Although a hefty investment, renewable resources are a win-win for both you and the environment. Solar panels and wind turbines prevent air pollution and the production of harmful emissions like greenhouse gasses. Additionally, transitioning to clean energy technologies can put money back in your pocket thanks to a tax incentive called the Residential Clean Energy Credit (RCEC). Unfortunately for some taxpayers, the RCEC is the latest target of the ongoing rise in tax scams. In a July 3 press release, the Internal Revenue Service (IRS) urged filers “not to fall victim to a new emerging scam involving buying clean energy tax credits.”
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The RCEC clearly states that taxpayers who “invest in renewable energy for [their] home such as solar, wind, geothermal, fuel cells or battery storage technology” may qualify for a nonrefundable credit.
As for what that entails, the IRS says the RCEC “equals 30 percent of the costs of new, qualified clean energy property for your home installed anytime from 2022 through 2032. The credit percentage rate phases down to 26 percent for property placed in service in 2033 and 22 percent for property placed in service in 2034.”
On the surface, these tax credits can sound very appealing. However, in the case of RCEC, the IRS is warning that “unscrupulous tax return preparers are misrepresenting the rules for claiming clean energy credits under the Inflation Reduction Act (IRA).”
“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,” explains the agency.
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Scammers are mainly targeting taxpayers who file Form 1040, which collects information regarding income, deductions, tax refunds, and credits. In this specific scheme, the IRS has received returns in which income tax was reduced using fraudulent IRA credits.
In the consumer alert, the IRS said affected taxpayers will be penalized for citing ineligible credits and required to pay back the inflated credit on top of interest and other possible fees.
“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.”
Those who are interested in learning more about the RCEC or think they are lawfully eligible to purchase clean energy credits within IRA guidelines should only seek advice from trusted tax experts.
