The Internal Revenue Service is warning taxpayers to keep their eyes peeled to avoid a new emerging scam involving buying clean energy tax credits.
When it comes to this scam, unscrupulous tax return preparers are misrepresenting the rules for claiming clean energy credits under the Inflation Reduction Act (IRA), according to a release from the IRS.
The transferability provisions of the IRA enable the purchase of eligible federal income tax credits from investments in clean energy to offset a buyer’s tax liability. As a result, the IRS has taken notice of taxpayers filing returns using unscrupulous return preparers who are claiming purchased clean energy credits that the taxpayer ultimately is unable to benefit from.
The scam targets individuals who file Form 1040. The IRS says preparers file returns that have individuals improperly claiming IRS credits that offset income tax from sources such as wages, Social Security and retirement account withdrawals.
The individuals purchasing tax credits under the IRA are subject to the passive activity rules for any purchased credits. In general, this means purchased credits can only be used to offset income tax from a passive activity.
Keep in mind that most taxpayers don’t have passive income and a passive income tax liability. Most investment activities aren’t considered passive.
“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…
