WASHINGTON (AP) - The IRS did not require proof from people claiming deductions for new vehicle purchases allowed under the 2009 economic stimulus act, and has been slow to investigate claims for excessive deductions, according to a government watchdog report.
The IRS did not require third-party documentation of vehicle purchases or the amount of sales tax paid when taxpayers claimed deductions on their 2009 returns, the Treasury Inspector General for Tax Administration said in a report issued Wednesday.
It said the IRS also failed to identify and halt possibly erroneous refunds for 4,257 individuals who claimed $151.1 million in deductions in excess of what the IRS considered allowable.
Finally, the report said it had found 473 individuals who erroneously were granted about $1 million in deductions. Of those, 439 were in prison, 18 were under the age of 15 and 16 were dead.
"It is imperative that the IRS address the weaknesses identified in this report," said Treasury Inspector General for Tax Administration J. Russell George.
The IRS issued a statement saying that "while no amount of fraud is acceptable, more than 4.3 million taxpayers claimed more than $7.2 billion in qualified motor vehicle deductions and only a small percentage involved questionable claims. In instances where there are questionable deductions, the IRS will take steps to review the claims and conduct audits as warranted."
Under the stimulus act, people buying cars, light trucks, motorcycles or motor homes between Feb. 16, 2009, and Jan. 1, 2010, received an additional deduction for state sales and excise taxes. The deductions were limited to the first $49,500 of a new vehicle purchase and were phased out for higher income people.
The inspector general said his office had identified 2,933 individuals who through May 28, 2010 had claimed almost $96 million in excessive deductions on itemized returns. He said that as of Dec. 15, 2010, the IRS had not verified the accuracy of these deductions and had said a review of these excessive claims would not begin until July, 2011. Another 462 who filed between May 29 and Nov. 12, 2010, claimed $28 million above allowable levels.
The report also identified another 862 suspicious deductions claimed on standard, non-itemized returns worth about $27 million that were not sent to tax examiners for verification.