The Internal Revenue Service cannot verify whether individuals claiming a Qualified Motor Vehicle tax deduction are entitled to a deduction at the time their tax returns are processed.

A new report from the Treasury Inspector General for Tax Administration found that the IRS failed to identify 4,257 individuals who claimed a total of more than $151.1 million in excessive QMV deductions. Identification of those individuals might have prevented the issuance of erroneous tax refunds.

TIGTA also identified 473 individuals who erroneously received about $1.02 million in QMV deductions because the IRS did not have processes to identify that the individuals were in prison, deceased, or underage. The findings were based on a review of a statistically valid sample of 150 individuals who were allowed a QMV deduction of less than the amount the IRS considers excessive, indicating that some individuals may have erroneously been allowed QMV deductions for vehicles that were not purchased.

Individuals do not have to provide any third-party documentation to support that they actually purchased a qualified motor vehicle and, if a qualified vehicle was purchased, the amount paid in sales and excise taxes.

The American Recovery and Reinvestment Act provides individuals with a QMV deduction, which is an additional deduction for state sales tax and excise tax on the purchase of automobiles and light trucks purchased after Feb. 16, 2009, and before January 1, 2010. The QMV deduction expired Dec. 31, 2009.

TIGTA reviewed the effectiveness of the IRS’s efforts to identify individuals erroneously claiming a QMV deduction.

“It is imperative that the IRS address the weaknesses identified in this report,” said TIGTA Inspector General J. Russell George in a statement. “These are taxpayers’ dollars, and the Service must ensure that only those who deserve this and other tax benefits receive them.”

TIGTA made five recommendations, including reviewing the excessive and questionable claims identified during the audit. The IRS agreed with all five of the recommendations. The IRS plans to review all of the cases TIGTA identified. Those cases warranting examination will be selected for audit. The IRS also plans to revise the Internal Revenue Manual procedures for the Tax Examiners reviewing QMV deductions.

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