Treasury Inspector General for Tax Administration
April 02, 2014
TIGTA - 2014-04
Contact: David Barnes
WASHINGTON -- The Internal Revenue Service (IRS) needs to strengthen its processes to ensure manufacturer compliance with requirements for receiving the Qualifying Advanced Energy Project Credit (Advanced Energy Credit), according to a report publicly released today by the Treasury Inspector General for Tax Administration (TIGTA).
The American Recovery and Reinvestment Act of 2009 (the Recovery Act) established the Advanced Energy Credit to encourage development of a manufacturing base to support renewable energy industries. The Recovery Act authorized $2.3 billion in Advanced Energy Credits to be allocated to manufacturers for qualified projects.
TIGTA assessed the effectiveness of IRS efforts to ensure manufacturer compliance with Advanced Energy Credit requirements.
TIGTA found the IRS ensured that manufacturers complied with agreement and certification requirements. For those projects that did not meet the requirements, the IRS appropriately considered the credits allocated to the project as forfeited, issued forfeit letters to the manufacturers, and accounted for the $150 million in Advanced Energy Credits allocated to those projects.
However, while the IRS developed a Compliance Initiative Project that identified business taxpayers who were erroneously claiming the credit, it does not have a similar process to identify individual taxpayers who are erroneously claiming it. TIGTA identified 1,149 individual taxpayers who claimed more than $3 million in Advanced Energy Credits for Tax Year 2011 and did not appear to have a business relationship with a manufacturer that was awarded the credit.
Finally, the IRS did not consistently evaluate project location changes to determine if the changes were significant enough to warrant credit forfeiture. Geographic diversity and regional economic development were two of the four criteria used by the Department of Energy in awarding the credits. Further, the IRS does not have procedures to verify whether manufacturers are reporting significant changes in product plans.
“Processes to identify and evaluate significant changes to projects, such as the project’s location, are essential to determine whether the manufacturer changes are significant enough to result in the forfeiture of the credit,” said J. Russell George, Treasury Inspector General for Tax Administration.
“While the IRS established processes to ensure manufacturer compliance with requirements for receiving the Advanced Energy Credit, these processes can be strengthened to ensure that only eligible manufacturers receive the credit.”
TIGTA recommended that the IRS develop processes to ensure that changes in projects are fully evaluated and that all projects are placed into service at the locations specified in the manufacturers’ agreement. In addition, the IRS should develop a process to verify that individuals claiming the Advanced Energy Credit are entitled to the credit. The IRS agreed with TIGTA’s recommendations and is planning to take appropriate action.
Read the report.
Note: The difference between the date TIGTA issues an audit report to the Internal Revenue Service and the date TIGTA publicly releases the report is due to TIGTA's internal review process to ensure that public release is in compliance with Federal confidentiality laws.
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