IRS warns of new scam involving Clean energy tax credits
The IRS has issued a warning to taxpayers about a new scam involving the purchase of clean energy tax credits.
This scam, which takes advantage of provisions under the Inflation Reduction Act (IRA), has been found to mislead taxpayers into improperly claiming credits on their tax returns.
Understanding the scam
How the scam works
The IRS has observed instances where dishonest tax return preparers misrepresent the rules for claiming clean energy credits.
These preparers entice taxpayers, particularly those filing Form 1040, into purchasing clean energy tax credits.
However, these taxpayers are often unable to benefit from the credits as claimed.
Key details of the scam
- Transferability provisions: The IRA allows the purchase of eligible federal income tax credits from clean energy investments to offset a buyer’s tax liability. However, these purchased credits are generally only applicable to passive income tax liabilities.
- Targeted individuals: The scam primarily targets individuals who do not have passive income and thus cannot benefit from the credits for their active income sources such as wages, Social Security, and retirement withdrawals.
IRS statement and warnings
Commissioner’s warning
“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,” – IRS Commissioner Danny Werfel.
He urged taxpayers to be cautious and to consult reputable tax professionals before claiming complex credits like clean energy credits.
Consequences for taxpayers
Taxpayers who improperly claim these credits risk future compliance actions by the IRS.
They may be required to repay the inflated credits, along with interest and potential penalties.
Guidelines for taxpayers
Consulting tax professionals
Individuals considering purchasing clean energy credits should seek advice from trusted tax professionals to determine their eligibility and understand the limitations under the passive activity rules and other tax code provisions.
Reporting fraud
The IRS is committed to investigating and taking action against abusive tax return preparers.
To report an abusive tax scheme or tax preparer, taxpayers can use the following methods:
- Online: Submit Form 14242, Report Suspected Abusive Tax Promotions or Preparers.
- Mail: Send a completed Form 14242 and any supporting materials to: Internal Revenue Service Lead Development Center / Stop MS5040 / 24000 Avila Road / Laguna Niguel, California 92677-3405
- Fax: Send the form and materials to 877-477-9135.
Taxpayers and professionals can also submit information to the IRS Whistleblower Office and may be eligible for a monetary award.
Other scams involving tax credits
Additional fraudulent claims
The IRS continues to see various scams misleading taxpayers into filing inappropriate claims for other tax credits, including:
- Fuel Tax Credit
- Sick and Family Leave Credit
- Household employment taxes
Many of these scams are fueled by misleading advice on social media and from dubious promoters.
Taxpayers should be cautious of any tax breaks that seem too good to be true and seek advice from credible tax professionals.
Conclusion
The IRS emphasizes the importance of vigilance against tax scams, particularly those involving complex credits like clean energy tax credits.
Taxpayers should always consult reputable tax professionals and report any suspicious activities to the IRS to protect themselves from fraud and compliance issues.
For more information, visit the Inflation Reduction Act of 2022 page on IRS.gov.