IRS issues warning to taxpayers

WASHINGTON - The Internal Revenue Service is issuing a warning to taxpayers about a new scam on their radar that could cost you time and money.

In the latest scheme, the IRS says victims are pushed to buy clean energy tax credits by dishonest tax preparers who misrepresent the rules for claiming them under the Inflation Reduction Act (IRA).

The preparer then files the returns that have individuals improperly claiming IRA credits that offset income tax from sources such as wages, Social Security and retirement account withdrawals.

"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 in a statement. "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 says Individuals purchasing tax credits under the IRA are subject to the passive activity rules. They say most taxpayers do not have passive income and a passive income tax liability. Most investment activities are not considered passive, they say.

Compliance action could be taken against individual taxpayers claiming inappropriate credits. The taxpayers will also be expected to pay back the inflated credit, plus interest and possible penalties.

The IRS says taxpayers should use trusted tax advisors. More information on the Inflation Reduction Act of 2022 can be found online. Improper activity can be reported to the IRS directly.