IRS Warns Of 'Unscrupulous' Tax Preparers 'Misrepresenting' Clean Energy Tax Credits

The Internal Revenue Service (IRS) is warning taxpayers against a new tax-preparer scam involving certain tax credits.

“In this latest scam, the IRS is seeing instances where unscrupulous tax return preparers are misrepresenting the rules for claiming clean energy credits under the Inflation Reduction Act (IRA),” the IRS said.

The transferability provisions of the IRA allow taxpayers to buy eligible federal income tax credits from investments in clean energy as a way to offset tax liability. The IRS said it has seen “unscrupulous” tax preparers file returns that wrongfully claim purchased clean energy tax credits to which taxpayers are not entitled.

The scam generally targets taxpayers who file Form 1040, which is the U.S. Individual Income Tax Return, the IRS said.

The IRA’s clean energy tax credit may only be applied to taxes paid on passive income such as earnings from rental properties or stocks, but prepapers who conduct the scam misguide taxpayers into filing returns that improperly claim IRA credits against taxable income such as wages, Social Security and retirement account withdrawals.

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"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 said.

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

Individual taxpayers who are considering buying clean energy credits under the IRA should consult a trusted tax professional for advice on whether they are eligible to purchase credits and claim the tax benefits.

They should also understand how the limitations under the passive activity rules, and other portions of the tax code, may apply to their particular tax situation, the IRS said.

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