Avoiding tax scams in 2023

The 2023 tax season is here. Are you ready for the tax scams? In this post, we’ll tell you what’s new in 2023, what classic tax scams are making the rounds again, and how to stay safe.

New tax scams for 2023

The IRS has issued a warning about a new family of tax scams that they say is on the rise.

Scammers are encouraging people to file tax returns using fraudulent Form W-2 information. The idea is to trick the IRS into giving you a larger tax refund. There are several variants of the scheme going around:

• Social media scammers tell people to use tax software to fill in Form W-2, Wage and Tax Statement, and “make up large income and withholding figures as well as the employer it is coming from.” The idea is to file the fake tax form electronically and receive a hefty refund from the IRS.

• Another scam making the rounds suggests that people submit Form 7202, Credits for Sick Leave and Family Leave for Certain Self-Employed Individuals, in order to claim a tax credit. However, these credits were only available in 2020 and 2021—and then only to self-employed individuals.

• A third variation involves making up household employees and claiming them on Schedule H (Form 1040), Household Employment Taxes. The goal here is to claim fraudulent sick and family wages that were “paid” to the imaginary household employee, either to reduce tax liability or increase the size of the tax refund.

It’s unclear, based on wording of the IRS announcement, what tax scammers hope to gain by giving out this kind of awful tax advice. Perhaps they are requesting a portion of the fraudulent tax return as a sort of commission; or perhaps these scams are merely preludes to phishing or extortion scams.

But one thing is certain: This is dangerously bad advice from very sketchy people. As the IRS puts it: 

People who try this…face a wide range of penalties. This may include a frivolous return penalty of $5,000. Filers also run the risk of criminal prosecution for filing a false tax return.

Tax scams from past tax seasons

Scammers stick to the tried and true, which is why every year we remind our readers of popular tax scams from the past. Here are some of the most important ones to keep in mind:

• IRS phone scams: Scammers call taxpayers claiming to be from the IRS. They try to get the victim to provide personal information or to send them money to pay off back taxes. They frequently use bullying tactics, threaten jail time, and so on.

• Phishing emails: Scammers send emails claiming to be from the IRS and offering help with returns and refunds. These emails are an attempt to gain access to a victim’s credentials, trick them into giving up money or personal information, or infect them with malware.

• TAS scams: Bad guys call targets and claim to be from the Taxpayer Advocate Service (TAS), an actual division of the IRS that helps taxpayers. The goal here is to steal sensitive personal information.  

• Ghost preparers: These are fake tax preparers who pretend to do your taxes, but then run off with the tax preparation fee or even your tax refund. 

• Debt relief scams: These became popular during the economic hard times of the past few years. Shady debt relief companies contact people and say they can help them settle back taxes for pennies on the dollar. It’s not true, and can result in stolen information and/or exorbitant service fees.

How to stay safe during tax season

Tax season is prime time for scammers. But there are some basic steps you can take in order to get through it safely:

Be on the lookout for IRS impersonators

Don’t reply to emails, texts, or phone calls from anyone claiming to be from the IRS and asking for personal or financial information. The IRS won’t ever do this. 

In fact, the vast majority of all IRS communications take place by regular mail. And when the IRS does call, it’s never to threaten you or demand payment in the form of Target gift cards!

The IRS is well aware of the problem of impersonation scams, and maintains a helpful guide on its website called: Understanding how the IRS contacts taxpayers: Avoiding scams and how to know it’s really the IRS reaching out.

Vet your tax preparer carefully 

If you’re going to trust someone with your taxes, make sure you do a bit of research on them first. For one thing, you can check on a tax preparer’s credentials. The IRS suggests doing this by using their directory of Federal Tax Return Preparers with Credentials and Select Qualifications. You can also look up your tax preparer in the directories of professional organizations.

In addition, watch for signs of tax preparer fraud. The AARP offers a helpful list of red flags that include: Failing to sign the tax return or enter a Preparer Taxpayer Identification Number (PTIN); asking you to sign a blank or incomplete tax return; not allowing you to see the return before it is filed; and basing their fees on a percentage of your return.

Reach out for help

Get help if you need it. If you receive a strange tax document in the mail that suggests someone has been filing taxes on your behalf, you may be the victim of tax-related identity theft. The IRS knows that this happens and will work with you to resolve it.

Your first stop should be their Taxpayer Guide to Identity Theft. The guide contains information about the signs of identity theft and the specific steps to take if you think you may be a victim.