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Audit Finds IRS Lacks Adequate Control on Energy Tax Credits

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May 18 (Bloomberg) -- The Internal Revenue Service hasn’t put in place effective procedures to prevent ineligible taxpayers from claiming tax credits for energy-efficient windows, doors and geothermal heat pumps, said a government audit released today.

Auditors sampled 150 tax returns and found no record of homeownership associated with 30 percent of that group. The auditors also found instances in which prisoners or people too young to purchase a house were claiming the credits.

For tax year 2009, taxpayers claimed more than $5.8 billion of the energy credits, which were included in the 2009 economic stimulus law, according to the audit.

“I am troubled by the IRS’s continued failure to develop appropriate verification methods for distributing Recovery Act credits,” said J. Russell George, the Treasury Department’s inspector general for tax administration, or TIGTA.

In its written responses to the audit, the IRS said it would change tax forms to require more information about credit eligibility and would review a sample of the returns filed by prisoners and underage people.

“Upon further review, many of the potentially erroneous claims that TIGTA identified in this report were actually legitimate claims by taxpayers that were entitled to the credit,” Michelle Eldridge, chief of IRS media relations, said in an e-mailed statement. “The IRS continues to audit claims as warranted.”

Tax Incentives

The audit covered two types of credits. One was a 30 percent credit, capped at $1,500 for energy-efficient products such as insulation, windows and doors. The other was an uncapped credit for alternative energy equipment such as a geothermal heat pump or solar hot water heater.

Lawmakers included the provisions to achieve the dual purposes of injecting money into the economy and encouraging taxpayers to invest in energy-efficient products.

“What we want to do is create incentives that stimulate consumer spending, because folks buy materials from home-improvement stores like this one, which then buys them from manufacturers,” President Barack Obama said in a 2009 speech at a Home Depot Inc. store in Alexandria, Virginia.

“It spurs hiring because local contractors and construction workers do the installation,” he said. “It saves consumers money -- perhaps hundreds of dollars off their utility bills each year -- and it reduces our energy consumption in the process.”

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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