RECOVERY
ACT
Individuals Received Millions of Dollars in Erroneous Plug-in Electric and Alternative Motor Vehicle Credits
January 21, 2011
Reference
Number: 2011-41-011
This report has cleared the Treasury Inspector General for Tax Administration disclosure review process and information determined to be restricted from public release has been redacted from this document.
Redaction Legend:
1 = Tax Return/Return Information
Phone
Number | 202-622-6500
Email Address | inquiries@tigta.treas.gov
Web Site |
http://www.tigta.gov
HIGHLIGHTS
INDIVIDUALS RECEIVED MILLIONS OF
DOLLARS IN ERRONEOUS PLUG-IN ELECTRIC AND ALTERNATIVE MOTOR VEHICLE CREDITS
Final
Report issued on January 21, 2010
Highlights of Reference
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 found 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.
Finally,
our review of electronically filed tax
returns also 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 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.
IRS management agreed with the recommendations and plans to update procedures to require a review of the make, model, and date vehicles were placed in service to ensure credits are being claimed for qualifying vehicles. In addition, the IRS plans to add a new line on the forms used to claim the credits to require a Vehicle Identification Number and has requested that 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 also plans to recover erroneous claims by reversing credits and conducting audits.
January 21, 2011
MEMORANDUM FOR COMMISSIONER, WAGE AND INVESTMENT DIVISION
FROM: Michael R. Phillips /s/ Michael R. Phillips
Deputy Inspector General for Audit
SUBJECT: Final Audit Report – Individuals Received Millions of Dollars in Erroneous Plug-in Electric and Alternative Motor Vehicle Credits (Audit # 201040131)
This report presents the results of our review to assess the effectiveness of Internal Revenue Service (IRS) processes to identify and prevent erroneous claims for the plug-in electric vehicle credit and the alternative motor vehicle credit for tax returns filed from January 1 through July 24, 2010. This review was included in our Fiscal Year 2010 Annual Audit Plan and addresses the major management challenges of Implementing Tax Law Changes and Erroneous and Improper Credits and Payments.
The American Recovery
and Reinvestment Act of 2009 (Recovery Act)[1] provides separate funding to the Treasury
Inspector General for Tax Administration through September 30, 2013, to be used
in oversight activities of IRS programs.
This audit was conducted using Recovery Act funds.
Management’s complete response to the draft report is included as Appendix V.
Copies of this report are also being sent to the IRS
managers affected by the report recommendations. Please contact me at (202) 622-6510 if you
have questions or Michael E. McKenney, Assistant Inspector General for Audit (Returns
Processing and Account Services), at (202) 622-5916.
Individuals Claimed Erroneous Plug-in Electric and Alternative
Motor Vehicle Credits
Plug-in Electric and Alternative
Motor Vehicle Credits Are Being Abused
Appendices
Appendix
I – Detailed Objective, Scope, and Methodology
Appendix
II – Major Contributors to This Report
Appendix
III – Report Distribution List
Appendix
IV – Outcome Measures
Appendix
V – Management’s Response to the Draft Report
Abbreviations
|
AMT |
Alternative Minimum Tax |
|
e-filed;
e-filing |
Electronically filed; electronic
filing |
|
IRS TIGTA |
Internal Revenue Service Treasury Inspector General for Tax
Administration |
The American Recovery and Reinvestment Act of 2009 (Recovery Act)[2] included a number of provisions that encourage the purchase of motor vehicles (or the conversion of motor vehicles to those) that operate on clean renewable sources of energy. Figure 1 provides a comparison of the plug-in electric and alternative motor vehicle credit provisions included in the Recovery Act.
Figure 1: Plug-in Electric and Alternative Motor Vehicle Credits Comparison
|
Criteria |
Plug-in
Electric Vehicle Credit |
Plug-in
Electric Vehicle Conversion Credit |
Qualified
Plug-in |
Alternative
Motor Vehicle (Nonconversion) Credit |
|
Credit
Requirements |
Qualified Plug-in Electric
and Electric Vehicle Credit (Form 8834) |
Alternative Motor
Vehicle Credit (Form 8910) |
Qualified Plug-in (Form 8936) |
Alternative Motor
Vehicle Credit (Form 8910) |
|
Form
Needed to Claim Credit |
||||
|
How Calculated |
Lesser of 10%
vehicle cost or maximum vehicle
credit |
Lesser of 10% cost
of vehicle conversion or maximum vehicle credit |
$2,500 plus $417
per kw/hr in excess of 4.0 |
Varies with type
of vehicle |
|
Maximum Credit Per
Vehicle |
$2,500 |
$4,000 |
$7,500 - $15,000
depending on gross vehicle weight rating |
Varies with type
of vehicle |
|
Maximum Vehicles Per
Return |
Unlimited |
Unlimited |
Unlimited |
Unlimited |
|
Additional Restrictions
or Requirements |
No double benefit
is allowed. A vehicle that qualifies
for credit on Form 8910 will not qualify for credit on Form 8834 or Form
8936. A vehicle that qualifies for
credit with Form 8834 or 8936 may be claimed on one or the other, but not
both. |
|||
|
Business use
credit is claimed as part of the General Business Credit on General Business
Credit (Form 3800). |
||||
|
Personal use
credit must be reduced by any amount of business use credit. |
||||
|
*Credit is limited
to reduction of regular and Alternative Minimum Tax (AMT) (i.e.,
nonrefundable). The AMT may be reduced
only by personal part of the credit. |
||||
|
Qualifying Vehicle |
New
Only |
New or Used |
New Only |
New Only |
|
New or Used |
||||
|
Placed In-Service |
After 2/17/2009 |
After 2/17/2009 |
After 12/31/2008 |
After 12/31/2008 |
|
Additional
Restrictions or Requirements |
For use on public
roads, streets, and highways. |
|||
|
Original use must
commence with taxpayer claiming credit. |
||||
|
If vehicle ceases
to qualify for credit, part or all of credit is subject to recapture. |
||||
|
Manufacturer’s or
domestic distributor’s certification that vehicle qualifies for credit may be
relied on, unless certification has been revoked by the Internal Revenue
Service. |
||||
Source: Treasury Inspector General for Tax Administration (TIGTA) analysis of Internal Revenue Code Sections 30, 30B, and 30D.
Figure 2 details the number of claims and amounts claimed on electronically filed (e-filed) tax returns for plug-in electric and alternative motor vehicle credits.
Figure 2: Amounts
Claimed on E-Filed Tax Returns for Plug-in Electric and Alternative Motor
Vehicle Credits As of July 24, 2010
|
|
Form 8834 |
Form 8910 |
Form 8936 |
Total |
|
|
|
|
Conversions Only |
Alternative Motor Vehicle Credits |
|
|
|
Individuals Claiming Credit |
2,769 |
1,522 |
52,006 |
13,204 |
69,501 |
|
Credits Claimed |
$3,767,832 |
$3,940,612 |
$85,405,698 |
$70,813,609 |
$163,927,751 |
Source: TIGTA analysis of e-filed tax return volumes from January 1 through July 24, 2010.
Recovery Act activities require a high level of scrutiny, and taxpayer dollars spent on economic recovery must be subject to unprecedented levels of transparency and accountability. Federal agencies are required to ensure Recovery Act funds are used for authorized purposes and that appropriate measures are taken to prevent fraud, waste, and abuse. As such, the TIGTA is required to monitor the Internal Revenue Service’s (IRS) implementation of Recovery Act provisions. This audit was conducted to meet those requirements.
This review was performed at the Wage and Investment
Division Headquarters in
Processes Were Not Established to Track and Account for Recovery Funds Claimed for Plug-in Electric Vehicle Credits
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 information from the following paper-filed tax forms:
·
Qualified
Plug-in Electric and Electric Vehicle Credit (Form 8834).
·
Plug-in
electric vehicle conversion credits on Alternative Motor Vehicle Credit (Form 8910).
·
Qualified
Plug-in
Plug-in electric vehicle credits claimed on Forms 8834, 8910, and 8936 are carried forward from these forms to the U.S. Individual Income Tax Return (Form 1040), Line 53. Line 53 includes plug-in electric vehicle credit amounts and can include credit amounts from at least 10 other tax credit forms. For credits claimed on e-filed tax returns, IRS data files can be used to identify individuals and amounts claimed for plug-in electric vehicle credits. However, for paper-filed tax returns, the IRS did not establish processes to transcribe and capture in IRS data files information relating to plug-in electric vehicle credits claimed. As a result, the IRS is unable to track and account for plug-in electric vehicle credits claimed on paper-filed tax returns.
Figure 3 shows an example of Line 53 on Form 1040 and the instructions to the individuals completing this line.
Figure 3: Example of Line 53 on
Form 1040 and Instructions
Figure 3 was removed due to its size. To see Figure 3, please go
to the Adobe PDF version of the report on the TIGTA Public Web Page.
Source: 2009 Form 1040 and Instructions.
Government-wide guidance for carrying out the programs and activities of the Recovery Act was issued to include steps Federal agencies must take to meet the goals and to implement the Act effectively. Reporting activities are designed to track Recovery Act tax provision benefits. The Department of the Treasury’s Recovery Act Plan: Tax Provision Implementation Program states that “The Department of the Treasury will provide an estimate of benefits to individuals, businesses, and state and local governments as data becomes available.”
On December 16,
2009, we alerted IRS management of the inability to track and account
for plug-in electric and alternative motor vehicle credits claimed by individuals
on paper-filed tax returns. We recommended that the IRS implement
programming to enable it to track and account for plug-in electric vehicle credits
claimed on paper-filed tax returns.
Management Actions
·
February
4, 2010 – IRS management agreed that processes need to be in place for transparent
reporting of Recovery Act-related credits and responded that existing and newly
created processes will allow it to report on the use of these credits. Programming was to be implemented to enable
the IRS to track and account for funds allocated as part of tax provisions
included in the Recovery Act for individuals claiming plug-in electric vehicle credits
on paper-filed tax returns. The
implementation date for the programming was originally February 18, 2010, but
was delayed to the end of April 2010, due to the IRS’s Modernization and
Information Technology Services workload.
The IRS subsequently informed us that they decided to delay identifying
and tracking these credits until the beginning of the 2011 Filing Season because
the April peak processing period had passed.
·
September
16, 2010 – In response to the 2010 Filing Season Audit Report,[3] IRS management agreed to submit programming
requests to enable the IRS to capture the data needed from Forms 8834, 8910,
and 8936.
We will include tests
in our 2011 Filing Season Review to evaluate the IRS’s implementation of
planned corrective actions.
Individuals Claimed Erroneous Plug-in Electric and Alternative Motor Vehicle Credits
As of July 24, 2010, we identified 12,920 individuals who e-filed their tax returns and erroneously claimed[4] $33 million in plug-in electric and alternative motor vehicle credits. We also identified 1,719 of the 12,920 individuals erroneously reduced the amount of the AMT owed by almost $5.3 million. In addition, we identified IRS employees who erroneously claimed plug-in electric and alternative motor vehicle credits. We have referred these employees to our Office of Investigations for further review. 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.
Based on our review of a statistically valid sample of 233 paper-filed tax returns with an amount on Line 53 of Form 1040, we estimate another 1,300 individuals may have erroneously claimed more than $4.2 million in plug-in electric and alternative motor vehicle credits. As previously discussed, the IRS is unable to track and account for plug-in electric vehicle credits claimed on paper-filed tax returns. Therefore, we are not including potential erroneous claims in our reported outcomes for paper-filed tax returns.
Figure 4 provides a summary of the erroneous claims we
identified for e-filed tax returns. The information provided by individuals on
their e-filed tax returns identifies
that the individuals did not qualify for the plug-in electric and alternative motor
vehicle credits claimed.
Figure 4: Erroneous Plug-in Electric and
Alternative Motor Vehicle Credit Claimed
|
Plug-in Electric and Alternative Motor Vehicle Credits Reason Vehicle Claimed |
Erroneous Claims |
|
|
Number of Individuals |
Dollar Amount |
|
|
Nonqualifying
Vehicle Year |
2,710 |
$ 4.5 million |
|
Placed In-Service Date |
589 |
$ 1.4 million |
|
Make of the Vehicle |
9,621 |
$27.1
million |
|
Total |
12,920 |
$33.0 million |
Source: TIGTA analysis of e-filed tax returns through July
24, 2010.
The erroneous claims
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.
Individuals erroneously claimed plug-in electric and alternative motor vehicle credits for vehicles with a nonqualifying vehicle year
Our review identified 2,710 individuals who e-filed their tax returns and erroneously claimed $4.5 million in plug-in electric and alternative motor vehicle credits for vehicles with a nonqualifying vehicle year. These individuals claimed these credits on Forms 8834, 8936, and 8910, and reported a vehicle with a year earlier than 2009 for Form 8834 and Form 8936 and a vehicle with a year earlier than 2008 for Form 8910. The law requires that vehicles must be new for the vehicle to qualify for these credits. Figure 5 provides examples of nonqualifying vehicle years reported by individuals on e-filed tax returns we identified as having erroneous claims for plug-in electric and alternative motor vehicle credits.
Figure 5: Examples of Nonqualifying Vehicle Years
Claimed on Tax Returns
|
Form |
Examples of Nonqualifying Vehicle Years |
|
Form
8834 |
1010, 1967, 1972, 1974, 1975, 1976, 1977, 1979, 1982, 1984, 1985,
1986, 1987, 1988, 1990, 1991, 1992, 1993 |
|
Form
8936 |
1005, 1979, 1985, 1989, 1990, 1991, 1992, 1993, 1994, 1995, 1996,
1997, 1998, 1999, 2000, 2001, 2002, 2003 |
|
Form
8910 |
1009, 1020, 1300, 1963, 1964, 1966, 1973, 1975, 1977,
1981, 1982, 1983, 1984, 1988, 1989, 1990, 1991, 1992 |
Source: TIGTA analysis of e-filed tax returns through July 24, 2010.
On February 10, 2010, we alerted IRS management that individuals were erroneously claiming vehicles with a nonqualifying vehicle year. We recommended that reject codes for e-filed tax returns and Error Resolution System procedures for paper-filed tax returns be developed to not allow Form 8834 and Form 8936 credits when individuals are claiming credits for vehicles with nonqualifying years. Subsequently, we alerted IRS management on September 7, 2010, that individuals were also erroneously claiming vehicles with nonqualifying vehicle years for the alternative motor vehicle credit. We recommended that reject codes for e-filed tax returns and Error Resolution System procedures for paper-filed tax returns be developed to not allow Form 8910 alternative motor vehicle credits when individuals are claiming credits for vehicles with nonqualifying vehicle years.
Management Actions
· March 1, 2010 – Management agreed with the recommendation in our February 2010 alert to develop e-file reject codes. On March 29, 2010, management developed two new reject codes to reject e-filed tax returns in which the vehicle claimed had a nonqualifying vehicle year. We estimate the implementation of the reject codes resulted in $1.9 million in revenue protected from rejecting e-filed tax returns between March 30, 2010, and July 24, 2010, in which individuals were claiming vehicles that had a nonqualifying year. This estimate is based on 411 rejected e-filed tax returns that had an average claim amount of $4,669.[5]
· September 28, 2010 - Management agreed with recommendations in our September 2010 alert. Management responded that instructions will be issued to the Code and Edit function and the Error Resolution System no later than January 1, 2011, to review Form 8910 and not allow claims for credits for vehicles with years earlier than 2009. In addition, a reject code will be implemented in January 2011 to reject e-filed tax returns in which individuals claim the alternative motor vehicle credit for vehicles with a nonqualifying vehicle year.
We will include tests in our 2011 Filing Season Review to evaluate the IRS’s implementation of planned corrective actions.
Recommendations
The Commissioner, Wage and Investment Division, should:
Recommendation 1: Develop Error Resolution System procedures for paper-filed tax returns to not allow plug-in electric vehicle credits when individuals claim the credits for vehicles with nonqualifying years.
Management’s Response: IRS management agreed with this recommendation. Instructions will be issued to the Code and Edit function tax examiners for the 2011 Filing Season to disallow claims for credits on vehicles with model years earlier than 2009.
Recommendation 2: Initiate actions to recover the $4.5 million in plug-in electric and alternative motor vehicle credits claimed by the 2,710 individuals the TIGTA identified as having erroneously claimed these credits.
Management’s Response: IRS management agreed with this recommendation. The IRS will use math error authority to reverse the credit or adjust the taxpayer’s account for the 2,710 individuals identified as having erroneously claimed plug-in electric and alternative motor vehicle credits using a nonqualifying vehicle year.
Individuals
erroneously claimed plug-in electric and alternative motor vehicle credits for vehicles
with nonqualifying placed in-service dates
Our review identified 589 individuals who e-filed their tax returns and erroneously claimed more than $1.4 million in plug-in electric and alternative motor vehicle credits for vehicles with nonqualifying placed in-service dates. These erroneous claims included:
Figure 6 provides examples of vehicle in-service dates reported by individuals on e-filed tax returns we identified as having erroneous claims for plug-in electric and alternative motor vehicle credits.
Figure 6: Examples of Nonqualifying Placed In-Service
Dates Claimed on Tax Returns
|
Form |
Examples of Nonqualifying In-Service Dates |
|
Form 8834 |
03/02/1999, 06/06/2008, 11/14/2008,
12/23/2008, 01/01/2009, 01/05/2009, 01/01/2010, 01/04/2010 |
|
Form 8936 |
01/22/1920, 01/21/1929, 12/20/2007,
01/01/2010, 01/29/2010, 02/28/2010, 03/01/2010, 03/15/2010 |
|
Form 8910 |
03/23/1997, 01/22/2006, 07/01/2006, 11/5/2006,
01/01/2007, 11/01/2007, 01/01/2008, 06/01/2008 |
Source: TIGTA analysis of e-filed
tax returns through July 24, 2010.
On February 10, 2010, we alerted IRS management that individuals were erroneously claiming vehicles with nonqualifying in-service dates. We recommended that reject codes for e-filed tax returns and Error Resolution System procedures for paper-filed tax returns be developed to not allow credits when individuals are claiming credits for vehicles with nonqualifying in-service dates.
Management Actions
· March 1, 2010 – Management agreed with our recommendations. On March 29, 2010, management developed three reject codes to reject e-filed tax returns with nonqualifying in-service dates. In addition, instructions were issued to tax examiners to enter a Computer Condition Code[6] to deny the credit on paper tax returns claiming credits for vehicles with nonqualifying in-service dates. We estimate the implementation of these reject codes resulted in more than $1.2 million in revenue protected from rejecting e-filed tax returns between March 30, 2010, and July 24, 2010, in which individuals were claiming vehicles with nonqualifying in-service dates. This estimate is based on 519 rejected e-filed tax returns that had an average claim amount of $2,359.[7]
We will include
tests in our 2011 Filing Season Review to evaluate IRS’s implementation of
planned corrective actions.
Recommendation
The Commissioner, Wage and Investment Division, should:
Recommendation 3: Initiate actions to recover the more than $1.4 million in plug-in electric and alternative motor vehicle credits claimed by 589 individuals that the TIGTA identified as having erroneously claimed credits for vehicles with nonqualifying in-service dates.
Management’s Response: IRS management agreed with this recommendation. The IRS will use math error authority to reverse the credit or adjust the taxpayer’s account for the 589 individuals identified as having erroneously claimed plug-in electric and alternative motor vehicle credits for vehicles with an in-service date before January 1, 2009, or after December 31, 2009.
Individuals erroneously claimed plug-in electric and alternative motor vehicle credits for nonqualifying vehicle makes and models
Our review identified 9,621 individuals who e-filed their tax returns and erroneously claimed more than $27.1 million in plug-in electric and alternative motor vehicle credits for vehicles with a nonqualifying make and model. Our analysis of the descriptions provided by these individuals on their e-filed tax returns identified vehicles with a make and model that were not on the IRS-approved list of vehicles. The IRS provides a list on IRS.gov (the IRS public web site) of vehicle manufacturers, makes, and models that qualify for the plug-in electric vehicle credits claimed on Form 8834 and Form 8936 and the alternative motor vehicle credit claimed on Form 8910. Figure 7 provides examples of vehicles with a nonqualifying make and model reported by individuals on e-filed tax returns we identified as having erroneous claims for plug-in electric and alternative motor vehicle credits.
Figure 7:
Examples of Nonqualifying Vehicle Makes and Models Claimed on Tax
Returns
|
Form |
Makes/Models
of Vehicles |
|
Form 8834 |
Bicycle, Buick
Enclave, Chevrolet Camero, Chevy Truck, Dodge Caravan, Harley Classic,
Hyundai Sonata |
|
Form 8936 |
Acura 2006,
Cadillac Escalade, Dodge |
|
Form 8910 |
Acura, Hyundai,
Jeep, Kia, Lancer, Lexus, |
Source: TIGTA analysis of e-filed tax returns through July 24, 2010.
On March 1, 2010, we alerted IRS management that individuals were erroneously claiming plug-in electric vehicle credits for vehicles with a nonqualifying make and model. We recommended that reject codes for e-filed tax returns and Error Resolution System procedures for paper-filed tax returns be developed to not allow Form 8834 and Form 8936 credits when individuals are erroneously claiming credits for vehicles with a nonqualifying make and model.
On September 7, 2010, we alerted IRS management that individuals were also erroneously claiming the alternative motor vehicle credit for vehicles with a nonqualifying make and model. We recommended that the IRS develop reject codes for e-filed tax returns and Error Resolution System procedures for paper-filed tax returns to not allow Form 8910 credits when individuals are claiming credits for vehicles with a nonqualifying make and model.
Management Actions
· March 9, 2010 – IRS management disagreed with our recommendations. The IRS stated that implementation of our recommendations would require IRS employees to review the forms for several hundred different types of qualifying vehicles. Such a review process would have a significant impact on the number of tax returns that could be reviewed per hour. The IRS also believed that this issue would be best handled after the tax return has been processed. A Compliance Strategy being developed for Recovery Act provisions will include tests in Fiscal Year 2011 for this issue.
·
September 28, 2010 – Management disagreed with
our recommendations, citing the same reasons given previously in their March 9,
2010, response. Management indicated
that identifying eligible vehicles would require tax
examiners to review information not available on the tax return. A review
of just the Qualified Alternative Fuel Motor Vehicles list alone currently
shows 18 manufacturers and 771 rows of vehicles. In developing the
Compliance Strategy for Recovery Act provisions, the IRS plans to conduct a
test for 1,000 post-refund cases in Fiscal Year 2011 that involve claims
for plug-in electric and alternative motor vehicle credits.
Variations in vehicle descriptions
prevent validation of plug-in electric and alternative motor vehicle credit claims
In the IRS’s
response to our alerts, it noted that examiners are unable to determine from
information provided by individuals on tax returns if a vehicle meets required
make and model qualifications. For
example, the taxpayer may indicate “Ford Fusion” under make and model, but the
description is too vague to determine if the taxpayer purchased a qualifying hybrid
model or a nonqualifying entirely gas model of the Ford Fusion.
We agree
that there is no consistency in the descriptions individuals include on their
tax returns for vehicles being claimed for plug-in electric and alternative motor
vehicle credits. Although the IRS
provides a list on IRS.gov of
specific vehicle makes and models that qualify for each plug-in electric and alternative
motor vehicle credit, it has not developed a process to standardize the
information on tax returns.
Our review of e-filed tax returns identified 34,602
individuals who claimed more than
$50 million in plug-in electric and alternative motor vehicle credits for 34,991 vehicles in which we were unable to determine from the description
provided on the tax return if the make and model of the vehicles qualified for
the credit claimed. Figure 8 provides
examples of the nonstandardized entries input by individuals on e-filed tax returns we analyzed.
Figure 8: Examples of Variations in Vehicle Make
Entries by Individuals
|
CHEVROLET |
FORD |
MERCEDES |
NISSAN |
|
|
CHEVROLET |
FORD |
MERCEDES |
|
TOMB |
|
+CHEVY |
FODR |
MERCEDE |
NISAN |
TOMBBERLI |
|
CHAVY |
FOED |
MERCEDEES |
NISS |
TOMBERLAND |
|
CHECROLET |
FOERD |
MERCEDES B |
NISSA |
TOMBORILIN |
|
CHEROLET |
FOR |
MERCEDES BEN |
NISSAL |
TOMBRL |
|
CHEV |
FORT |
MERCEDES BENZ |
NISSAN |
TUMBERLIN |
|
CHEVE |
HONDA |
MERCEDES BNZ |
NISSAN ALT |
|
|
CHEVERLOT |
HANDA |
MECEDES |
NISSAN ALTIM |
|
|
CHEVEY |
HOMDA |
MERC BENZ |
NISSAN ALTIMA |
JAPEN |
|
CHEVLORET |
HON |
MERCEDED-BEN |
NISSASN |
TAYOTA |
|
CHEVOLET |
HOND |
MERCEDEZ |
NISSEN |
TOTOTA |
|
CHEVOLETE |
HONDA |
MERCEDEZ-BENZ |
NISSIAN |
TOTOYA |
|
CHEVORELET |
HONDAI |
MERCERDES |
NISSON |
TOY |
|
CHEVORLET |
HONDO |
MERCURY |
NISSSAN |
TOYATA |
|
CHEVR |
|
MERCURI |
NIZZAN |
TOYATO |
|
CHEVRLET |
JAPANESE HONDA |
MERCURU |
TOMBERLIN |
TOYOA |
|
CHEVROLETT |
HYUNDAI |
MERCURY 2/WD |
TOMBERLIN |
TOYODA |
|
CHEVROLTE |
HUNDAI |
MERCURY 4X4 |
TIMBERLINE |
TOYOR |
|
CHEVY |
HONDAI |
MERCUTY |
TMBLN |
TOYOYA |
|
CHEY |
MAZDA |
MERURY |
TMBO |
TOYPTA |
|
CHV |
MAZDA |
MERC |
TMBRLN |
TOYTA |
|
CHVROLET |
MADZA |
|
TOBERL |
TTOYOTA |
|
|
MAZADA |
|
TOBERLINE |
TYOTA |
Source: TIGTA analysis of vehicle make and model names entered by individuals on Forms 8910.
The IRS should develop coding that could be used to identify the specific vehicle make and model an individual is claiming for plug-in electric and alternative motor vehicle credits. For example, the IRS uses a coding classification process for its North American Industry Classification System’s Principal Business or Professional Activity Codes used in the instructions for Form 1040, Profit or Loss from Business (Schedule C), to standardize types of businesses. Figure 9 provides an example of the North American Industry Classification System’s Principal Business or Professional Activity Codes used in Schedule C Instructions.
Figure
9: Example of the North American
Industry Classification System’s Principal Business or
Professional Activity Codes Used in Schedule C Instructions
Figure 9 was removed due to its size. To see Figure 9, please go
to the Adobe PDF version of the report on the TIGTA Public Web Page.
Recommendations
The
Commissioner, Wage and Investment Division, should:
Recommendation 4: Develop a process to ensure individuals are not erroneously claiming vehicles with nonqualifying makes and models. This could include developing a standardized system of codes similar to those used in the instructions for Schedule C to identify vehicle makes and models that qualify for plug-in electric and alternative motor vehicle credits and/or require the Vehicle Identification Number[8] on the Forms 8834, 8936, and 8910.
Management’s Response: IRS management agreed with this recommendation. For Filing Season 2011, Code and Edit function tax examiners will perform a review of the make and model of the vehicle claimed on the Forms 8834, 8936, and 8910 and disallow any clearly nonqualifying vehicle. Starting in the 2012 Filing Season, a new Line 2, Vehicle Identification Number, will be added to Forms 8834, 8936, and 8910.
Recommendation
5: Initiate actions to recover the
$27.1 million in plug-in electric and alternative motor vehicle credits claimed
by 9,621 individuals the TIGTA identified as having erroneously claimed the credit
for vehicles with a nonqualifying make
and model.
Management’s Response: IRS management agreed with this recommendation. The Wage and Investment Division Compliance function will work with the Small Business/Self-Employed Division to include 1,000 cases in the Exam work plan. The results of these audits will be used to determine whether additional audits are warranted.
Plug-in Electric and Alternative Motor Vehicle Credits Are Being Abused
Our review of e-filed tax returns identified individuals erroneously claiming the same vehicle for multiple plug-in electric and alternative motor vehicle credits, claiming an excessive number of vehicles for personal use credits, and credits claimed by prisoners. Processes were not established to identify individuals abusing the plug-in electric and alternative motor vehicle credits. We identified 172 individuals who appear to have erroneously claimed more than $2.1 million in plug-in electric and alternative motor vehicle credits.
Individuals claimed multiple credits for the same plug-in electric motor vehicle
Our review identified 129 individuals who e-filed their tax returns as of July 24, 2010, and erroneously claimed $779,000 in multiple plug-in electric and alternative motor vehicle credits for the same vehicle. For Tax Year 2009, an approved plug-in electric drive motor vehicle may be claimed for credit on either Form 8834 or Form 8936, but not on both. If a vehicle qualifies for a plug-in electric motor vehicle credit, it cannot also be claimed for the alternative motor vehicle credit.
On September 7, 2010, we alerted IRS management that individuals were erroneously claiming multiple credits for the same vehicle. We recommended the IRS develop reject codes for e-filed tax returns and Error Resolution System procedures for paper-filed tax returns to not allow multiple credits for the same vehicle.
Management Actions
· September 28, 2010 – Management disagreed with this recommendation stating that the Submission Processing function cannot determine which credit is valid without more information than is available on the tax return.
We agree with management that examiners cannot determine
which credit is valid without more information.
That is the reason we made our recommendation to reject tax returns in
which multiple credits are claimed and implement an unallowable code to review these claims by the Examination function.
Individuals claimed excessive numbers of vehicles for the Form 8936
Our
analysis of e-filed tax returns identified
14 individuals claiming more than $1.3 million for 5 or more vehicles as
personal use credits. Claiming five or more vehicles for personal
use is questionable and it appears the individuals may be purchasing the
vehicles for business use. Vehicles used
in a business or by the business’ employees are considered business or
investment property and if the vehicle is subsequently sold the credit is
subject to recapture. A vehicle claimed
for personal credit has a tax advantage because the amount can be used to
reduce the AMT. If the credits are for
business use, the business portion of the credit cannot be used to reduce the AMT. Figure 10 provides a summary of the 223
vehicles claimed by the 14 individuals.
Figure 10: Individuals Claiming Five or More Vehicles
|
Vehicles Claimed |
Business Use Credit Claimed |
Personal Use Credit Claimed |
Credit Allowed |
| *********1******* | |||
|
223 |
0 |
$1,326,731 |
$1,326,731 |
Source: TIGTA analysis of e-filed
tax returns through July 24, 2010.
On September 7, 2010, we alerted IRS management of our concern that individuals were claiming credits for five or more vehicles and that processes should be developed to identify these questionable claims and ensure the accuracy of the credits claimed.
Management Actions
· September 28, 2010 – Management agreed with our recommendation and indicated that they will implement an unallowable code for review of these claims by the Examination function.
We will include tests
in our 2011 Filing Season Review to evaluate the IRS’s implementation of
planned corrective actions.
Prisoners erroneously claimed plug-in electric and alternative motor vehicle credits
We identified 29 prisoners who e-filed their tax returns and erroneously received $49,926 in plug-in electric and alternative motor vehicle credits. A plug-in electric and alternative motor vehicle must have been purchased or converted and placed in service during Tax Year 2009 and these individuals were incarcerated for all of Calendar Year 2009. In addition, another 59 prisoners attempted to erroneously claim $104,795 in plug-in electric and alternative motor vehicle credits. The IRS currently has a hold on these accounts to prevent refunds from being issued. However, these individual accounts have not been adjusted and most have not been referred to the Examination function.
Recommendations
The Commissioner,
Wage and Investment Division, should:
Recommendation
6:
Develop reject
codes to reject e-filed returns and implement an unallowable code for
paper-filed tax returns to ensure individuals are not erroneously claiming plug-in
electric and alternative motor vehicle credits for the same vehicle.
Management’s
Response: IRS management agreed with this recommendation. The IRS issued two Unified Work Requests on
November 18, 2010, for programming Unallowable Code 79 for e-filed and paper tax returns when taxpayers are claiming the
same vehicle for more than one credit. Because
the requested action will be subject to funding and resource prioritization by the
Modernization
and Information Technology Services organization, submission of the Unified
Work Requests will complete the corrective action.
Recommendation 7: Initiate actions to recover the $779,000 in plug-in electric and alternative motor vehicle credits claimed by 129 individuals the TIGTA identified as having erroneously claimed multiple credits for the same vehicle.
Management’s Response: IRS management agreed with this recommendation. The Wage and Investment Division Compliance function will work with the Small Business/Self-Employed Division to review these returns and open audits where warranted.
Recommendation 8: Develop processes to ensure prisoners do not receive erroneous plug-in electric and alternative motor vehicle credits. In addition, initiate actions to recover the $49,926 in plug-in electric and alternative motor vehicle credits erroneously claimed by 29 prisoners and ensure 59 prisoners with holds are referred to the Examination function.
Management’s
Response: IRS management agreed with this recommendation. The IRS will continue to check tax returns
against the prisoner database and refer them for examination. The IRS will also use existing math error
authority to reverse the credits or adjust the taxpayers’ accounts for the
prisoner claims mentioned in this report.
Where math error authority is not possible, the IRS will review and open
audits when warranted.
Appendix I
Detailed Objective, Scope, and Methodology
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. To accomplish our objective, we:
I. Determined if the IRS had adequate controls to identify erroneous plug-in electric and alternative motor vehicle credit claims at the time a tax return was processed.
II. Determined if the new tax law provisions were correctly implemented into tax return processing systems for e-filed tax returns with claims for the credit for certain plug-in electric vehicles, the alternative motor vehicle credit, and the qualified plug-in electric drive motor vehicle credit. We used computer analysis of 100 percent of the e-filed Tax Year 2009 individual income tax returns processed nationally on the Tax Return Data Base between January 1 and July 24, 2010,[9] to identify tax returns with plug-in electric and alternative motor vehicle credits and determined if they were processed correctly.
A. We electronically identified 69,496 individuals that claimed a plug-in Electric Vehicle Credit on Qualified Plug-in Electric and Electric Vehicle Credit (Form 8834), Conversion Kits Credit on Alternative Motor Vehicle Credit (Form 8910), and Qualified Plug-in Electric Drive Motor Vehicle Credit (Form 8936) or an Alternative Motor Vehicle Credit (Form 8910) on an e-filed tax return through July 24, 2010.
1. 2,769 individuals with claims on Form 8834.
2. 53,523[10] individuals with claims on Form 8910. Of these returns, 1,522 claims were made for plug-in electric conversion vehicles and 52,006 claims were made for nonconversion alternative motor vehicles.
3. 13,204 individuals with claims on Form 8936.
B. Determined whether the identified e-filed tax returns with claims for the credit for certain plug-in electric vehicles, the alternative motor vehicle credit, and the qualified plug-in electric drive motor vehicle credit had been processed correctly by:
1. Using computer analysis to determine if the qualifying year, the placed in-service date, and the make of vehicle met the established criteria for the individual to be eligible to claim the credit.
2. Using computer analysis to determine if an individual had used a vehicle for a double benefit or had questionable personal use credits by claiming five or more vehicles.
3. Using computer analysis to determine if prisoners incarcerated for the entire Calendar Year 2009 and IRS employees erroneously claimed the credit.
III.
Determined if the new tax law provisions were correctly
implemented into tax return processing systems for paper-filed tax returns with
claims for the credit for certain plug-in electric vehicles, the alternative
motor vehicle credit, and the qualified plug-in electric drive motor vehicle credit
by:
A. Using computer analysis of 100 percent of the Tax Year 2009 individual income tax returns processed nationally on the Individual Return Transaction File between January 1 and May 28, 2010,[11] to identify a population of 7,769 tax returns to select a sample.
B. Using an error rate of 13 percent, a confidence level of 95 percent, and a precision factor of ±4 percent, we selected a statistically valid sample of 263 paper tax returns. Of the 263 tax returns selected, 233 tax returns were available, which became our actual sample reviewed. This increased the precision factor to ±4.73 percent.
IV.
Evaluated the accuracy of the implementation of the Treatment
of alternative motor vehicle credit as a personal credit allowed against the AMT
by matching all of the identified erroneous claims against the Individual
Return Transaction File for AMT liability.
Internal
controls methodology
Internal controls
relate to management’s plans, methods, and procedures used to meet their
mission, goals, and objectives. Internal
controls include the processes and procedures for planning, organizing,
directing, and controlling program operations.
They include the systems for measuring, reporting, and monitoring
program performance. We determined the
following internal controls were relevant to our audit objective: the processes for planning, organizing,
directing, and controlling program operations for new tax legislation such as the
plug-in electric vehicle credits. We
also evaluated the controls that are incorporated directly into computer
applications to help ensure the validity, completeness, accuracy, and
confidentiality of transactions and data during application processing of tax
returns with these credits.
Appendix II
Major Contributors to This Report
Michael E. McKenney, Assistant Inspector
General for Audit (Returns Processing and Account Services)
Russell Martin, Director
Tina Parmer, Audit Manager
Kathleen Hughes, Senior Auditor
Steve Vandigriff, Senior Auditor
Kim McMenamin, Audit Evaluator
Martha Stewart, Information Technology
Specialist
Appendix III
Commissioner C
Office of the Deputy Commissioner – Attn: Chief of Staff C
Deputy Commissioner for Services and Enforcement SE
Deputy Commissioner of Operations, Wage and Investment Division SE:W
Deputy Commissioner of Services, Wage and Investment Division SE:W
Director, Business Modernization Office, Wage and Investment Division SE:W:BMO
Director, Customer Account Services, Wage and Investment Division SE:W:CAS
Director, Customer Assistance, Relationships, and
Education, Wage and Investment Division SE:W:CAR
Director, Electronic Tax Administration and
Refundable Credits, Wage and Investment Division SE:W:ETARC
Director, Strategy and Finance, Wage and Investment Division SE:W:S
Director,
Accounts Management, Wage and Investment Division SE:W:CAS:AM
Director, Field Assistance, Wage and Investment Division SE:W:CAR:FA
Director,
Director, Stakeholder Partnership, Education,
and Communications, Wage and Investment Division SE:W:CAR:SPEC
Director, Submission Processing, Wage and
Investment Division
SE:W:CAS:SP
Chief,
Program Evaluation and Improvement, Wage and Investment Division SE:W:S:PRA:
Chief Counsel CC
National Taxpayer Advocate TA
Director, Office of Legislative Affairs CL:LA
Director, Office of Program Evaluation and Risk Analysis RAS:O
Office of Internal Control OS:CFO:CPIC:IC
Audit Liaison: Chief, Program Evaluation and Improvement, Wage and Investment Division SE:W:S:PRA:PEI
Appendix IV
This appendix presents detailed information on the measurable impact that our recommended corrective actions will have on tax administration. These benefits will be incorporated into our Semiannual Report to Congress.
For all of the outcomes listed in this appendix, we conducted computer analyses of Calendar Year 2010 individual income tax returns. The returns were received by the IRS Submission Processing sites between January 1 and July 24, 2010.
Type and Value of Outcome Measure:
· Revenue Protection – Potential; $33 million from 12,920 individuals erroneously claiming plug-in electric and alternative motor vehicle credits on e-filed tax returns (see page 5).
Methodology Used to Measure the Reported Benefit:
We
used computer analysis to identify individuals who e-filed a tax return claiming plug-in and alternative motor vehicle
credits on Qualified Plug-in Electric and
Electric Vehicle Credit (Form 8834), Alternative Motor Vehicle Credit (Form
8910), and Qualified Plug-in Electric Drive Motor Vehicle Credit (Form 8936). We identified 12,920 individuals erroneously
claiming $33 million in these credits with nonqualifying vehicle years, nonqualifying vehicle in-service dates, and nonqualifying vehicle makes and models.
Type and Value of Outcome Measure:
· Revenue Protection – Potential; $5.3 million from 1,719 individuals erroneously reducing the amount of the AMT owed (see page 5).
Methodology Used to Measure the Reported Benefit:
From the 12,920 individuals who erroneously claimed plug-in or alternative motor vehicle credits, we identified 1,719 individuals who erroneously reduced the amount of AMT owed by almost $5.3 million.
Type and Value of Outcome Measure:
· Revenue Protection – Potential; $3.1 million from 930 individuals who submitted an e-filed tax return with erroneous plug-in vehicle credits. These credits were rejected after the IRS implemented new reject codes based on our recommendations during this review (see page 5).
Methodology Used to Measure the Reported Benefit:
Management agreed with our recommendations in an email alert,
and on March 29, 2010, implemented 5 new reject codes to reject e-filed tax returns with a vehicle year
and/or in-service date that do not meet the tax provision requirements for the
plug-in vehicle credits. In addition,
instructions were issued to tax examiners to enter a Computer Condition Code[12]
on paper-filed tax returns with disqualifying in-service dates and the credit
will be denied.
We estimate the implementation of these 5 reject codes resulted in revenue protection of an estimated $3.1 million from March 30, 2010, to July 24, 2010. This estimate is based on 930 e-filed tax returns that were rejected with these conditions using an average claim amount of $2,359 for 519 returns and an average claim amount of $4,669 for 411 returns.
Type and Value of Outcome Measure:
· Revenue Protection – Potential; $779,000 from 129 individuals erroneously claiming more than one plug-in vehicle credit for the same vehicle (see page 14).
Methodology Used to Measure the Reported Benefit:
We matched Form
8834, Form 8910, and Form 8936 and identified 129 individuals who included 142
vehicles that claimed a double benefit for the same vehicle.
Type and Value of Outcome Measure:
· Revenue Protection – Potential; $1.3 million from 14 individuals erroneously claiming 5 or more vehicles as a personal use credit (see page 14).
Methodology Used to Measure the Reported Benefit:
From all e-filed tax return claims for plug-in electric and alternative motor
vehicle credits, we identified 14 individuals claiming more than $1.3 million
in personal use credits for 5 or more vehicles.
Type and Value of Outcome Measure:
· Revenue Protection – Potential; $49,926 from 29 individuals who were prisoners (see page 14).
Methodology Used to Measure the Reported Benefit:
We identified 29 prisoners who e-filed their tax returns and erroneously received $49,926 in erroneous plug-in electric and alternative motor vehicle credits. These individuals were incarcerated for all of Calendar Year 2009.
Appendix V
Management’s Response to the Draft Report
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE
COMM1SSIONER
WAGE AND INVESTMENT DIVISION
December 17, 2010
MEMORANDUM FOR MICHAEL R. PHILLIPS
DEPUTY INSPECTOR GENERAL FOR AUDIT
FROM: for Richard Byrd. Jr. /s/ Peggy Bogadi
Commissioner, Wage and Investment Division
SUBJECT: Draft Audit Report
– Individual Received Millions of Dollars in Erroneous Plug-in Electric and
Alternative Motor Vehicle Credits (Audit #201040131)
We have reviewed the subject draft report and
appreciate your alerting us to several issues during this audit concerning the
processing of Plug-in Electric and Alternative Motor Vehicle Credits. As a
result, we are implementing some corrective actions immediately and will be
implementing the others as soon as possible.
We are updating Code and Edit and Error
Resolution System Internal Revenue Manuals (IRMs)[13] for the 2011 Processing Year (PY) to include
a check for the model year of the vehicle and the date the vehicle is placed in
service.
For PY 2011, Code and Edit will also do a
review of the make and model of vehicles to ensure taxpayers do not claim
clearly nonqualifying vehicles. In addition, we
requested that e-file software providers implement programming changes for
taxpayers to select the make, model, and year of these qualifying vehicles from
a drop down box to ensure that returns are complete and the information
provided by taxpayers substantiates the credit.
For PY 2012 (Tax Year 2011), we will revise
Form 8834, Qualified Plug-in Electric and
Electric Vehicle Credit, Form 8910, Alternative
Motor Vehicle Credit, and Form 8936, Qualified
Plug-in Electric Drive Motor Vehicle Credit, to add a new Line 2 requiring the
17-character alpha-numeric vehicle identification number (VIN) for qualifying
vehicles. Various characters in a VIN identify the make, model, and year of the
vehicle. This requirement is expected to increase taxpayer compliance with the
rules for qualifying vehicles.
For the 3,516 erroneous claims mentioned in
your report, we will use existing math error authority to reverse the credits
or adjust taxpayer accounts. Where math error authority is not possible we will
review and open audits where warranted. For the additional 9,621 claims you
identified as having erroneously claimed the credit for vehicles with a nonqualifying make and model, Wage and Investment Division
and Small Business/Self-Employed Division Compliance organizations will include
1,000 cases (500 for each operating division) in the Exam work plan. The
results of these audits will determine if additional audits are warranted.
We reviewed the outcome measures identified
in Appendix IV and agree with your assessment. Our comments to your recommendations
are attached. If you have any questions, please contact me, or a member of your
staff may contact Peter J. Stipek, Director, Customer
Account Services, Wage and Investment Division, at (404) 338-8910.
Attachment
Attachment
The Commissioner, Wage Investment Division, should:
RECOMMENDATION
1
Develop Error Resolution System procedures
for paper-filed tax returns to not allow plug-in electric vehicle credits when
individuals claim the credits for vehicles with nonqualifying
years.
CORRECTIVE
ACTION
We agree with this recommendation. Instructions will be issued to Code and Edit
tax examiners for the 2011 Filing Season to disallow claims for credits on
vehicles with model years earlier than 2009.
IMPLEMENTATION
DATE
January 15, 2011
RESPONSIBLE
OFFICIALS
Director, Submission Processing, Wage and
Investment Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system.
RECOMMENDATION
2
Initiate actions to recover the $4.5 million
in plug-in electric and alternative motor vehicle credits claimed by the 2,710
individuals the TIGTA identified as having erroneously claimed these credits.
CORRECTIVE
ACTION
We agree with this recommendation. We will use math error authority to reverse
the credit, or adjust the taxpayer’s account for the 2,710 individuals
identified by the Treasury Inspector General for Tax Administration (TIGTA) as
having erroneously claimed the plug-in electric and alternative motor vehicle
credits using a nonqualifying vehicle year.
IMPLEMENTATION
DATE
January 15, 2012
RESPONSIBLE
OFFICIALS
Director, Accounts Management, Wage and
Investment Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system.
RECOMMENDATION
3
Initiate actions to recover the more than
$1.4 million in plug-in electric and alternative motor vehicle credits claimed
by 589 individuals that the TIGTA identified as having erroneously claimed
credits for vehicles with nonqualifying in-service
dates.
CORRECTIVE
ACTION
We agree with this recommendation. We will use math error authority to reverse
the credit or adjust the taxpayer’s account for the 589 individuals identified
by TIGTA who erroneously claimed plug-in electric and alternative motor vehicle
credits for vehicles with an in-service date before January 1, 2009, or after
December 31, 2009.
IMPLEMENTATION
DATE
January 15, 2012
RESPONSIBLE
OFFICIALS
Director, Accounts Management, Wage and
Investment Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system
RECOMMENDATION
4
Develop a process to ensure individuals are
not erroneously claiming vehicles with nonqualifying
make and models. This could include developing a standardized system of codes
similar to those used in the instructions for Schedule C to identify vehicle
makes and models that qualify for plug-in electric and alternative motor
vehicle credits and/or require the Vehicle Identification Number[14] on the Forms 8834, 8936, and 8910.
CORRECTIVE
ACTION
We agree with this recommendation. For the
2011 Filing Season, Code and Edit tax examiners will perform a review of the
make and model of the motor vehicle claimed on Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit, Form 8936, Qualified Plug-in Electric Drive Motor
Vehicle Credit, and Form 8910, Alternative Motor Vehicle Credit, and
disallow any clearly nonqualifying vehicle. Starting
in the 2012 Filing Season, a new Line 2, Vehicle
Identification Number will be added to Forms 8834, 8936, and 8910.
IMPLEMENTATION
DATE
January 15, 2011 Code and Edit procedures
January 15, 2012 Forms revision
RESPONSIBLE
OFFICIALS
Director, Submission Processing, Wage and
Investment Division
Director, Tax Forms and Publications, Wage
and Investment Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system
RECOMMENDATION
5
Initiate actions to recover the $27.1 million
in plug-in electric and alternative motor vehicle credits claimed by 9,621
individuals the TIGTA identified as having erroneously claimed credit for
vehicles with a nonqualifying make and model.
CORRECTIVE
ACTION
We agree with this recommendation. The Wage
and Investment (W&I) Division Compliance Function will work with the Small
Business/Self-Employed (SB/SE) to include 1,000 cases in the Exam work plan.
The results of these audits will be used to determine whether additional audits
are warranted.
IMPLEMENTATION
DATE
January 15, 2012
RESPONSIBLE
OFFICIALS
Director, Reporting Compliance, Wage and
Investment Division
Director, Campus Reporting Compliance, Small
Business/Self-Employed Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system
RECOMMENDATION
6
Develop reject codes to reject e-filed returns and implement an
unallowable code for paper-filed tax returns to ensure individuals are not
erroneously claiming plug-in electric and alternative motor vehicle credits for
the same vehicle.
CORRECTIVE
ACTION
We agree with this recommendation. We submitted two Unified Work Requests (UWRs)
on November 18, 2010, for programming Unallowable Code 79 for e-filed and paper
tax returns when the taxpayer is claiming the same vehicle for more than one
credit. Since the requested action will be subject to funding and resource
prioritization by Modernization and Information Technology Services, submission
of the UWRs will complete the corrective action.
IMPLEMENTATION
DATE
November 18, 2010
RESPONSIBLE
OFFICIALS
Director, Submission Processing, Wage and
Investment Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system
RECOMMENDATION
7
Initiate actions to recover the $779,000 in
plug-in electric and alternative motor vehicle credits claimed by 129
individuals the TIGTA identified as having erroneously claimed multiple credits
for the same vehicle.
CORRECTIVE
ACTION
We agree with this recommendation. The
W&I Division Compliance Function will work with the SB/SE Division to
review these returns and open audits where warranted.
IMPLEMENTATION
DATE
January 15, 2012
RESPONSIBLE
OFFICIALS
Director, Reporting Compliance, Wage and
Investment Division
Director, Campus Reporting Compliance, Small
Business/Self-Employed Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system
RECOMMENDATION
8
Develop processes to ensure prisoners do not
receive erroneous plug-in electric and alternative motor vehicle credits. In addition, initiate actions to recover the
$49,926 in plug-in electric and alternative motor vehicle credits erroneously
claimed by 29 prisoners and ensure 59 prisoners with holds are referred to the
Examination function.
CORRECTIVE
ACTION
We agree with this recommendation. Returns will continue to be checked against
the prisoner database and referred for examination. For the prisoner claims
mentioned in your report, we will use existing math error authority to reverse
the credits or adjust taxpayer accounts. Where math error authority is not
possible we will review and open audits where warranted.
IMPLEMENTATION
DATE
January 15, 2012
RESPONSIBLE
OFFICIALS
Director, Compliance, Wage and Investment
Division
Director, Compliance, Small
Business/Self-Employed Division
Director, Accounts Management, Wage and
Investment Division
CORRECTIVE
ACTION MONITORING PLAN
IRS will monitor this corrective action as
part of our internal management control system
[1] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[2] Pub. L. No. 111-5, 123 Stat. 115 (2009).
[3] Verifying Eligibility for Certain New Tax Benefits Was a Challenge for the 2010 Filing Season (Reference Number 2010-41-128, dated September 30, 2010).
[4] We were unable to track credit amounts received by individuals because Line 53 on Form 1040 is recorded by the IRS as a combined total of at least 10 different credits from which we cannot extract specific data. However, based on information provided by the individuals on their tax returns, they did not qualify for the plug-in electric vehicle and/or alternative motor vehicle credit they claimed.
[5] Average claim amount was calculated by dividing the total amount of credits claimed with Forms 8834 and 8936 by the number of unique individuals claiming credits with Forms 8834 and 8936.
[6] Computer Condition Codes are assigned by tax examiners or are computer generated and are used to identify a special condition or computation for the computer.
[7] Average claim amount was calculated by dividing the total amount of credits claimed with Forms 8834, 8910, and 8936 by the number of unique individuals claiming credits with Forms 8834, 8910, and 8936.
[8] A Vehicle Identification Number is a unique serial number used by the automotive industry to identify individual motor vehicles.
[9] To assess the reliability of computer-processed data, programmers in the TIGTA Office of Information Systems validated the data that were extracted, and we verified the data with appropriate documentation. Judgmental samples were selected and reviewed to ensure that the amounts presented were supported by external sources. As appropriate, data in the selected data records were compared to the physical tax returns to verify that the amounts were supported.
[10] Five individuals claimed both a plug-in conversion and an alternative motor vehicle on Form 8910
[11] To assess the reliability of computer-processed data, programmers in the TIGTA Office of Information Systems validated the data that were extracted, and we verified the data with appropriate documentation. Judgmental samples were selected and reviewed to ensure that the amounts presented were supported by external sources. As appropriate, data in the selected data records were compared to the physical tax returns to verify that the amounts were supported.
[12] Computer Condition Codes are assigned by tax examiners or are computer generated and are used to identify a special condition or computation for the computer.
[13] IRM 3.11.3, Returns and Document Analysis, Individual Income Tax Returns, for Code and Edit and IRM 3.11.12, Error Resolution, Individual Income Tax Returns for ERS.
[14] A Vehicle Identification Number is a unique serial number used by the automotive industry to identify individual motor vehicles.