A warning alert by the Internal Revenue Service addresses a new emerging scam involving the purchase of clean energy tax credits. In their recent findings, it appears that there are cases of tax return preparers misrepresenting the rules for claiming clean energy credits under the Inflation Reduction Act (IRA). The transferability provision of the IRS enables the purchase of eligible federal income tax credits from investments in clean energy to offset a buyer’s tax liability.
The scam is generally targeting individuals who file Form 1040. The IRS has seen taxpayers filing returns using corrupt tax return preparers who are convincing them into claiming purchased clean energy credits, that the taxpayer is ultimately unable to benefit from. These tax return preparers are improperly assisting taxpayers with claiming IRA credits that offset income tax from sources such as wages, Social Security and retirement account withdrawals. By purchasing tax credits under the IRA, they are subject to the passive activity rules for any credits purchased. Generally, this means they can only use purchased credits to offset income tax from a passive activity. However, most taxpayers don’t have passive income nor a passive income tax liability. Most investment activities are not considered passive.
Unfortunately, taxpayers claiming inappropriate credits run the risk of future compliance action by the IRS and are responsible for repaying not only the inflated credit but also added interest and penalties associated. This is just another deceitful attempt where scammers are trying to use the complexity of the tax law to their advantage to entice people into claiming fraudulent credits they were never entitled to. The IRS is urging tax payers who are considering purchasing clean energy credits to utilize a reputable tax professional for advice and appropriate action prior to claiming complex credits like clean energy. Additionally, they should also be privy to the limitations under the passive activity rules, and other portions of the tax code concerning the particular tax situation. More information regarding this topic can be found via the Inflation Reduction Act of 2022 page located on the IRS.gov website.
The IRS is committed to investigating paid tax return preparers who are bad actors. To report an abusive tax scheme or a tax return preparer, people should use the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers, or mail or fax a completed Form 14242 PDF and any supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.
Mail:
Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Road
Laguna Niguel, California 92677 3405
Fax: 877-477-9135
Taxpayers and tax professionals can also submit this information to the IRS Whistleblower Office, where they may be eligible for a monetary award. For details, refer to Abusive tax schemes and abusive tax return preparers on IRS.gov.