Article Summary –
The IRS has identified a new scam involving unscrupulous tax return preparers who misrepresent rules for claiming clean energy credits under the Inflation Reduction Act (IRA). The scam targets individuals filing Form 1040, leading them to improperly claim IRA credits, which can only offset income tax from passive activities—a condition most taxpayers do not meet. The IRS warns that those who fall for this scam risk future compliance actions, including repayment of the inflated credit with interest and possible penalties, and advises taxpayers to consult trusted tax professionals to ensure eligibility and compliance with tax laws.
New Tax Scam Involving Clean Energy Credits Emerges
A new tax scam has emerged involving clean energy tax credits, according to the Internal Revenue Service (IRS).
In this latest scam, the IRS has noticed unscrupulous tax return preparers misrepresenting rules for claiming clean energy credits under the Inflation Reduction Act (IRA).
The transferability provisions of the IRA allow purchasing eligible federal income tax credits from clean energy investments to offset tax liability. The IRS has seen taxpayers file returns using unethical return preparers who claim purchased clean energy credits that the taxpayer ultimately cannot benefit from.
The scam primarily targets individuals who file Form 1040. Preparers file returns that improperly claim IRA credits to offset income tax from sources like wages, Social Security, and retirement account withdrawals.
Individuals buying tax credits under the IRA are subject to passive activity rules. Generally, they can only use purchased credits to offset income tax from a passive activity. Most taxpayers do not have passive income and a passive income tax liability. Most investment activities are not considered passive.
“This is another example of scammers exploiting the complexity of tax laws,” said IRS Commissioner Danny Werfel. Taxpayers should be wary of promoters pushing dubious credits. The IRS is monitoring this scam and urges people to use reputable tax professionals before claiming complex credits like clean energy.
The IRS noted that taxpayers claiming inappropriate credits risk future compliance action and are responsible for repaying the inflated credit, plus interest and possible penalties.
Taxpayers considering purchasing clean energy credits under the IRA should consult a trusted tax professional to confirm their eligibility for purchasing credits and claiming tax benefits. They should also understand how passive activity rules and other tax code portions may apply to their situation.
The IRS continues to warn taxpayers about other scams misleading them into filing inappropriate claims for other tax credits. The IRS has warned taxpayers not to fall for scams around the Fuel Tax Credit, Sick and Family Leave Credit, and household employment taxes. Fueled by misleading social media advice and promoters, the IRS has seen thousands of dubious claims earlier this year, delaying refunds and requiring taxpayers to show legitimate documentation supporting these claims.
For more information about clean energy, visit the Inflation Reduction Act of 2022 page on IRS.gov.
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