Friday, February 4, 2011
IRS Approved Millions of Dollars in Erroneous Tax Credits for Hybrid Vehicles
The report, by the Treasury Inspector General for Tax Administration, found that about 20 percent of the $163.9 million in credits claimed by taxpayers from Jan. 1, 2010 to July 24, 2010 for plug-in electric and alternative motor vehicle credits were claimed in error.
In the course of its review, TIGTA also found that 1,719 of the 12,920 individuals erroneously reduced the amount of alternative minimum tax they owed by almost $5.3 million.
TIGTA conducted the audit as part of its continuing oversight of the Internal Revenue Service’s implementation of the American Recovery and Reinvestment Act of 2009. The Recovery Act included a number of provisions that encourage the purchase of motor vehicles that operate on clean renewable sources of energy. According to TIGTA’s review, approximately 29 prisoners also received $49,926 in vehicle credits even though they were in prison for all of calendar year 2009.
The erroneous claims TIGTA identified resulted from inadequate IRS processes to ensure information reported by individuals claiming the credits met qualifying requirements for the vehicle year, placed in-service date, and make and model. TIGTA’s review of electronically filed tax returns identified individuals who erroneously claimed the same vehicle for multiple plug-in electric and alternative motor vehicle credits or claimed an excessive number of vehicles for personal use credits.
TIGTA also determined that the IRS cannot track and account for plug-in electric and alternative motor vehicle credits claimed by individuals on paper-filed tax returns because it has not established processes to capture this information from those returns.
The IRS noted that the TIGTA report spotlighted only a fraction of the tax credits it processed. "The IRS is committed to running a balanced program on Recovery-related provisions, making sure we process taxpayer claims quickly and accurately while safeguarding against improper payments," said a statement forwarded by IRS spokesman Grant Williams. "It is important to note that the erroneous claims identified in this TIGTA report represent only a small fraction of Recovery tax relief—less than 0.02 percent of the $260 billion in Recovery Act tax relief taxpayers received through December 2010. The IRS took immediate action to put additional protections in place to stop improper vehicle payments. We are also taking aggressive steps to recapture the credits people erroneously claimed."
TIGTA recommended that the IRS develop procedures to disallow credits for vehicles with nonqualifying years, initiate actions to recover erroneous credits identified by TIGTA, and either develop a coding system to identify vehicle makes and models or require the Vehicle Identification Number on the forms used to claim plug-in electric and alternative motor vehicle credits.
The IRS agreed with the recommendations. In addition, IRS management took corrective actions to reduce erroneous claims when process weaknesses were brought to their attention, resulting in an estimated $3.1 million in revenue protected.
“The IRS, along with all federal agencies, is required to ensure that Recovery Act funds are used for authorized purposes and appropriate measures are taken to prevent waste, fraud and abuse,” said TIGTA Inspector General J. Russell George in a statement. “While IRS management did take corrective actions to reduce erroneous claims when TIGTA brought these process weaknesses to its attention, more clearly needs to be done.”
By Michael Cohn