The Internal Revenue Service (IRS) is sending out an alert about a new scam that targets taxpayers with the promise of clean energy tax credits. Let’s break it down so you can stay safe and savvy.
What’s the Scam?
Scammers, often posing as tax return preparers, are misleading taxpayers about claiming clean energy credits under the Inflation Reduction Act (IRA). Here’s how they do it:
- Misrepresentation: They misrepresent the rules for claiming clean energy credits.
- Improper Filing: They file tax returns claiming these credits, even though most taxpayers can't benefit from them.
- Target: The scam mainly targets individuals who file Form 1040.
How Does It Work?
- Purchase of Tax Credits: The IRA allows for the purchase of federal income tax credits from investments in clean energy. However, these purchased credits can only offset income tax from passive activities (which most taxpayers don’t have).
- Unscrupulous Preparers: Scammers file returns that improperly claim these credits to offset taxes from wages, Social Security, and retirement withdrawals.
- Passive Activity Rules: Generally, credits can only offset passive income. Most people don't have passive income, making these credits useless to them.
IRS Commissioner’s Advice:
"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. Be wary of promoters pushing dubious credits. Always consult a reputable tax professional before claiming complex credits like clean energy.”
What’s at Stake?
- Compliance Actions: If you improperly claim these credits, you risk future compliance actions from the IRS.
- Repayment: You’ll be responsible for repaying the inflated credit, plus interest and possible penalties.
Tips to Avoid the Scam:
- Consult a Professional: Always consult a trusted tax professional before purchasing or claiming any tax credits.
- Understand the Rules: Make sure you understand how passive activity rules and other tax code limitations apply to your situation.
- Stay Informed: Be aware of other common scams like the Fuel Tax Credit, Sick and Family Leave Credit, and household employment taxes.
Report Fraud
If you suspect any tax fraud or abusive tax schemes, report them to the IRS using Form 14242. You can file it online or mail/fax it with supporting material to the IRS Lead Development Center in the Office of Promoter Investigations.
Stay Vigilant
Scams are evolving, but so are we! Stay informed, consult professionals, and report any suspicious activities. Together, we can outsmart the scammers.
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