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Tax cheats attack car credits

By Claes Bell · Bankrate.com
Saturday, February 5, 2011
Posted: 8 am ET

Memo to tax cheats out there: Don’t try to claim an electric car tax credit when you buy a Dodge Durango.

From the Associated Press:

A Treasury Department inspector general report says nearly 13,000 taxpayers erroneously claimed about $33 million in credits for plug-in electric and alternative vehicles during the first six months of 2010. The inspector general says about 20 percent of the $163.9 million in credits provided to taxpayers were claimed in error.

It gets worse:

But Treasury Department review found problems with thousands of taxpayers claiming the credits for cars that failed to qualify. For example, some car owners tried to claim the $7,500 credit for their Hummer H3, Dodge Durango or Cadillac Escalade. Someone claimed it for a golf cart.

The report said some IRS employees erroneously claimed the credits. They were referred to the department's Office of Investigations for further review.

Even prisoners tried to take advantage. The inspector general found that 29 prisoners received $49,926 in vehicle credits even though they were incarcerated throughout 2009.

This story underscores the problem with trying to promote preferred market outcomes through tax credits: Any number of morons can erroneously claim the credit, shorting the taxpayers millions of dollars and forcing the Internal Revenue Service to chase them down.

While I think encouraging the ownership of electric cars is an admirable goal, there has to be some better way.

Any ideas? Why not just a subsidy direct to the automaker for each electric car sold, allowing them to just go ahead and lower the sticker price by that amount?

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7 Comments
Dane
February 10, 2011 at 11:55 am

Mark, firstly, coal only accounts for about 14% of American energy production (http://www.eia.doe.gov/cneaf/electricity/epa/epat2p2.html). Admittedly, non-renewable fuel sources do make up the lion's share of our energy production, but at least some parts of government (particularly the executive branch) are trying to encourage green energy production. There are grants available for both green technology and green energy production. The electric car is simply a way to make it possible for cars to be more environmentally sound, not a guarantee that they will be.

Incidentally, I agree that corn-based ethanol is a sham.

Shantique
February 07, 2011 at 10:02 am

We all know lowering costs for businesses (especially big business) does nothing to affect what the consumer pays. It's just another way to line their pockets.

Maybe the best answer would be the Fair Tax. This would make it impossible for people to claim false credits. People would pay taxes only on the things they buy and we could get rid of the IRS and their mind-numbing "rules" altogether. There's BILLIONS of tax payer dollars saved!

mark
February 06, 2011 at 4:51 pm

Or how about no tax credits.

Electric cars are actually powered by coal plants that generate electricity. This and corn based ethanol are a shell game lie being paid by taxpayers.

Claes Bell
February 05, 2011 at 6:27 pm

Couple of good points there. I think you're right that an unnoticed tax credit wouldn't be as effective, and I would worry the manufacturer would just pocket the subsidy. Back to the drawing board I guess :-) .

Dane
February 05, 2011 at 11:29 am

I can think of one reason to give tax credits to individuals and not to the manufacturers. If individuals get the tax credit, the incentive is more clearly recognizable than if it's bundled in the sticker price -- even if the difference is the same, it feels like a better deal. The other thing is that subsidizing the manufacturer by $X per car doesn't in itself guarantee a decrease in sticker price of $X per car, so the incentivizing effect may get watered down.