Complex tax break on hybrids causes headaches for IRS

Some taxpayers erroneously claimed an alternative motor vehicle credit on leased cars, tried to claim it for cars that did not qualify, or claimed more than the maximum $3,150, according to a new government report.

"We reviewed claims for Alternative Motor Vehicle Credits of more than $4,000 each claimed by 420 taxpayers who filed their returns electronically. We found 15 percent of these taxpayers (61 of the 420) either claimed non-qualifying vehicles, claimed qualifying vehicles at amounts higher than the amount allowed, or did not provide the required data to support their claim," said an audit report released Monday by the Treasury Inspector General for Tax Administration (TIGTA). "Nevertheless, their claims were allowed by the IRS." Among the claims were two recreational vehicles. Twenty-one of the taxpayers made claims for $1.8 million more than they should have, reducing their tax liabilities incorrectly by $33,156, the report said.

The complexity of the Alternative Motor Vehicle Credit, designed to provide incentives for taxpayers to "go green" by buying energy-efficient vehicles, created some confusion. The form (8910) and instructions did not clearly inform taxpayers that the credits applied only to vehicle owners. In a sample of three states' records, 22 percent of taxpayers who leased vehicles erroneously claimed a total of $37,731 in credits, the report said. The IRS quickly fixed the documents after TIGTA raised the issue.

"The erroneous claims for the credit were allowed because the IRS did not establish sufficient controls during the processing of tax returns to ensure that claims were only allowed for qualified vehicles, and that the amounts claimed were correct," according to the report.

The report also said some taxpayers did not provide the needed paperwork to support their claims.

The credit is phased out over time after 60,000 vehicles are sold. The law requires taxpayers to provide the IRS with documentation regarding how much of the credit they are entitled, based on sales figures at the time they bought the car, although manufacturers were not required to provide the IRS with similar documentation. The onus is on the taxpayer, the report said.

TIGTA recommended the IRS establish criteria to select questionable claims for review. Legislation requiring the seller to provide the purchaser and the IRS with documentation may be considered, the report said. The IRS agreed with the recommendations.

The Joint Committee on Taxation estimated that the tax could save taxpayers who bought qualified vehicles $874 million in taxes over the next decade.

You may like these other stories...

Hertz withdraws full-year forecast, cites accounting review, challengesRental car company Hertz Global Holdings Inc. said on Tuesday it is withdrawing its full-year financial forecast and expects 2014 results to be “...
Treasury prepares options to address tax inversionsDamian Paletta of the Wall Street Journal reported on Monday that US Treasury Department officials are assembling a list of administrative options for Treasury Secretary...
Deloitte CEO Joe Echevarria to retire to pursue public serviceMichael Rapoport of the Wall Street Journal reported that Deloitte LLP CEO Joe Echevarria plans to retire later this month to pursue his interest in public...

Already a member? log in here.

Upcoming CPE Webinars

Aug 21
Meet budgets and client expectations using project management skills geared toward the unique challenges faced by CPAs. Kristen Rampe will share how knowing the keys to structuring and executing a successful project can make the difference between success and repeated failures.
Aug 26
This webcast will include discussions of recently issued, commonly-applicable Accounting Standards Updates for non-public, non-governmental entities.
Aug 28
Excel spreadsheets are often akin to the American Wild West, where users can input anything they want into any worksheet cell. Excel's Data Validation feature allows you to restrict user inputs to selected choices, but there are many nuances to the feature that often trip users up.
Sep 9
In this session we'll discuss the types of technologies and their uses in a small accounting firm office.