Don't Mess With Taxes

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Tax scams tend to slow down after the main federal return filing season, but they never go entirely away.

That’s still true as we head into the heart of summer 2024. The Internal Revenue Service is warning taxpayers there is a new scam involving the purchase of clean energy tax credits.

This latest scheme, like so many, is based on a real tax break.

Legal credit, but limited: The Inflation Reduction Act, which President Joe Biden signed into law on Aug. 16, 2022, contained provisions that dramatically changed federal clean energy tax credits. The law allows for the sale of 11 specific tax credits, which were previously non-transferable or did not exist under prior federal income tax regulations.

This transferability option is open to a broad range of eligible taxpayers, including in certain situations individual filers. And this is where these current clean energy tax credit con artists focus.

Inflation Reduction Act provisions allow the purchase of eligible federal income tax credits from investments in clean energy to offset a buyer’s tax liability. But the option to use purchased credits to offset income tax generally is available to individuals taxpayers only when the offset income tax is from a passive activity.

Most taxpayers do not have passive income and a passive income tax liability, notes the IRS. And most investment activities, adds the tax agency, are not considered passive.

Improper claims by individual filers: But that fact isn’t stopping the clean energy tax credit con artists. The IRS says these scammers, including unscrupulous tax preparers, tell their Form 1040 filing taxpayer victims that they are eligible to use the credit transfer.

The sketchy preparers then file returns that have the taxpayer victims claiming credits that offset income tax from sources such as wages, Social Security, and retirement account withdrawals.

When the IRS discovers the wrongly claimed tax credit, it is the taxpayer who is on the hook for repaying the inflated credit, plus interest and possible penalties.

“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. “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.”

Other false credit claims: While fraudulent clean energy credit claims is the latest scheme to show up on the IRS scam radar, it is not the only one.

The IRS says it continues to see other scams that are misleading taxpayers into filing inappropriate claims for other tax credits. They include scams centered around the Fuel Tax Credit, the Sick and Family Leave Credit, and household employment taxes.

Many of these bad tax claims are fueled by misleading social media advice and promoters, says the IRS.

If a tax preparer suggests you claim a tax break that seems questionable, trust your instincts. Don’t take the advice. That old saying about something seeming too good to be true is particularly applicable to tax laws.

Instead, find another tax professional, one with solid references and whom you check out thoroughly.

And if you do fall prey to a scheming tax preparer or scammer, let the IRS know. Report an abusive tax scheme or a tax return preparer by filing the online Form 14242, Report Suspected Abusive Tax Promotions or Preparers.

If you prefer paper, you can download Form 14242, fill it out, and mail the completed form and any supporting material to — 

Internal Revenue Service Lead Development Center
Stop MS5040
24000 Avila Roadhttps://www.dontmesswithtaxes.com/2015/02/5-things-to-check-when-hiring-a-tax-preparer.html
Laguna Niguel, California 92677-3405

The IRS also will accept Form 14242 and additional documentation by fax. That toll-free number is (877) 477-9135.

You also might find these items of interest:

• How to report tax scams and fraud
• Save some tax green by going greener at home
• IRS Whistleblower Office awards more than doubled in FY23, but it still faces substantial backlog
• Fake business tax credits, bogus charities, and phishing and smishing all make the 2024 IRS Dirty Dozen list

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