Thursday, June 9, 2011
The American Recovery and Reinvestment Act of 2009 (Recovery Act) provides individuals with a Qualified Motor Vehicle (QMV) deduction, which is an additional deduction for State sales tax and excise tax on the purchase of certain motor vehicles. The amount of the QMV deduction reduces an individual’s taxable income and taxes owed. The QMV deduction is phased out for individuals with a modified AGI between $125,000 and $135,000 for single individuals and between $250,000 and $260,000 for married individuals filing a joint tax return. Individuals with modified adjusted gross income equal to or above the phase-out amounts are not eligible for the QMV deduction. Figure 1 shows the number of individuals claiming the QMV deduction by schedule type and the amounts allowed through November 12, 2010.
Figure 1: QMV Deductions for Tax Year 2009
Total QMV Deductions
The IRS cannot verify whether individuals claiming a QMV deduction are entitled to the deduction at the time their tax returns are processed. The reason is that 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. Based on our review of a statistically valid sample of 150 individuals allowed a QMV deduction of less than the amount the IRS considers excessive, it appears that some individuals may have erroneously been allowed QMV deductions for vehicles that were not purchased.
In addition, the process to identify potentially erroneous QMV deductions is not effective. The IRS failed to identify 4,257 individuals claiming what the IRS defines as an excessive QMV deduction during tax return processing so it could hold and prevent the possible issuance of erroneous tax refunds. These individuals claimed a total of more than $151.1 million in QMV deductions. TIGTA also identified 473 cases for which information that the IRS maintains identifies the individuals as ineligible to claim about $1.02 million in QMV deductions they were allowed. These individuals were in prison, deceased, or underage.