- Promoters often use legitimate tax provisions or government programs to make fraudulent schemes appear credible. Maybe, they will suggest that some sort of agreement exists between the U.S. Treasury Department and certain tribal governments. Maybe, they will suggest that a way exists to convert tribal trust fund payments into federal tax credits. The IRS states clearly: "No such agreement exists."
- Promoters may cite provisions allowing sale or transfer of certain credits among taxpayers. According to the IRS, "federal law permits transfers only for specific clean energy credits and does not create a Tribal 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.
- 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.
- Promoters may cite presidential executive orders and provisions of the Internal Revenue Code when no such thing applies.
- Those behind the scheme also might refer to government or interagency agreements that are not publicly available.
Contact personal finance columnist Susan Tompor: stompor@freepress.com. Follow her on X @tompor.
This article originally appeared on Detroit Free Press: Why you don't want to fall for tribal tax credits scam that seems real
