IRS Clean Energy Tax Credit Scam: What Taxpayers Need to Know

Latest Facts and News

• The IRS issued a warning on July 3, 2024, about a new scam involving clean energy tax credits.
• Unscrupulous tax preparers are misrepresenting rules for claiming credits under the Inflation Reduction Act.
• The scam primarily targets individuals filing Form 1040.
• Taxpayers risk future IRS compliance action and may have to repay inflated credits with interest and penalties.

Are you considering going green to save some green on your taxes?
Hold that thought. While clean energy tax credits can offer significant savings, they’ve also become the latest target for scammers looking to cash in on unsuspecting taxpayers.

The recently sounded IRS warnings on scams are leaving well-intentioned individuals facing potential financial ruin and legal troubles. But don’t let this scare you away from legitimate opportunities to save on your taxes while helping the environment.

In this blog post, we’ll pull back the curtain on the IRS clean energy tax credit scam. You’ll learn how to spot the warning signs of all the IRS tax scams, understand which credits you might actually qualify for, and discover how to protect yourself while still taking advantage of these valuable energy-efficient tax incentives.

What is the IRS Clean Energy Tax Credit Scam?

The IRS has warned about a new IRS clean energy tax credit scam under the Inflation Reduction Act (IRA). In this IRS clean energy tax credit scam, dishonest tax preparers trick people into claiming tax credits they don’t qualify for. This can lead to serious financial and legal trouble for taxpayers.

How Does the IRS Clean Energy Tax Credit Scam Work?

Taxpayers are misled into claiming clean energy tax credits they don’t qualify for under the Inflation Reduction Act (IRA).

Here’s how the IRS clean energy tax credit scam operates:

• Transferability Provisions of the IRA: The Inflation Reduction Act (IRA) allows taxpayers to purchase clean energy tax credits to reduce their federal tax liabilities. These credits are tied to clean energy investments and can be transferred between parties. However, scammers misuse this provision by filing tax returns that improperly claim these credits for taxpayers who cannot legally benefit from them.

• Exploitation by Scammers: Scammers manipulate the clean energy tax credit system to deceive taxpayers. In fact, they prepare false returns, claiming these credits to offset taxes from ineligible income sources, such as wages or Social Security. Scammers leave taxpayers responsible for penalties and repayment by exploiting the rules’ complexity.

• Misrepresentation of Passive Activity Rules: Under IRA, those purchasing tax credits must follow passive activity rules, meaning the credits can only be used to offset income tax from a passive activity. Most taxpayers do not have passive income or a passive income tax liability, and most investment activities are not considered passive. Scammers misrepresent these rules, convincing taxpayers to claim credits they cannot legally use, leading to dire consequences.

Legitimate Clean Energy Tax Credits: What You Need to Know

The U.S. government has introduced a range of tax credits to promote clean energy adoption and reduce greenhouse gas emissions. These incentives, part of the IRA, aim to make sustainable energy more accessible and affordable for businesses and individuals alike. 

Here’s an overview of the key clean energy tax credits:

1. Production Tax Credit (PTC)

This credit benefits companies generating electricity from renewable sources. The more clean energy produced, the higher the tax savings. It’s particularly relevant for wind, solar, and geothermal energy producers.

2. Investment Tax Credit (ITC)

This credit helps offset the costs of installing renewable energy systems like solar panels and wind turbines. It’s a significant incentive for businesses transitioning to cleaner energy sources.

3. Residential Clean Energy Credit

Homeowners can benefit from this credit when installing solar panels, wind turbines, or geothermal heat pumps. It offers substantial tax savings, making home renewable energy systems more affordable.

4. Energy Efficient Home Improvement Credit

This credit helps homeowners upgrade to more energy-efficient systems. It covers improvements such as better insulation, energy-efficient windows, and heat pumps, helping to reduce both energy bills and carbon footprints.

5. Clean Vehicle Tax Credit

This credit lowers the cost of clean vehicles to amplify the adoption of electric vehicles. Additionally, it applies to both new and used electric cars, subject to certain conditions.

6. Carbon Capture and Sequestration Credit

This credit incentivizes the development and implementation of carbon capture technologies, particularly for industries capable of capturing large amounts of carbon dioxide.

7. Zero-Emission Nuclear Power Production Credit

This credit supports existing nuclear power facilities, helping them remain competitive in the energy market while providing zero-emission electricity.

8. Advanced Energy Project Credit

This credit supports setting up or expanding facilities that manufacture clean energy technologies. It’s designed to boost domestic production of green energy components.

9. Clean Hydrogen Production Tax Credit

This credit rewards clean hydrogen production, with higher incentives for lower-emission production methods.

10. Clean Fuel Production Credit

Producers of clean transportation fuels in the U.S. can claim this credit, encouraging the development of low-emission alternatives to traditional fuels.

11. Alternative Fuel Vehicle Refueling Property Credit

This credit helps offset the cost of installing electric vehicle charging stations or hydrogen refueling stations, particularly in rural or low-income areas.

How to Claim Clean Energy Tax Credits?

Claiming clean energy tax credits requires completing specific steps and using the correct IRS forms based on the type of credit you are eligible for. 

Follow these steps to ensure compliance:

1. Determine Eligibility for the Credit

Identify which clean energy tax credit applies to your project or investment. The tax credit eligibility will depend on the specific activity or production type (e.g., renewable electricity, hydrogen production, or advanced manufacturing).

2. Complete the Appropriate Form

Taxpayers must fill out the correct form for the credit they are claiming. Refer to the following:

• Form 8835: Renewable Electricity Production Credit.
• Form 7210: Clean Hydrogen Production Credit.
• Form 7211: Clean Electricity Production Credit (pending).
• Form 7213: Nuclear Power Production Credit.
• Form 8849 (Schedule 3): Refund of Excise Taxes (includes Safe Aviation Fuel Production Credit).
• Form 7218: Clean Fuel Production Credit (pending).
• Form 7207: Advanced Manufacturing Production Credit.
• Form 8933: Carbon Oxide Sequestration Credit.

3. Submit the Form with Your Tax Return

• Include the completed form when filing your annual tax return.
• Ensure all required documentation is attached to validate your claim.

Documentation for Energy Tax Credits

When claiming energy tax credits, you typically don’t need to submit any documentation with your tax returns. The process mainly involves answering questions truthfully on the required forms. However, this doesn’t mean you should discard your records.

It’s important to keep all documentation related to purchases for which you’re claiming a tax credit. This includes receipts, invoices, and any certifications for energy-efficient products or installations. While you don’t need to submit these documents with your tax return, the IRS may request proof of your claims in the future.

Additionally, if you are maintaining reports, that’s an extra layer of safeguard! If the IRS ever questions your energy tax credit claims, having the original documentation readily available will make it much easier to verify your declarations.

Remember, the process can be intricate, especially when dealing with carryover credits or multiple energy improvements. Hall’s IRS can provide valuable assistance in handling these complicated situations on the go. 

How to Identify Clean Energy Tax Credit Scams?

When dealing with tax preparers for clean energy credits, be aware of certain warning signs for IRS clean energy tax credit scam. 

Here are some key red flags to keep in mind:

1. Unsolicited Offers: Be cautious of unexpected calls, emails, or mail about clean energy tax credits. Reputable tax professionals typically don’t use these approaches to attract clients.
2. Guaranteed High Returns: If someone promises significant tax savings through clean energy credits without fully understanding your specific financial situation, this should raise concerns. Every taxpayer’s circumstances are unique, after all.
3. Pressure to Act Quickly: Be wary if you feel rushed to make a decision. Scammers often create a false sense of urgency to prevent thorough investigation. Remember, legitimate opportunities rarely require immediate action.
4. Unrealistic Claims: If the offer seems too good to be true, it very well might be. Don’t be swayed by promises of excessive tax breaks. It’s always wise to approach such claims with a healthy dose of skepticism.
5. Unqualified Preparers: Only work with licensed tax professionals, especially for complex credits like these. Trusting your tax return to someone without proper qualifications can lead to serious issues down the line.
6. Unfamiliar Forms or Procedures: The IRS uses specific forms and processes for clean energy credits. If your preparer uses strange documents or suggests unusual methods, this could be cause for concern.

Frankly, stay vigilant and trust your instincts when dealing with tax matters. If something doesn’t seem quite right, it’s always better to seek a second opinion from a trusted tax professional at Hall’s IRS. 

After all, it’s your financial well-being at stake.

Protecting Yourself from Tax Credit Fraud

When it boils down to claiming tax credits, take precautions so that you don’t fall victim to fraud. Here are some of the key taxpayer protection steps to help safeguard against the IRS clean energy tax credit scam:

Verify Tax Preparer Credentials

Before working with a tax preparer, verify their qualifications:

• Check the IRS Directory of Federal Tax Return Preparers with Credentials and Select Qualifications. This online resource lists credible tax advisors with recognized credentials like Enrolled Agents (EAs), Certified Public Accountants (CPAs), and attorneys.
• Look for credentials such as CPA, EA, or tax attorney, which demonstrate a high level of competency in tax preparation.
• Be wary of preparers who lack proper certifications or use unfamiliar forms and procedures.

Steps Before Claiming Credits

Before claiming any tax credits, take these important steps:

• Determine your eligibility for specific tax credits by carefully reviewing IRS guidelines.
• Gather all necessary documentation to support your claim, including receipts, invoices, and relevant certificates.
• Calculate your taxable income accurately, considering all sources of income and eligible tax deduction claims.
• File your tax return on time, as credits can typically only be claimed on timely filed original returns.

Reporting Suspicious Activities

If you suspect tax fraud or encounter a suspicious tax preparer:

• Use IRS Form 3949-A to report suspected tax law violations. This form can be used to report individuals or businesses engaged in tax fraud.
• Contact the IRS Helpline at (800) 829-1040 if you have questions about reporting tax fraud.

Protect Your Personal Information

Follow this to safeguard your personal information when dealing with tax matters:

• Be cautious when providing personal information, especially your Social Security number.
• Opt for electronic statements where possible to reduce paper documents with sensitive information.
• Properly dispose of documents containing personal information by shredding them.

File Early

Lastly, file your tax return as soon as you have all necessary documents. This can help prevent fraudsters from filing a false return using your information.

By following these steps and staying vigilant, you can better protect yourself from tax credit fraud. Remember, if an offer seems too good to be true, it probably is. Always consult with reputable tax professionals like Hall’s IRS or the IRS directly if you have concerns about tax credits or potential fraud.

The Future of Clean Energy Tax Credits 

As of 2025, the landscape of clean energy tax credits has seen some big changes. Here’s what you need to know:

New Technology-Neutral Credits:

The old Investment Tax Credit and Production Tax Credit have been replaced by the Clean Electricity Investment Credit and Clean Electricity Production Credit. These new credits now cover any clean energy technology that doesn’t produce greenhouse gases, opening up opportunities for a wider range of projects.

Timing and Eligibility:

Projects that kicked off after December 31, 2024, can qualify for these new credits. They’re set to start winding down in 2035, or two years after we cut greenhouse gases from electricity production by 75%, whichever happens later.

Key Features:

The new credits work a lot like the old ones, basing benefits on investment costs or energy production. They still include rules about fair wages and apprenticeships and can be transferred, which helps non-tax-paying groups benefit too.

Looking Ahead:

It’s worth keeping in mind that politics can affect these credits. Some lawmakers might try to change them or use them to balance other tax priorities. If you’re thinking about a clean energy project, it’s smart to stay up-to-date on any potential changes.

The big picture? These new credits mark a significant shift in U.S. energy policy. They’re all about encouraging new ideas and cutting down on greenhouse gases across many different clean energy technologies.

In Closing!

As we wrap up our discussion of IRS Clean Energy Tax Credit Scam, it’s clear that staying vigilant is the ultimate for taxpayers. This IRS clean energy tax credit scam, while troubling, shouldn’t discourage anyone from legitimately pursuing clean energy tax credits. 

The key is to approach these credits with caution and knowledge.

If you do find yourself caught up in this IRS clean energy tax credit scam, don’t panic. There are steps you can take to address the situation. Stop any ongoing tax filings, reach out to the IRS directly, and gather all relevant documentation. It’s important to act quickly but thoughtfully.

Professional assistance can be extremely helpful in dealing with these complex issues. Tax experts, like those at Hall’s IRS, can provide the guidance needed to properly claim clean energy credits and steer clear of scams.