Tax Consulting and Compliance News - Summer 2024

Beware of a New Scam Involving Clean Energy Tax Credits

The IRS has recently alerted taxpayers about a new scam involving clean energy tax credits. Some tax consultants are misleading people about the rules for claiming these credits under the Inflation Reduction Act (IRA). It’s crucial to be aware of these tactics so you can protect yourself and your finances.?

How the scam works

This scam takes advantage of the transferability provisions in the IRA, which allow taxpayers to purchase eligible federal income tax credits from investments in clean energy to offset their tax liability. The rules for claiming these credits are quite complex and generally apply only to passive income. This means that you likely won't qualify to use these credits unless you have income from passive activities, such as a limited partnership.?

However, some tax return preparers are misleading taxpayers into believing they can benefit from these credits, even when they don’t meet the necessary criteria. They file returns claiming these credits against regular income sources like wages, Social Security, and retirement withdrawals, which is not allowed.?

This situation is reminiscent of the recent scam involving the Employee Retention Credit (ERC). In that scam, fraudulent “ERC mills” contacted taxpayers, promising them credits for which they did not qualify. The abuse of the ERC became so widespread that the IRS had to issue a moratorium on processing credits, and millions of dubious claims are still being processed.?

Like the ERC scam, this tax credit scam preys on taxpayers by exploiting the complexity of tax laws and offering seemingly too-good-to-be-true benefits. It’s essential to be cautious and consult a trusted tax professional before claiming any complex tax credits.?

Risks and consequences

Taxpayers who claim inappropriate credits risk having to repay the inflated credit amounts, plus interest and possible penalties. IRS Commissioner Danny Werfel emphasized the importance of consulting a reputable tax professional before claiming complex credits like clean energy. The IRS is monitoring this scam closely and advises taxpayers to be cautious of promoters pushing dubious credits.

To report an abusive tax scheme, taxpayers should use the online?Form 14242, Report Suspected Abusive Tax Promotions or Preparers.

Protecting yourself against tax scams

This tax scam is just one of many that the IRS has identified. To protect yourself from these and other tax scams, be vigilant and follow these guidelines:?

• Be wary of unsolicited offers. It’s rare for a CPA to contact you out of the blue about a specific tax credit unless you have an ongoing relationship with them, and they regularly advise you on tax matters. If an unknown person or company contacts you about a tax credit or deduction you’re unfamiliar with, consider it a red flag.?
• Evaluate the offer. If it sounds too good to be true, it probably is. Be cautious of anyone promising you a significant tax credit without any substantial changes in your financial situation. Ensure you evaluate the credentials of anyone offering tax advice.?
• Check official sources. Always verify information about tax credits and incentives from official sources, such as the IRS website.?
• Consult a reputable tax professional. When in doubt, seek advice from a reputable tax professional who can provide accurate information and guidance based on your specific situation. They can help ensure you’re eligible for any tax credits and comply with the law.?

Tax scams can be complex and convincing, but being informed and cautious can protect you from falling victim. For personalized advice and to ensure you’re getting all the credits you deserve while staying compliant with tax laws, contact one of our trusted tax professionals today. We’re here to help you navigate the complexities of tax credits and deductions safely and effectively.

Have questions or concerns? Contact our tax experts.

Planning Ahead: How the End of TCJA Provisions Will Affect Your Taxes

Many provisions of the Tax Cuts and Jobs Act are slated to expire at the end of 2025 and stand to affect tax brackets, the standard deduction, and many itemized deductions. Unless Congress takes action to extend these provisions or make them permanent, the tax rules will revert to their pre-TCJA status beginning in 2026.

In this video, we'll outline some of the changes to expect and discuss a few ways to prepare for the shift.

State Income Tax Law Changes for Q2

Kentucky: On April 10, 2024, House Bill 8 was enacted without Gov. Andy Beshear’s signature. While the governor did issue two line-item vetoes, including the veto of a provision creating a tax amnesty period beginning in October, there remains a question of whether those vetoes were constitutional and therefore whether they are effective. Regardless, among other provisions, House Bill 8 updates the state’s conformity to the IRC in effect as of Dec. 31, 2023, for tax years beginning on or after Jan. 1, 2024. The conformity date does not include any amendments made to the IRC after Dec. 31, 2024, other than amendments to extend provisions that were already in effect on the conformity date and otherwise would have terminated.

Read more here...

5 More Warning Signs of Bad ERC Claims

As the Internal Revenue Service intensifies work on the Employee Retention Credit, the agency recently shared five new warning signs of improper ERC being seen on incorrect claims by businesses.

IRS compliance teams have identified these additional five common signs of improper claims:

1. Claims by essential businesses during the pandemic that could fully operate and didn’t have a decline in gross receipts.
2. Businesses unable to support how a government order fully or partially suspended business operations.?
3. Businesses reporting family members’ wages as qualified wages.
4. Businesses using wages already used for Paycheck Protection Program loan forgiveness.
5. Large employers claiming wages for employees who provided services to the business during otherwise eligible periods.

Read the full news release here...

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