Thursday, May 26, 2011

IRS Unable To Verify Whether Individuals Claiming Residential Energy Credits Are Entitled To Them

IRS is unable to verify whether individuals claiming Residential Energy Credits are entitled to them at the time their tax returns are processed, the Treasury Inspector General for Tax Administration (TIGTA) said in an audit released on May 18. (Audit Report No. 2011-41-038) According to TIGTA, some 6.8 million individuals claimed $5.8 billion in Residential Energy Credits on tax year 2009 tax returns processed through Dec. 31, 2010. The agency “does not require individuals to provide any third-party documentation supporting the purchase of qualifying home improvement products and/or costs associated with making energy efficiency improvements and whether these qualified purchases and/or improvements were made to their principal residence,” the audit said. Using a statistically valid sample of 150 tax returns, TIGTA was unable to confirm home ownership for 45 (or 30%) of the taxpayers. Home ownership is required to claim Residential Energy Credits. Auditors also identified 362 ineligible individuals who were allowed to erroneously claim $404,578 in Residential Energy Credits on their tax returns. “These individuals were allowed to erroneously claim these credits because the IRS did not develop a process to identify prisoners or individuals under the age needed to enter into a contract to purchase a residence,” the audit said. It noted that the agency has data that could have been used to identify these erroneous deductions. TIGTA included in its recommendations that a revision be made to Form 5695, Residential Energy Credits, to request specific information to establish that key eligibility requirements are met. The report can be found at

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