Treasury Inspector General for Tax Administration
Office of Audit Recovery Act
INDIVIDUALS RECEIVED MILLIONS OF
DOLLARS IN ERRONEOUS PLUG-IN ELECTRIC AND ALTERNATIVE MOTOR VEHICLE CREDITS
Issued on January 21, 2011
Highlights
Highlights of
Report Number: 2011-41-011 to the
Internal Revenue Service Commissioner for the Wage and Investment Division.
IMPACT ON TAXPAYERS
The American Recovery and
Reinvestment Act of 2009 (Recovery Act) included a number of provisions that
encourage the purchase of motor vehicles that operate on clean renewable
sources of energy. Individuals claimed
more than $163.9 million in plug-in electric and alternative motor vehicle
credits from January 1 through July 24, 2010.
Agencies are required to ensure Recovery Act funds are used for
authorized purposes and appropriate measures are taken to prevent fraud, waste,
and abuse.
WHY TIGTA DID THE AUDIT
This audit was initiated
because TIGTA is required to monitor the Internal Revenue Service’s (IRS)
implementation of Recovery Act provisions.
Our overall objective was to assess the effectiveness of IRS processes
to identify and prevent erroneous claims for the Plug-in Electric Vehicle
Credit and Alternative Motor Vehicle Credit for tax returns filed from January
1 through July 24, 2010.
WHAT TIGTA FOUND
As of July 24,
2010, TIGTA identified 12,920 individuals who electronically filed their tax
returns and erroneously claimed $33 million in plug-in electric and alternative
motor vehicle credits. In addition,
1,719 of the 12,920 individuals also erroneously reduced the amount of
Alternative Minimum Tax owed by almost $5.3 million. During this review, management
took corrective actions to reduce erroneous claims when process weaknesses were
brought to their attention. These
actions have
resulted in an estimated $3.1 million in revenue protected. The erroneous claims TIGTA identified resulted
from inadequate IRS processes to ensure information reported by individuals
claiming plug-in electric and alternative motor vehicle credits met qualifying
requirements for vehicle year, placed in-service date, and make and model.
In addition, TIGTA
determined that the IRS is unable to track and account for plug-in electric and
alternative motor vehicle credits claimed by individuals on paper-filed tax
returns. Processes were not established
to capture this information from paper-filed tax returns.
Also, our 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.
Finally, TIGTA identified improper claims for the credits by prisoners and
IRS employees. TIGTA has referred the information
on the IRS employees to its Office of Investigations for further review.
WHAT TIGTA RECOMMENDED
TIGTA recommended that the
Commissioner, Wage and Investment Division, develop
Error Resolution System procedures to not allow 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.
In
their response to the report, IRS management agreed with
the recommendations and plans to update their procedures to require a review of
the make, model, and date vehicles were placed in service to ensure taxpayers
use qualifying vehicles to claim the plug-in electric and
alternative motor vehicle credits. In addition, the IRS plans to add a new line
on the forms used to claim the credits to require a Vehicle Identification
Number. It also requested e-file software providers implement
programming changes to allow taxpayers to select the make, model, and year of
qualifying vehicles from a drop- down menu.
The IRS plans to recover erroneous claims by reversing credits and
conducting audits.
READ THE FULL REPORT
To view the report,
including the scope, methodology, and full IRS response, go
to:
http://www.treas.gov/tigta/auditreports/2011reports/201141011fr.html.
Email Address: inquiries@tigta.treas.gov
Phone
Number: 202-622-6500
Web Site: http://www.tigta.gov