Tax Credits Abuse – Be on Alert!
We recently noticed taxpayers filing returns (original or amended) claiming carryover credits they never earned to reduce current tax liabilities. Claims for credits have long been repealed, but eligible taxpayers who have carryover balances are still allowed to claim the carryover amounts from prior years.
Example: You prepared a return for your client that showed total tax of $5,000. Later, someone else approaches your client offering to help them reduce the total tax to $3,500 for a fee of $300. They advise your client to report $1,500 carryover credits (e.g., political contribution credit carryover or solar energy credit carryover). To your client, this appears to be a great deal. However, upon further investigation, you determine your client was never entitled to those credits.
Be aware of this trend and advise your clients they may only claim credits they earned. We disallow any improper credits and may impose any applicable penalties.