The Internal Revenue Service (IRS) issued a release, IR-2024-182, on 3 July 2024, cautioning taxpayers about a scam in which unscrupulous tax return preparers misrepresent the rules for claiming clean energy credits under the Inflation Reduction Act (IRA).
The transferability provisions of the IRA enable the purchase of eligible federal income tax credits from investments in clean energy to offset a buyer’s tax liability. The IRS has seen taxpayers file returns using unscrupulous return preparers who are claiming purchased clean energy credits that the taxpayer is ultimately unable to benefit from.
The scam generally targets individuals who file Form 1040. The preparers file returns that have individuals improperly claiming IRA credits that offset income tax from sources such as wages, Social Security, and retirement account withdrawals.
Individuals purchasing tax credits under the IRA are subject to the passive activity rules for any purchased credits. Generally, this means they can only use purchased credits to offset income tax from a passive activity. Most taxpayers do not have passive income and a passive income tax liability. Most investment activities are not considered passive. The IRS stated it is taking initiatives to address this scam and advised individuals to consult a reputable tax professional before claiming clean energy tax credits.
The IRS noted 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.
