IRS warns of clean energy tax credit scam

The Internal Revenue Service issued a warning Wednesday cautioning taxpayers to beware of a new scam involving the purchase of clean energy tax credits.

The IRS said it’s seeing cases where unscrupulous tax preparers misrepresent the rules for claiming clean energy tax credits under the Inflation Reduction Act. The 2022 law includes transferability provisions allowing taxpayers to purchase tax credits from investments in clean energy to offset their tax liability. Some unscrupulous tax preparers are convincing their clients to file returns claiming the taxpayer has purchased clean energy credits, but the taxpayer ultimately can’t benefit from the claim.

The scam mostly targets people who file Form 1040. Preparers file returns that have individuals improperly claiming IRA credits to offset their income taxes from sources such as wages, Social Security and retirement account withdrawals.

The IRS noted that people who buy tax credits under the IRA are subject to the passive activity rules for any credits they purchase. Typically, they can only use the credits they’ve bought to offset the income tax from a passive activity. However, most taxpayers don’t have passive income, nor a tax liability on it. Most investment activities are not considered to be 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 to,” said IRS Commissioner Danny Werfel in a statement Wednesday. “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 use a reputable tax professional before claiming complex credits like clean energy.”

The IRS noted individual taxpayers claiming inappropriate credits run the risk of future compliance action by the IRS and are responsible for repaying the inflated credit, plus interest and possible penalties.

Separately, earlier Wednesday, the IRS offered reporting relief to businesses claiming tax credits for renewable energy and electricity projects, giving them an expedited way to report hundreds of such credits for 2023 on Forms 3468 and 8835.