IRS Misfired on Plug-in Tax Credit Claims, U.S. Government Audit Discovers

About 20 percent of U.S. tax credits for plug-in electric vehicles and alternative-fuel vehicles were filed in error, according to a government audit.

The credits are important to companies such as General Motors Co. and Nissan Motor Co., which have entered the plug-in market with the $41,000 Chevrolet Volt and the $32,780 Nissan Leaf, respectively. Buyers of those vehicles can claim up to $7,500 from the federal government, and the companies are relying on the credits to be competitive on price with gasoline- based models.

Most of the erroneous credits, according to the audit, went to taxpayers who sought benefits for vehicles such as Hyundai Motor Co.’s Sonata and GM’s Buick Enclave that didn’t qualify for tax breaks. Prisoners and IRS employees were among those who erroneously claimed credits.

The 20 percent error rate means that about $33 million in credits were claimed in the first seven months of 2010 by taxpayers who shouldn’t have received the money from the Internal Revenue Service, according to the Treasury Inspector General for Tax Administration, which released the report.

“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,” said J. Russell George, the inspector general.

Photographer: Jeff Kowalsky/Bloomberg

A Chevrolet Volt is charged at a public electric vehicle charging station. Close

A Chevrolet Volt is charged at a public electric vehicle charging station.

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Photographer: Jeff Kowalsky/Bloomberg

A Chevrolet Volt is charged at a public electric vehicle charging station.

Automatic Rejection

In particular, the IRS disagreed with auditors’ recommendations to automatically reject credit claims for ineligible vehicles.

Agency officials said such a step would reduce the number of tax returns that could be handled per hour and would be best managed after returns were processed, according to the audit.

IRS spokesman Grant Williams said the agency’s approach to tax incentives from the 2009 stimulus law seeks to balance quick processing with accuracy.

“The IRS took immediate action to put additional protections in place to stop improper vehicle payments,” he said in a statement today. “We are also taking steps to recapture the credits people erroneously claimed.”

The tax credits are part of the Obama administration’s efforts to have 1 million advanced-technology vehicles on the road by 2015. Obama isn’t likely to achieve that goal, according to a study by the Indiana University School of Public and Environmental Affairs.

Michigan Representative Sander Levin, the top Democrat on the tax-writing House Ways and Means Committee, has introduced a bill that would expand the per-manufacturer cap on the $7,500 plug-in credit from 200,000 to 500,000.

In addition to the credits for plug-in cars, tax credits were available through 2010 for alternative-fuel vehicles such as the version of Honda Motor Co.’s Civic that is powered by natural gas and natural gas truck engines made by Cummins Westport Inc., a joint venture of Cummins Inc. and Westport Innovations Inc.

To contact the reporter on this story: Richard Rubin in Washington at rrubin12@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net

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