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Clean Energy May Become Tax Enforcement Problem by STEVEN TOSCHER and PHILIPP BEHRENDT

Beware of the latest scheme targeting clean energy tax credits, the IRS cautions on July 3, 2024 (IR-2024-182). This scheme, preying on the well-meaning yet unsuspecting, involves tax return preparers who allegedly  misrepresent the rules for claiming clean energy tax credits under the Inflation Reduction Act (IRA).

This is important not only for tax administration but for our collective efforts to move to clean energy abs combat the warning of the planet. A lot is at stake.

Clean energy tax credits are financial incentives provided by the federal government to encourage investments in renewable energy sources and energy-efficient technologies. These credits aim to reduce the nation’s reliance on fossil fuels, decrease greenhouse gas emissions, and promote the development and adoption of sustainable energy solutions. Here’s a brief overview of the key aspects of clean energy tax credits:

Types of Clean Energy Tax Credits

1.  Investment Tax Credit (ITC): This credit allows businesses and homeowners to deduct a percentage of the cost of installing renewable energy systems, such as solar panels or wind turbines, from their federal taxes. The ITC typically covers solar, wind, geothermal, and other eligible renewable energy installations.

2.  Production Tax Credit (PTC): This credit provides a per-kilowatt-hour (kWh) benefit for the first ten years of electricity generation from renewable energy projects such as wind, geothermal, and biomass.

3.  Residential Energy Efficient Property Credit: Homeowners can claim this credit for the installation of qualifying energy-efficient property in their homes, such as solar electric systems, solar water heaters, geothermal heat pumps, and small wind turbines.

4.  Energy Efficiency Tax Credits: These credits are available for improvements that reduce energy consumption, such as upgrading insulation, windows, and HVAC systems.

Under the IRA, a taxpayer can buy eligible federal income tax credits from investments in clean energy. These credits can then be used to offset the buyers federal income tax liability. The hitch is that the purchased clean energy credits can only be used to offset passive income. The problem is that some return preparers prepare for their clients individual income tax returns that improperly claim these credits to offset income from sources that are not passive, such as wages, Social Security, and withdrawals from retirement accounts.

“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.”

The IRS reminds taxpayers that claiming inappropriate credits can trigger future compliance actions. Individual taxpayers would then be responsible for repaying the inflated credit, plus interest and possible penalties.

Before purchasing clean energy credits under the IRA, individuals should consult a trusted tax professional to confirm their eligibility. Understanding the limitations under the passive activity rules and other parts of the tax code is crucial for avoiding these pitfalls.

The IRS continues to alert taxpayers about various scams that lure them into filing inappropriate claims for other tax credits. Notable among these are scams involving the Fuel Tax Credit, the Sick and Family Leave Credit, and household employment taxes. Misleading social media advice and promoters have spurred thousands of dubious claims, leading to delayed refunds and the necessity for taxpayers to provide legitimate documentation to support these claims.

However, amidst efforts to combat fraud, legitimate users of these credits can inadvertently attract scrutiny. Often, innocent mistakes or misunderstandings about the complex eligibility criteria can trigger IRS investigations.

Accurate documentation and knowledge of the applicable tax regulations are therefore paramount. The IRS, tasked with ensuring compliance, may challenge claims that are legitimate but appear dubious or unsupported. A taxpayer whose claim of a clean energy credit is challenged should consult with a tax professional who understands the intricate rules and regulations that govern these credits.

Stay informed, stay vigilant, and consult reputable professionals when navigating the complexities of tax credits. It’s always important but in this case the future of the planet may be at stake.


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