Beware of Emerging Clean Energy Tax Credit Scams
Segal, Cohen & Landis (SCL) – Beverly Hills, CA
At Segal, Cohen & Landis, we are committed to keeping our clients informed about the latest tax developments that could impact their financial well-being. On July 3, 2024, the IRS issued a warning about a new scam involving the purchase of clean energy tax credits. As your trusted tax professionals, we want to ensure you are aware of these fraudulent activities and understand how to protect yourself.
The Scam
According to the IRS, unscrupulous tax return preparers are misrepresenting the rules for claiming clean energy credits under the Inflation Reduction Act (IRA). These preparers are targeting individuals who file Form 1040, improperly claiming IRA credits to offset income tax from sources such as wages, Social Security, and retirement account withdrawals.
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. However, individuals purchasing these credits are subject to the passive activity rules. This generally means they can only use purchased credits to offset income tax from a passive activity, which most taxpayers do not have.
IRS Warning
The IRS has seen numerous instances where taxpayers, relying on deceitful preparers, file returns claiming purchased clean energy credits that they ultimately cannot benefit from. The then-IRS Commissioner, Danny Werfel, emphasized the importance of using reputable tax professionals when claiming complex credits like clean energy. Taxpayers risk future compliance action by the IRS, repayment of the inflated credit, plus interest and possible penalties if they claim inappropriate credits.
Protect Yourself
At Segal, Cohen & Landis, we advise all individual taxpayers considering purchasing clean energy credits under the IRA to consult with a trusted tax professional. It is crucial to understand the limitations under the passive activity rules and other tax code provisions that may apply to your specific situation.
If you suspect an abusive tax scheme or misconduct by a tax return preparer, use the current reporting options at IRS.gov/SubmitATip. Follow the instructions for your report type and include relevant supporting information. The historical July 2024 warning included mailing and fax instructions; use the current IRS instructions when submitting a report today.
Taxpayers and tax professionals can also submit information to the IRS Whistleblower Office and may be eligible for a monetary award. For more details, refer to Abusive tax schemes and abusive tax return preparers on IRS.gov.
Stay Informed
As part of our commitment to client education and protection, Segal, Cohen & Landis offers comprehensive tax planning and consultation services. Our experienced team can help you navigate complex tax laws and ensure you are claiming the credits and deductions you are entitled to.
Visit our tax planning services page to learn more about how we can assist you in optimizing your tax strategy.
Stay vigilant and informed to protect your financial interests. If you have any questions or concerns about this or any other tax-related issue, do not hesitate to contact us at Segal, Cohen & Landis. We are here to help you every step of the way.
Segal, Cohen & Landis is a leading tax law firm based in Beverly Hills, California, specializing in tax litigation, planning, and consultation services. With a team of seasoned professionals, we are dedicated to providing personalized and effective solutions for our clients.
Related guidance: IRS Audit Representation.
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Segal, Cohen & Landis, P.C. — Beverly Hills. Serving clients nationwide.
Samuel Landis, Esq.
LL.M. (Tax) · Selected to Super Lawyers®
Sam Landis is a Beverly Hills IRS tax attorney specializing in IRS collection defense, audit representation, and international tax compliance for foreign nationals and US expats.