The Internal Revenue Service (IRS) wrongly granted $73.8 million of electric vehicle (EV) tax credits for 16,510 tax returns that made fraudulent or mistaken claims for the credits between 2014 and 2018, a new report by the U.S. Treasury Department’s Inspector General for Tax Administration (TIGTA) states.
The TIGTA report makes clear individual filers and the IRS share the blame for these millions of dollars in wrongly granted tax credits. The IRS has, at present, no way of ensuring those claiming the electric-car tax credit aren’t doing so improperly—whether individuals claimed the credit without purchasing an EV, claimed it more than once, or claimed more money than they were allowed. IRS’s instructions for filing the claim are unclear and inadequate, TIGTA’s report says.
Decade of Subsidies
The Qualified Plug-In Electric Drive Motor Vehicle Credit, created in 2008 and amended in 2009, provides for a tax credit of $2,500, plus $417 for vehicles drawing propulsion from batteries with at least five kilowatt hours of capacity, plus an additional $417 for each kilowatt hour of battery capacity in excess of five kilowatt hours.
The maximum amount of the credit allowed for a fully electric vehicle is $7,500.
Under the law, the EV tax credit declines and eventually is eliminated once a manufacturer has sold 200,000 qualifying vehicles for use in the United States. During the first six months of the phaseout, purchasers are entitled to half the credit, and this drops to 25 percent in the second six months, after which it lapses entirely.
No Credit for Lessees
The TIGTA audit found the IRS does not have effective processes to identify and prevent erroneous EV tax credit claims. Many of these wrongful claims are attributed to leased vehicles, as lessees do not qualify for the credit. The financial institution gets the credit because it owns the leased car.
The IG’s office recommends the agency take four steps to prevent future fraud, including a requirement the IRS use the vehicle identification numbers (VIN) reported by taxpayers to verify claims’ validity.
Fraud, or Ignorance?
Taxpayers claiming the EV credit for vehicles they leased probably misunderstand the law and are not trying to commit fraud, says Nick Loris, deputy director of the Heritage Foundation’s Thomas A. Roe Institute for Economic Policy Studies.
“I do believe it was more ignorance than fraud,” said Loris. “My guess is customers have been attracted to lease EVs with a subsidized rate, not knowing that the tax subsidy was already baked into the lease.
“I don’t know if false claims come from IRS incompetence, tax filers not properly filling out forms, or a combination of both,” Loris said.
Loris says the problems with this program show the government has learned nothing from previous mistakes in other energy subsidy programs.
“What is most frustrating is that we’re repeating past mistakes,” said Loris. “Customers erroneously took advantage of alternative fuel tax credits from Obama’s stimulus plan. But following recommendations from a 2011 TIGTA report, the IRS did in fact require customers to list the vehicle year and VIN number on tax returns.”
The federal government should not reauthorize the flawed EV tax credit program, not just because it engenders fraud but because the government should not intervene in private transportation decisions, says Robert Bradley, CEO of the Institute for Energy Research.
“The flawed administration of this tax credit is just one reason not to reauthorize the electric vehicle tax credit program,” said Bradley. “Yet the proposed Driving America Forward Act would raise the sales cap to 600,000 with a slight decrease in the credit to $7,000 per vehicle beyond the first 200,000.
“BMW, Fiat Chrysler, Ford, General Motors, Honda, Tesla, Toyota, and Volkswagen, as well as environmental groups and electric utilities, all unsurprisingly support the expansion and reauthorization of the program because they benefit from it,” Bradley said.
Loris agrees the government should stay out of these consumer decisions.
“All else being equal, the market should determine the fate of electric vehicles,” Loris said. “The federal government shouldn’t be nudging consumers into certain vehicles with tax credits and fuel economy mandates.”
Favors for the Powerful
Bradley says the EV tax credit and other federal and state programs directing peoples’ transportation choices mostly benefit large, politically connected corporations and high-income individuals, at the expense of the average taxpayer.
“Among the programs benefitting the relatively wealthy are state rebates, reduced registration fees, carpool lane access, and other programs that apply in 44 states and the nation’s capital, as well as federal R&D monies for ‘sustainable transportation’ averaging about $700 million a year,” said Bradley. “In addition, 13 states use California’s zero-emission vehicle program to force the public to use politically correct transportation, and gasoline and diesel vehicles pay taxes to build and maintain roads and bridges, but few states charge comparable fees for the impact of electric vehicles on roads and associated infrastructure.
“Just as proponents of wind and solar to generate electricity claim their technologies are futuristic and what the public really wants, EV interests pretend theirs is new, just needing a little more subsidy and time,” said Bradley. “Far from being an infant industry, EVs are mature, deficient alternatives to conventional vehicles, as consumers consistently judge with their purchases. It’s time to level the playing field, end EV tax credits and other such support, and let the market decide.”
Duggan Flanakin ([email protected]) writes from Austin, Texas.
“Millions of Dollars on Potentially Erroneous Qualified Plug-In Electric Drive Motor Vehicle Credits Continue to Be Claimed Using Ineligible Vehicles,” U.S. Department of Treasury, September 30, 2019: https://heartland.org/publications-resources/publications/millions-of-dollars-in-potentially-erroneous-qualified-plug-in-electric-drive-motor-vehicle-credits-continue-to-be-claimed-using-ineligible-vehicles