TREASURY INSPECTOR GENERAL FOR TAX
ADMINISTRATION
THE COMPLEXITY OF THE LAW MAKES ADMINISTERING THE
ALTERNATIVE MOTOR VEHICLE CREDIT DIFFICULT
Issued on May 6, 2008
Highlights
Highlights of
Report Number: 2008-30-107 to the
Internal Revenue Service Commissioners for the Small Business/Self-Employed
Division and Wage and Investment Division.
IMPACT ON TAXPAYERS
Tax
legislation passed in 2005 provided the Alternative Motor Vehicle Credit
(Credit) for taxpayers who purchase certain
types of energy efficient vehicles. The
provision for the Credit is very complex and could be easily misinterpreted by
taxpayers, which may cause taxpayers to make erroneous claims for the Credit. The law contains specific criteria for
claiming the correct Credit amount that must be clearly communicated to taxpayers.
WHY TIGTA DID THE AUDIT
This
audit was conducted as part of the TIGTA’s annual audit plan. Because Tax Year 2006 was the inaugural year
of the Credit TIGTA believed that many taxpayers may not fully understand and
correctly calculate the Credit. The
objective of the review was to determine whether the Internal Revenue Service
(IRS) had adequate controls in place to properly implement and ensure taxpayer
compliance with the Credit provision.
WHAT
TIGTA FOUND
Overall, the
IRS successfully provided information for most taxpayers to properly claim the
Credit. Through the use of newsletters,
news releases, and tax tips published on its web site, the IRS kept taxpayers
and tax return preparers apprised of current information regarding the
Credit. Such information included the
year, make, and model of vehicles that qualified for the credit; the amount of
the credit available; and the number of vehicles sold to determine whether the phase
out of the credit for qualifying vehicles had begun.
Some taxpayers
erroneously claimed the Credit for leased vehicles. Our review of the Alternative Motor Vehicle
Credit (Form 8910) and related instructions found that the form and
instructions did not clearly inform taxpayers that if they were the lessee of a
qualified vehicle they were not entitled to the Credit. TIGTA immediately notified the IRS of this
concern and the IRS took corrective actions to clarify the requirements on the
Form 8910 instructions for qualifying for the Credit, specifically with respect
to leased vehicles.
Finally, some
taxpayers claimed the Credit for vehicles that did not qualify for the Credit, claimed
qualifying vehicles but claimed amounts higher than the amount allowed, or did
not provide the required documentation to support the Credit claim. The erroneous claims for the Credit were
allowed because the IRS did not establish sufficient controls during the
processing of tax returns to ensure that claims were only allowed for qualified
vehicles, and that the amounts claimed were correct.
WHAT TIGTA RECOMMENDED
TIGTA
recommended that the IRS establish criteria to select questionable claims for
the Credit to verify the amount of the Credit claimed. If a significant compliance issue in claims
for the Credit is found, the IRS should consider proposing legislation to
require the seller of a qualified vehicle to provide the purchaser and the IRS
with an information document supporting a claim. Lastly, the IRS should establish procedures
to correspond with taxpayers for missing Forms 8910 or for missing information
on Forms 8910 when appropriate.
In
their response to the report, IRS management agreed with these recommendations. Specifically, they plan to establish dollar
criteria for selection of questionable claims for the Credit and prepare an
analysis of the return on investment of examining these returns. Based on this analysis, if appropriate, they plan
to initiate actions to support a legislative proposal requiring the issuance of
an information document from the seller to the IRS and the purchaser of a
qualified vehicle to support the claim. The
IRS also plans to research additional program costs, create systemic measures
to accommodate the processing and matching of an information document, project
agency benefits and resource savings, and solicit outside groups for input
focused on reduction of taxpayer and third-party burden. Finally, the IRS plans to establish
procedures to correspond with taxpayers for missing Forms 8910 or for missing information
on Forms 8910.
READ THE
FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go to:
http://www.treas.gov/tigta/auditreports/2008reports/200830107fr.html.
Email Address: inquiries@tigta.treas.gov
Phone Number: 202-622-6500
Web Site:
http://www.tigta.gov