The IRS has issued a warning to taxpayers about a new scam involving clean energy tax credits. This scheme involves unethical tax return preparers who misrepresent the rules for claiming these credits under the Inflation Reduction Act (IRA).
The IRA’s transferability provisions allow the purchase of eligible federal income tax credits from investments in clean energy to offset a buyer’s tax liability. However, the IRS has noticed a trend where tax return preparers file returns claiming these credits improperly. As a result, taxpayers are unable to benefit from the purchased clean energy credits.
This tax credit scam mainly targets individuals who file Form 1040. The returns filed by these preparers improperly claim IRA credits to offset income tax from sources such as wages, Social Security, and retirement account withdrawals.
Under the IRA, individuals purchasing tax credits are subject to passive activity rules. Generally, this means they can only use purchased credits to offset income tax from passive activities. Most taxpayers do not have passive income or a passive income tax liability, making them ineligible for these credits.
“This is another example where scammers are trying to use the complexity of the tax law to entice people into claiming credits they’re not entitled to,” said IRS Commissioner Danny Werfel. “Taxpayers should be wary of promoters pushing dubious credits like this and others. The IRS is watching out for this scam, and we urge people to…
