Audit: IRS oversight lacking in tax deduction for cars

The IRS did not verify whether some individuals who claimed a tax deduction included in the stimulus package for buying a new vehicle actually did so, a new government report has found.

The stimulus package, signed into law in 2009, allowed taxpayers to deduct state sales taxes and excise taxes on certain cars, trucks, motorcycles and motor homes purchased between February and December of that year.

But according to the Treasury Department’s inspector general for tax administration, the IRS was not able to verify whether a new vehicle was purchased, when it might have been bought, how much it cost or how much the buyer paid in state sales taxes or excise taxes. 

In all, the inspector general reported that the IRS did not indentify more than 4,200 taxpayers who claimed excessive deductions, to the tune of more than $150 million. Another 473 individuals wrongly received roughly $1 million from the deduction because the IRS failed to identify that they were either dead, in prison or underage.

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

With the deduction having expired, the tax administration inspector general urged the IRS to put in tighter controls if a similar measure is enacted in the future, including requiring more documentation from taxpayers. The office also recommended that the agency take another look at more than 1,300 taxpayers who claimed the deduction in 2010, which the IRS said it would do.