TIGTA: IRS Has No Process to Determine If Electric Vehicle Credits Go to Right People

Chris Gaetano
Published Date:
Oct 3, 2019

While the U.S. government has given millions of dollars in tax credits for plug-in electric vehicles, the Treasury Inspector General for Tax Administration (TIGTA) said that the IRS has no process for determining if any of the people receiving those credits actually qualify for them.

In order for taxpayers to qualify for the credit, which is worth up to $7,500, their vehicle must:

* Have an electric motor that uses a rechargeable battery to generate at least four kilowatt-hours of capacity.

* Be made by an eligible manufacturer under the Clean Air Act.

* Be acquired for use or lease and not for resale

* Be appropriate for driving on public streets and highways.

* Have a weight rating of under 14,000 pounds.

Additionally, the original use of the vehicle must have commenced with the taxpayer claiming the credit. This taxpayer must also be the owner of the vehicle. If the vehicle is leased, only the lessor (and not the lessee) is entitled to the credit.

The credit was first instituted in 2008, then expanded in 2009. TIGTA said that, between 2014 and 2016 alone, the IRS has processed 16,510 potentially erroneous returns applying for the credit, awarding a total of $73.8 million to taxpayers. In addition, 1,509 tax returns yielded taxpayers more than $8 million, and 68 returns yielded about $1 million. 

While the IRS uses vehicle identification numbers (VINs) to determine whether a vehicle qualifies for the credit, TIGTA said that its analysis of returns has found many getting it through vehicles that clearly do not fit the necessary criteria. This is at least partially due to the IRS lacking adequate controls to process or analyze them. While much of the information as to how taxpayers are erroneously claiming the credit is redacted in the report, leasing entities are frequently mentioned, indicating that at least some taxpayers are trying to claim the credit for leased vehicles. Another issue appears to be that people are claiming the credit after the phase-out period (the credit is meant to phase out after 200,000 sales per manufacturer) but there were heavy redactions here as well.

TIGTA recommended that the IRS use VINs provided by taxpayers on their tax returns and readily available third-party VIN information to identify taxpayers who are claiming the credit for, apparently, small businesses and self-employed people. While that part was redacted in the recommendation, the IRS responded it would do so and "plans to use data analytics to determine the size and scope of the noncompliance of the Plug-in Credit for Small Business/Self-Employed taxpayers."

TIGTA also recommended that the IRS develop a compliance program to address the taxpayers who appear to have erroneously received the Plug-In Credit; use available vehicle VIN listings submitted by leasing entities to claim a Plug-In Credit to perform a computer analysis to identify individual taxpayers claiming a credit; and update Examiner Lead Sheets to provide guidance to examiners to review the Plug-In Credit, along with information on VIN characteristics. The IRS agreed with all recommendations.

Click here to see more of the latest news from the NYSSCPA.